Steps For Fixing the Supply Chain Chaos

Of course OUR business operations are tightly controlled and calculated.

Reality is that supply chains can be often disorganised, filled with stress and be, for lack of better word: chaotic.

Which is OK, since the natural world around us is also chaotic, as any other complex system.

Chaos is about unpredictability, and importantly, chaos is not randomness, but systems where small changes can lead to vastly different outcomes over time. In a chaotic system, the outcomes are still governed by underlying patterns and rules, even though they may appear unpredictable on the surface. Randomness, by contrast, lacks any structure or predictability.

For example, in supply chain management, the blockage of the Suez Canal due to poor boat navigation was not a random event—it was a chaotic one. The blockage had a cascading effect on global supply chains, leading to stockouts in a wide variety of businesses. While it was difficult to foresee, the outcome followed a clear cause-and-effect chain.

This illustrates that while chaos introduces unpredictability, it still operates within a structured system.

In fact, the chaos we experience in supply chains is closely tied to the VUCA environment—where unpredictability is the norm and flexibility is essential.

So let's talk a bit about VUCA.

The VUCA World: volatility, uncertainty, complexity and ambiguity

Supply chains must respond to the VUCA world as it exists today, where systems cannot be fully controlled or predicted with certainty. This means we must embrace uncertainty and build flexibility into supply chain design to navigate these unpredictable conditions.

The VUCA terms mean:

• Volatility refers to rapid and unpredictable changes, such as sudden spikes in demand or supply disruptions, requiring supply chains to be agile and responsive.
• Uncertainty involves the difficulty in forecasting future events due to unreliable data or unforeseen disruptions, making planning and decision-making more challenging.
• Complexity reflects the interconnectedness of global supply chains, where even small disruptions can have widespread effects across multiple layers of suppliers and partners.
• Ambiguity arises when information is unclear or open to interpretation, and where even with ample information, the interpretation can remain unclear or open to multiple meanings..

To successfully operate in this VUCA environment, supply chains need to be adaptable, resilient, and capable of responding quickly to both risks and opportunities.

I recently started to subscribe and listen ASCM webinars, and in one of the recent ones on addressing supply chain challenges, an industry expert explained that several factors contribute to the chaos in inventory management. Here are three key reasons that stand out as particularly important.

1. The precision dilemma: It’s challenging to pinpoint the perfect timing for inventory availability. A longer lead time may be less precise, while a shorter one increases the risk of stock shortages when needed. Although stakeholders expect an exact alignment, the reality is rarely that straightforward.
2. Obsession with cost reduction: Focusing solely on lowering costs is misguided, as cost is the result of various factors. The key is to address the inputs that drive costs. For example, when homeowners notice their water bill is rising, they don’t ask the water company for a discount; instead, they might fix leaky faucets, install low-flow showerheads, or reduce lawn watering. The same approach applies to managing costs—focusing on the underlying factors that drive expenses.
3. The drive to reduce inventory: While excess inventory ties up capital, having too little leads to disruptions and raises expedite costs. There’s no one-size-fits-all formula for determining optimal inventory levels. But, it’s important to establish target inventory for each individual part, rather than just by product category.

Supply chain expert community recommends demand-driven material requirements planning (DDMRP) as a solution to navigating the challenges of VUCA. This approach leverages “strategic decoupling points” to guide the generation and management of supply orders across the entire supply chain.

A decoupled lead time requires exact stock for only a specific element of a product instead of an entire warehouse.

DDMRP is a planning methodology that separates supply from demand by establishing decoupling points.

At these points, inventory buffers are maintained to ensure the appropriate stock levels are held. This separation helps prevent the “bullwhip effect,” as variability is contained and not passed along the supply chain, leading to more stable and efficient operations.

The bullwhip effect describes how small changes in demand at the retail level can lead to increasingly larger fluctuations in demand as they move up the supply chain, affecting wholesalers, distributors, manufacturers, and raw material suppliers.

Each buffer is intended to cover the average use of a part and can also be adjusted to cover demand spikes.

Embracing this methodology can reduce risks, optimise inventory levels and improve responsiveness.

This shift largely involves digital transformation and the adoption of advanced technologies. Transparency and real-time data offer significant advantages: in a connected, digitized supply chain, it’s possible to track raw materials at any moment, anticipate potential delays, and adjust production schedules accordingly, minimizing downtime while waiting for shipments.

In the face of constant disruptions, the ability to adapt quickly is crucial.

What supply chain strategies are you implementing to not only survive, but thrive in this unpredictable environment?

Want more insights? Check out other articles in The Value Chain for more strategies on optimizing assets, operations, and supply chain management.

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