PART 13. SUPPLY CHAIN LOGISTICS – COMPLEXITY AS RISK

This series presents A LEADERSHIP STRATEGY, as the subtitle indicates. They use Supply Chain and Logistics as the focal point for discussing contextual leadership in the face complexity, randomness, risk, flexibility, agility and non-rational decision making. In them I discuss the multi-dimensional approach to leadership: what is leadership? How do we lead? What is our capacity to lead? And specifically, they look at leadership from the perspectives of risk, ambiguity, uncertainty, beyond command and control process management.

Complexity demands leaders to think strategically. Strategic thinkers are contextual leaders who realize

·        that there are no simple solutions;

·        that there are many options and different strategies to be implemented, depending on the context;

·        that whatever the plan, reality is unpredictable.

Contextual leaders have the capacity to exploit business moments and operational events in a way that enables them to make informed decisions and take effective action in varied, changing and uncertain situations. They are prepared for the “what if”. They are resilient.

Experiencing a “touch of overwhelm”, where do we begin? The clichéd answer is: Eat the elephant one bite at a time when dealing with an overwhelming task.

But think about it: what if that whole elephant was actually sitting in front of you? And what if you started eating it one bite at a time? It would go bad quickly. It would rot and stink up the neighborhood. And by consuming this elephant that way, you would get sick of it, since even the most delicious food will get tiring after a time.

Yet, the challenge remains in the face of complexity: How do we eat an elephant so that it doesn’t go bad and we don’t get sick of it? Hack it up and have a party. Cut it up into big parts and invite everyone to join in. In other words, collaborate, outsource, partner, distribute and “federate”. Go from serial analysis and decision making [one step at a time] to parallel actions [every part at the same time].

Step-by-step decision-making is a reductionist simplification of complexity. Complexity is multi-dimensional. SCL is an organic, holistic eco-system where each part is critically integral to all parts, and the whole is bigger than each of those parts. Given that SCL is complex, then a SCL resilience strategy must be dynamic in its ability handle ambiguity, uncertainty, and the complexities of each part and the whole at the same time.

We must plan and think collaboratively, recognizing that all parts demand both specific attention and relational attention: what do we need to do with respect to each issue? How do issues collide in such ways that our solutions need to account for the multiplicity of considerations?

Like a symphony orchestra, where players are grouped – strings [violin, viola, cello, base], brass [trumpet, trombone], woodwinds [oboe, clarinet], percussion [snare drums. kettledrums, cymbals], in a business ecosystem, there are multiple environments in which businesses operate. Different from the orchestra sections, however, these business environments are external to the organization, yet simultaneously critical to the success of that organization and its operations.

Technically, we can define a business environment as: The sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but the business still depends upon them as they affect the overall performance and sustainability of the business. Less technically but more cogently, an environment is everything we depend on.

There are two types of external environments that businesses operate in and interact with

·        External Micro Environments

o  Suppliers who supply inputs such as raw materials and components

o  Customers who buy and use a firm’s product and services

o  Market Intermediaries who play an essential role in selling and distributing products to end user customers, and include distributors, wholesalers and retailers.

o  Competitors who compete for sales with their products and for brand identity

o  Publics who are groups that have an interest in a company’s ability to achieve its objectives, including environmentalists, media, interest and consumer protection groups

·        External Macro Environments

o  Economic Environment includes (1) the type, nature, and structure of the economic system that exists in any region or country where the organization conducts business [state controlled, free market, or mixed]; (2) the phase of the business cycle, such as the conditions of boom or recession; (3) fiscal, monetary and financial policies; (4) foreign trade and investment policies.

o  Political and Legal Environment includes the political philosophy of the government in any region or country where the organization conducts business [socialism, capitalism, or communism], recognizing that the public sector has a role in a country’s economic development, whereby the political framework implements regulations that influence the directions in which private business enterprises need to function.

o  Technological Environment, beyond rapidly changing information technology, includes technology needed for the production of goods and services and consists of infrastructures, systems, machinery and processes available for use [such as roads and highways, ports and port facilities, consistent water and electricity supply, and so on].

o  Social and Cultural Environment includes the acceptance by both local people in regions where a company operates and populations worldwide (1) of activities in the conduct of the business, (2) of practices that do not violate cultural ethos of a society, (3) of social responsibility obligations to serve social interests and promote social well-being, and (4) socially responsive policies that relate operations and policies to the social environment in ways that are mutually beneficial to the company and society at large.

o  Demographic Environment includes (1) the size and growth of population, (2) the life expectancy of people, (3) the rural-urban distribution of population, (4) the technological skills and educational levels of the labour force, where skills and ability of workers determine how well the organisation can achieve its mission; where the size of population and its rural-urban distribution determine the demand for the products; where the growth rate and age composition of the population determine the demand for goods.

o  Natural Environment, beyond ecological and environmental concerns, includes the source of such inputs as raw materials, natural resources, minerals and oil reserves, water and forest resources, weather and climatic conditions, and energy.

Each environment is a dynamic force of influence on the other environments as well as on a business and its operations. These forces are constantly in action and changing, engaging and connecting myriad business opportunities in a complex and multifaceted interplay of issues, causes, and effects. As a result, they manifest foreseeable, as well as unpredictable and unprecedented, risks.

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