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December 20, 2017

The Art of Managing VUCA in Supply Chain

Sourcing and procurement professionals play a key part in managing VUCA in the Supply Chain.Volatility, Uncertainty, Complexity and Ambiguity are the challenges procurement professionals face today. What are the factors that are essential to combat these disruptive elements? 




Though it may seem very obvious, one of the key risks in a supply chain is that of handling disruptions due to VUCA (Volatility, Uncertainty, Complexity and Ambiguity). I can relate to two key experiences - one, a discrete manufacturing process at Toyota and the other, a Telecom network environment, in order to bring forth how communication and collaboration plays a key role in managing VUCA. 

For very unique, discrete manufacturing supply chains like those of Toyota, managing scheduled supplies can be a key part of managing contractual SLAs with key Keiretsu suppliers. Keiretsu is a Japanese word that indicates cross holding of businesses and is not only a supply chain risk reduction strategy but also enhances supplier competitiveness in terms of cost, quality and delivery. It is like a symbiotic relationship in which the OEM invests time and resources to develop the supplier capability to meet its requirements, whereas the supplier benefits by way of having "assured business" and hence can "never go wrong". It is this close collaboration that helps the supply chain to achieve reliability (on time in full), responsiveness (scheduled deliveries), agility (components development), Just in Time Inventory and an optimum ROCE (Return on Capital Employed). 

Toyota takes JIT (Just in time) to extremes for certain parts and components such as seats, for which Toyota maintains almost zero inventory. As per this system, the Keiretsu suppliers maintain their production line sequence just in line with the OEM (in this case Toyota) with a few minutes lag or difference. For example if there is a car needing a blue trim Seat at 11 AM, followed by a red trim seat at 11:03 AM, a yellow trim seat at 11:06 AM and so on, the seat supplier (a Keiretsu supplier in all probability) would have completed making those seats only a few minutes before assembly, or at max., a couple of hours ahead and despatched it a few minutes earlier, just before the expected time of assembly of that particular seat on the car. This whole process happens with such amazing precision that it has to be seen to be believed. Collaboration and communication are the underlying drivers behind such a robust supply chain.

We can draw a parallel here to the scotch whisky supply chain. The scotch whisky supply chain has a very long value chain and the key challenge is to forecast what customers' preferences will be 20 or 25 years later, particularly keeping in view that there are numerous SKUs and flavours. Sourcing professionals are tasked with not only getting the right ingredients (which is just 20% of the value they can add) but also have to ensure that they secure the right wood, 'casking', wood treatment and warehousing contracts (that add 80% value to the product).  Thus, the Oak selection (for the casks), the drying lead times, heating of wood (toasting or charring etc) and warehousing techniques are all factors that influence the creation of the required flavour (developed internally, and not added) in the whisky. Due to the fairly long lead times, the elongated value creation timelines, and the uncertainties that affect the exact forecasting and response times to meet customer demands, some organizations have taken recourse to 3PL logistics providers to manage the value chain. This helps to increase forecasting accuracy, reduce inventory and provide greater agility. It is important to remember here that the Toyota example is a Discrete Manufacturing example whereas the scotch whisky example is a Continuous Flow Line process. However collaboration (that helps to communicate effectively and anticipate risks faster) between supply chain players is the only way to reduce VUCA risks in both cases.

Another example, but in the space of managing the Reverse Logistics Supply Chain that comes to mind, is in the Telecom Network Space. This was during an engagement with one of the largest Telecom Companies in the World. The power of collaboration for managing risks took central role in managing PICs or Plug-In-Cards. PICS is a unit of Telecom Network Infrastructure and is basically an electronic chip with surface mounted devices such as capacitors, transistors and resistors). The PICs value chain consists of Source, Return, Repair/Refurbish and Investment Recovery. The key pain point here was, apart from a highly fragmented spend and high number of suppliers, the reverse supply chain was dogged with an extremely slow inventory movement, low visibility of the flow of PICs and a very low Investment Recovery (or asset recovery) of 10% (only 10% of the PICs selected for a reverse auction could get sold). Every element of V-U-C-A was playing its part.


Based on a 2 weeks study of this value chain and interviews with key stakeholders, a detailed recommendation was made. 80% of these recommendations were implemented in short to medium term. Within 4 months of implementation of these recommendations, quite a few transformative changes began to be observed in the value chain, including reduction in number of suppliers (around 25%), increase in visibility (around 50%) and number of inventory turns and also a tremendous enhancement of the Investment Recovery (at least doubled).

But most importantly, creation of visibility to each player or entity in the value chain by way of creating a common platform for the players to communicate with each other was by far the most important value delivered by Infosys. This yet again has reinforced my belief in CPFR (Collaborative Planning Forecasting and Replenishment) in Supply Chain Space to manage VUCA related risks.

Being at the forefront of the supply chain, sourcing and procurement professionals play a key part in managing VUCA related Supply Chain risks, be it developing SLAs for managing reliability, responsiveness and agility based metrics for supplier contracts, or delivering value by bringing about greater opportunities for collaboration and communication across the supply chain entities.

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