Home » Planning » Supply Chain Planning in a VUCA World

Supply Chain Planning in a VUCA World

July 28, 2022

supplu-chain

Planning would be a lot easier if the world were a less complicated and more predictable place in which to conduct business. Unfortunately, the business environment is constantly changing. An acronym used more and more often by supply chain planners to describe the business environment is VUCA, which stands for Volatility, Uncertainty, Complexity, and Ambiguity. According to organizational consultant Waltraud Gläser (@WaltraudGlaeser), this term was coined in 1985 “by economists and university professors Warren Bennis and Burt Nanus in their book Leaders. The Strategies For Taking Charge.”[1] She goes on to note that the U.S. military eventually adopted the term in its planning efforts. Each of the terms in the acronym (i.e., volatility, uncertainty, complexity and ambiguity) depicts a specific characteristic of particular environment. Gläser discusses each of those terms:

 

• Volatility. “Volatility describes the intensity of fluctuation over time.”

 

• Uncertainty. “Uncertainty describes the unpredictability of events. The more ‘surprises’ the context provides, the more uncertain it is.”

 

• Complexity. “Complexity is influenced by the number of influencing factors and their interdependence or interaction. The more interdependencies a system contains, the more complex it is.”

 

• Ambiguity. “Ambiguity describes the [inexactness] of a situation or information. Even if a lot of information is available (in the sense of being secure and predictable), the evaluation of the same can still be ambiguous.”

 

Supply chain planners recognize how each of those terms is playing a role in today’s business environment and making planning more difficult. Nevertheless, notes Lora Cecere (@lcecere), founder and CEO of Supply Chain Insights, over the past seven decades, supply chain planning has rested on three assumptions: Logistics is available; supply chain variability is low and controllable; and government policies are rational.[2] The mismatch between those assumptions and the reality of VUCA world is obvious.

 

Supply chain planning challenges

 

According to Cecere, things have only gotten worse. She explains, “Over the last decade, the organization grew larger and more political in the journey from regional to global supply chain structures. Organizational alignment gaps increased elongating decision latency — time to make a decision — while introducing bias and gaming. Ironically, analytics capabilities increased greatly, while organizational capabilities precipitously declined.”[3] The trouble starts with the three assumptions Cecere identified earlier. She explains why those assumptions are impeding better planning:

 

Assumption 1. Logistics is available. “With availability assumed, the traditional focus of supply chain practices was on negotiating the lowest price. Shippers pushed cost and waste backward in the supply chain. There is no planning model in traditional solutions that recognizes a logistics bottleneck and drives bi-directional orchestration across source, make and deliver.”

 

Assumption 2. Supply Chain Variability is low and controllable. “The lengthening of cycle times of the supply chain is less impactful than the increase in variability to supply chain performance. Increasing variability is a killer. (The variability of the essential cycles of the supply chain — lead times, conversion rates, and cycle times — grew and were not manageable during the pandemic.)”

 

Assumption 3. Government policies are rational. “The increasing issues with tax and tariff shifts and the policies of China make the response more complicated.”

 

It should be clear that Cecere thinks those assumptions should be abandoned and the VUCA business environment should be acknowledged. The question is: What does that do for supply chain planning besides making it more difficult? According to Cecere, recognizing that the world is messy drives planners to approach their job differently. Cecere argues that planning must be continual and flexible. She cites the late President and 5-star General Dwight D. Eisenhower, who stated, “In preparing for battle, I have always found that plans are useless, but planning is indispensable.” She adds, “In the development of supply chain planning in the 1990s, the focus was on outcomes. This is no longer the case. Today, the focus is on visibility, planner productivity, and reaction. The concepts of planning, as so well understood by Dwight preparing for battle, are not well-understood. … When it comes to planning, this old gal votes for IKE. Planning is useless but indispensable. Not because of precise and speedy output; but instead because it aligns teams to potential outcomes. … Never in this world has planning been more critical but less understood.”

