The state of the global supply chain today can be described as volatile, uncertain, complex and ambiguous – also known as a VUCA state. Acknowledging this defines our times and challenges so we can deal with them with more direct and appropriate strategies.
For instance, distributors can apply the VUCA Prime framework developed by Bob Johansen of the Institute for the Future. This framework identifies the four important traits leaders must have to manage successfully in a VUCA state: vision, understanding, clarity and agility.
Distributors and their leadership can apply these traits to manage the supply chain and build resiliency when it’s needed most. They put you in more control and enable you to thrive in a VUCA state, a welcome reprieve from years of reacting and hoping for more certainty in the future.
Learning to thrive in a VUCA state is essential even if the supply chain begins to normalize. Today, the industry has already evolved to adopt new supply chain technology and capabilities standards. Your operations must be able to perform in this new environment. Therefore, your strategy should focus on improving supply chain resilience so you can keep a firm grip on your operations regardless of industry conditions.
If thriving means having vision, understanding, clarity and agility, it helps to see real-world examples of these traits in action. Since the pandemic began, we’ve helped distributors implement successful strategies tied to these characteristics.
Supply itself is one of the most volatile areas in supply chain operations. You can reduce this volatility by improving relationships and communications with suppliers. This improvement helps you gain a more immediate view of supply as it fluctuates, which mitigates the impact of disruption. Better relationships and communications also provide more control and visibility into your current and future product availability. Further, it helps you align priorities to ensure access to products that matter most.
For example, one distribution executive changed the company vision to view suppliers the same way they view customers – as partners that need to see demonstrated value. As a result, they adapted their strategy to share more data and analytics with suppliers, which immediately provided greater value and forged stronger relationships.
The pandemic triggered supply chain disruptions that forced distributors to make difficult choices about which items, suppliers and customers to focus on. Many had to base decisions on soft information, such as opinions and personal experiences, which often missed the mark or resulted in lost opportunities.
A data-driven approach is more effective. Distributors can use transaction data to understand their operations and make more informed decisions about which items need focused management, which are worth expediting, and which should be negotiated. Often, decisions made using data are not only optimal operationally but also more cost-efficient for suppliers.
For example, using channel data, a distributor categorized items into three buckets according to their data-proven supply and demand variability: surge, slump and static. Surge items had variability over 10%, and slump items had variability under 10%, while the rest were static.
In distribution, inventory, suppliers and customers are interconnected. When product shortages occur, identifying the next steps can be challenging. Where should you consolidate suppliers? Which products need more diverse sources? How should you manage multi-category suppliers? The best way to make these determinations is to look at supplier performance instead of spend.
For example, a distributor categorized suppliers based on their performance using annual purchase order data. They identified the ones that had costly inefficiencies, which highlighted the need to diversify sources in specific categories. They were able to apply this across 300 suppliers and 22 product categories.
Timely decisions make all the difference, but they require readily accessible information. Unfortunately for many distributors, data is ambiguous, siloed and dispersed throughout operations. It’s trapped in different systems and delivered by spreadsheet, which puts distributors at a time disadvantage when supply chain shifts occur.
Data and analytics are crucial in building supply chain agility. For example, a distributor applied analytics to items, customers and suppliers to gain a clearer view of their operations. In addition, they used stratification to make decisions with the broader picture in mind, reducing ambiguity.
Analytics are a perfect starting point to build the traits necessary to thrive in a VUCA state. And being open to what the data tells you eliminates bias from decision-making. An action plan based on facts will help you evolve as the industry evolves and remains volatile, provided that you adopt resiliency-building traits. It’s unclear what the supply chain will look like years from now, but no matter how it unfolds, customer and supplier analytics will set you up for success.