Supply chain leaders and CSCOs (Chief Supply Chain Officers) across industries are entering 2024 facing shifts in demand, disruptive conflicts in eastern Europe and the Middle East, tensions in east Asia, political instability in the West, macroeconomic uncertainty worldwide, and the ongoing impact of climate change on environmental and social systems. Responding to these challenges while still meeting revenue goals, sustainability targets, and growth forecasts is core to the role of CSCOs – but how will they build supply chains that are powerful growth engines in spite of the uncertainty that surrounds them?
We recently hosted a webinar with Tim Payne, Gartner® Fellow and Vice President Analyst, Anna Linden, Global Head of Supply Chain Planning Solution Management at SAP, Enno Danke, Managing Director Industry X at Accenture, and Romain Ropitault, Principal Product Manager Supply Chain here at Cosmo Tech. Over the course of an hour these experts dove into the idea of thriving in a period of increasing uncertainty in supply chains, and here are five key messages they drove home.
The acronym VUCA (Volatility, Uncertainty, Complexity and Ambiguity) was first coined in the mid-1980s but in the wake of a global pandemic, shifting geopolitical winds, and macroeconomic instability, it’s a term that is experiencing a renaissance. Indeed, Gartner® research reveals 89% of CSCOs believe that the world is in a prolonged VUCA environment as both change and uncertainty accelerate. “Many customers are also looking at external risk factors,” said Anna Linden. “Location risks, geopolitical risks, a lot of war situations right now in the world, but also weather situations and weather phenomenon that we are seeing here, which are highly disruptive.”
In this challenging context, CSCOs admit that they struggle to cope with the impact of uncertainty. A majority (63%) estimate that exposure to uncertainty will lead to revenue losses, and another 28% believe that they’ll do no better than just maintaining current revenue levels. In all, less than 1 in 10 supply chain leaders (9%) believe that they will be able to benefit from the prolonged VUCA environment.
Enno Danke explained that just three or four years ago supply chains were stable enough to be managed with static optimizations alone, but those times are over. “Uncertainty is there, we all face it every day,” he says, “And so now I think we need to really beef up our capabilities to cope with it.”
At a high level, there are three components to any successful strategy for managing uncertainty. The first is agility, the capacity to change, the ease of making that change, and the breadth of the options available for that change. The second is responsiveness, the speed at which a problem is detected, addressed, a decision executed, and a change implemented. The third – and the key component for managing uncertainty according to Gartner’s Tim Payne – is the knowledge of the impact of uncertainty. This capacity demands understanding the size of the impact of uncertainty to change, converting “unknown uncertainties” to “known probabilities”, and stress testing supply chain systems.
Agility and responsiveness have long been arrows in the supply chain leader’s quiver. Understanding the impact of uncertainty, though, has only become possible with the advent of powerful digital tools that support CSCOs in making optimal supply chain decisions. As Tim Payne put it, experiment-driven decision-making is paramount in navigating uncertain times. By actively running experiments and simulations, organizations gain invaluable insights into the potential impacts of their decisions. This approach not only helps identify vulnerabilities and risks but also uncovers hidden opportunities and value that might otherwise remain concealed.
Technologies like Cosmo Tech’s complex systems modeling and AI Simulation, and tools like the Supply Chain Vulnerability Scan that integrates with SAP Integrated Business Planning, help decision makers to identify critical points in their supply chains and understand the impact of uncertainty on those supply chains. As Romain Ropitault put it, “If you want to be resilient or even antifragile, you need to anticipate the risk and not react to the risk.” In an ever-changing and unpredictable business landscape, the ability to harness experimentation to understand consequences and reveal untapped potential becomes a critical strategic advantage.
No CSCO wants to be responsible for sustaining losses because of uncertainty. A fragile supply chain is a worst case scenario for decision makers and leads to both short-term revenue losses and longer-term destruction of value. It’s little surprise, then, that many aim to develop supply chains that are resilientin the face of uncertainty. Resilient supply chains enable firms to survive uncertain times, neither suffering losses nor experiencing growth. That’s essentially because they’re not actually building up enough knowledge of the impact of the uncertainty to really learn how to evolve and adapt effectively.
But with the right tools in place and the capacity to understand the impact of uncertainty on the supply chain, CSCOs can shoot for more than simply just surviving. With the right tools, strategies, and systems, CSCOs can establish a supply chain that is antifragile and that leverages a context of uncertainty to thrive.
Tim Payne outlined the different steps to building an antifragile supply chain. Getting the fundamentals right (having clear and consistent definitions of fragile, resilient, and antifragile states), educating stakeholders, and getting C-suite buy-in with regards to the value of antifragility in a VUCA world are important for laying the foundation for change. Auditing key capabilities already in place and assessing which are antifragile (to retain) and which are resilient or fragile (to be changed) is also key as it allows CSCOs to collaborate with CIOs to build a technology roadmap to support antifragile ambitions.
For CSCOs with the right tools, uncertainty is not to be feared and complexity is not to be dreaded. Instead of being reluctant to act in the face of a prolonged VUCA environment, supply chain leaders can embrace the uncertainty and expect to benefit from it, both with respect to short-term revenue gains and longer-term value creation. The right tools and technologies – including the advanced AI Simulation technology embedded in Cosmo Tech Supply Chain and the Cosmo Tech Supply Chain Vulnerability Scan – are key to achieving this antifragile state and to leveraging the uncertainty that doesn’t seem like it is easing anytime soon.
Read this article, Supply Chain Brief: Technologies that CSCOs should use today.