 

Improving supply chain planning

 

Although Cecere argues that supply chain planning is critical, she also asserts, “There is no technology or system today that helps companies successfully plan end-to-end from the customer’s customer to the supplier’s supplier.”[4] She adds, “The traditional taxonomy assumes that the order is a good proxy for demand. It also thinks that order consumption logic can improve inventory positions by defining a good safety stock position. The translation of the order signal into a planned order for manufacturing capacity can help minimize constraints. But, the logic falls apart in a world of high variability (like now) when the order is not a good proxy for demand, safety stock is only one element of an inventory strategy, and manufacturing constraints are not the only constraint.”

 

Cecere’s position may appear pessimistic about the future of supply chain planning, but she does see glimmers of hope. For example, she believes digital twin technology could prove useful. She explains, “I would like to see the digital twin democratize planning — a collaborative planning technology deployed on every executive’s desk to help them visualize constraints, buffers, volatility, and feasibility. Companies need to design/architect and align on strategy elements to use the digital twin effectively.” I agree with Cecere that no single technology solution will solve the planning conundrum. However, advances are being made.

 

To be more effective, supply chain planning needs the latest data and those inputs need to be analyzed to identify emerging trends and actionable insights. Cognitive solutions, like the Enterra Global Insights and Decision Superiority System™, can help in this area. Then, as Cecere notes, corporate planning needs to be aligned. This can be difficult. At Enterra®, we think the answer is concurrent planning. Concurrent Planning refers to planning by multiple departments simultaneously with consistent objectives. The ultimate goal is having an enterprise-wide planning objective filter down into each department to keep the enterprise in alignment.

 

Even during so-called “normal” times, supply chain planning can be difficult. The stark truth is that planning and optimizations are done in many departments within a business, such as supply, manufacturing, distribution, warehouse, transportation, budget, labor, and so on. Often, departmental planning functions are disconnected from one another and may have conflicting goals. In order to deconflict goals, companies need to create an objective function — and overarching objective — that balances these goals. Developing an objective function ensures corporate alignment in order to optimize operations and maximize profits. Why is this important? An objective function scores an outcome’s utility so the best outcome can be chosen. For example, manufacturing may be tasked to fill all orders which requires having inventory on-hand in distribution centers. However, distribution centers may be given the conflicting task of minimizing excess inventory space and cost. Without an objective function that spans multiple planning departments, each department’s objective function may conflict with others in often subtle ways. Cognitive solutions — like the Enterra Concurrent Planning Intelligence Solution™ — can help minimize conflicts and create a balanced concurrent plan.

 

Concluding Thoughts

 

Through the proper use of various technologies, the supply chain planning process can be improved. Will it ever be perfect? No. Eisenhower was spot on when he said the process is more important than the plan. Mary Vasile, Customer Advocacy Manager at ToolsGroup, insists, “As businesses continue to seek ways to manage supply chain shortages, a strategic planning process is more important than ever.”[5] This process, she writes, “requires synchronizing incoming data into a real-time picture of consumer trends and available supply.” A real-time picture is critical because it’s a VUCA world. Cecere concludes, “Leaders [should] focus on the world of supply chain design flows and collaborative outcomes. In this world of extreme variability, VOTE for Ike.”

 

Footnotes
[1] Waltraud Gläser, “Where does the term “VUCA” come from?” VUCA-World, 9 November 2021.
[2] Lora Cecere, “Changing Winds in Supply Chain,” Supply Chain Shaman, 29 November 2021.
[3] Lora Cecere, “When It Comes to Planning, Please Vote with Ike!” Supply Chain Shaman, 1 June 2022.
[4] Lora Cecere, “Courage to Paint Outside the Lines,” Supply Chain Shaman, 26 April 2022.
[5] Mary Vasile, “Agile Supply Chain: How to Bend, Not Break, Your Supply Chain Planning Process,” ToolsGroup Blog, 14 March 2022.

Related Posts: