The next episode of the Chain Reaction Podcast ‘A Bevy of Black Swans’ discusses disruptions in supply chains and reflects on the causes. Some really are black swan moments beyond the experience of people while others might have been avoided through better planning and execution. To some they give the appearance of a black swan ( an unusual event beyond experience) but really in substance they could and should have been predicted. The data are present and events predictable. You may want to go back and listen to the Chain Reaction Podcast about ‘Predicting the Unpredictable’ by way of introduction to supply chain disruptions. Listen to ‘Energy Cost and Food Chain Disruption’ this weeks episode too.
Retrospective
This episode takes a retrospective view of supply chain disruptions during the Pandemic. In it we examine the rhetoric of policy makers and the realities of disruption and in some cases the supply chain chaos caused by a failure of planning and execution. Evidence for the claims is brought into focus. Some of the unusual events were certainly that but were they really ‘Black Swans’. One could argue that if it is something beyond experience it is rightly described as a ‘black swan moment’ and yet we also see failures of adequate planning and execution that caused disruptions that might have been avoided.
To paraphrase Roald Dahl this is a tale of the unexpected. We should always think about the unexpected as the norm. Not many things in life go exactly to plan so why are we so surprised when things go wrong? If you are a supply chain professional you know with some certainty that something is likely to disrupt the best laid plans. The response is what matters. What can you do to put things back on track quickly? This is why there is much talk about resilience.
For all those students of supply chain along with professionals that spent hours playing the ‘Beer Game’ you know that disruption is normal. You also have learned from the experience and know that to correct disruption and the causes of it often makes it worse given the actions taken to make adjustment to flows within the supply chain. In other words it is not simple. It is complicated. Would a simple algorithm solve the problem?
The Science of Prediction
If you follow professional sports you will know that the bookies favourite does not always win. This is one reason we like it. In our sporting lives unpredictability makes it exciting, exhilarating and a unique experience. We love the fact that you cannot be sure of the prediction. Why then when we return to our working lives do we expect things to happen as planned? Should we just learn to accept it as a matter of fact and not be too concerned? After all isn’t an exciting, exhilarating and unique experience attractive to make our working lives better?
Well I can already hear some groans from the reader. “Excitement is not what I want” you say. “I prefer things to go smoothly”. This is rather like putting your old slippers on and knowing they are always in the place you left them behind the door as you enter your comfortable life at home. As Benjamin Franklin said ‘A place for everything and everything in its place’. We hanker after orderliness. All else is chaos. Is it because we have been taught that order is the norm when in reality it isn’t?
A place for everything and everything in its place.
Benjamin Franklin
If I study all the form of all the horses in a race why am I still not certain of predicting the winner? If I gather all the data about football teams including team selections, positions, individual player performance metrics about pass completions, possession and times of goals scored and tactics and everything else there is why am I still unlikely to predict a winner with a probability not much better, if at all, than flipping a coin? If all this is true why then do I waste so much energy gathering data, examining variables and computing odds? Is it because it gives me comfort even though it is likely wrong?
Similarly, in business we spend a lot of time and energy gathering data, building algorithms to predict some future outcome and gain some comfort from knowing we have a forecast and a plan. Strange isn’t it that so much faith is put into the data and our manipulative abilities to get a forecast. If it were so simple we would all be winners but the reason we are not is because the unexpected happens.
I often think that modern technology has offered technical solutions many of which are smart and most are certainly of benefit. We must remember, however, that humans design and build the technology in which we place so much trust and faith. The hardware and the software that drive the algorithms containing so many assumptions that are contained in a ‘black box’ which is not transparent and we assume the algorithm is infallable. In the past few years the Big Tech companies have peddled the myth that they have the data to predict everything. It is after all in their interest to do so. As they might say in Yorkshire “There’s brass to be made” that is money, from data and predictions. This claim stated as: ‘We have so much data we are able to predict everything’ maybe correct unless you add a sub clause to the previous sentence, ‘which is always accurate’. Yes they can predict everything given the data but whether or not that data has valid assumptions built into the algorithms used by the forecaster is not clear. Rudyard Kipling’s piece of writing about six serving men ‘why what, where, when, how and who’ spring to mind when I think about purpose, reason, selection, time, technique/method, and who is involved in making the choices. Put differently, who is the chef and what ingredients are included to bake what cake for whom.
Fractals occur naturally in our world essentially as recurring patterns. In mathematics fractals are a subset of Euclidian space. Felix Hausdorff introduced the concept in 1918 recognising geometrical recursions of shapes. For example, of you take a form such as a circle, a square or triangle and repeatedly copy it in scale this is a fractional representation of the original form. These are fractals. This is called ‘self similarity’ Thus, you can create a complex pattern from an original form by repeating it at scale to infinity. Fractals occur naturally in dynamic systems. Examples are all around us such as trees, flowers and various plant life where simple processes repeat patterns into the future. The past creates the present and future. We recognise fractals in fossils and are able to identify the species. We cut a tree stump and see fractals in the ageing rings of the tree. In human biology fractals appear in organs, cells and bodily make-up. In space fractals are created and observed in the stars and galaxies. In computer science Benoit Mandelbrot developed an algebraic equation recognising the reproduction of what has come to be known as a Mandelbrot Set. Patterns can be generated using the set to determine the next number. That is the fractal. The Mandelbrot Set is used to generate infinite copies by repeating the process rendering images of self similarity.
z = z2 + C
A fractal is a concept that has been transferred from the natural world to the business world. For example, investors search for patterns in data to predict share prices. The charts produced examine patterns from the past in the hope of spotting future trends. Of course they are not looking for perfect fractals which in lay terms we would see as an exact match but rather they search for partial fractals that retain the original underlying pattern; the Form.
Learning From the Past
If we step back to Ancient Greece it was the philosopher Plato who discussed Form essentially an idea, a concept. In discussions he refers to human form, animal forms such as cats, dogs, pigs, horses and birds. In each species we can identify form as similarity but we also see differences within form. For example, humans come in different size, shapes, gender with faces that resemble but do not replicate each other. Forms have properties for example birds have two legs, two wings, two eyes and feathers, beyond that we may distinguish different types by size, shape, colouring and sounds; their characteristics. Although we can identify fractals they are not perfect. In business we might observe conditions that resemble past patterns in the present analysis. Resemblence is not exact. It may however, give some indications of what may happen next. In other words we might be able to predict future events building on the trends. Although one can argue as another Ancient Greek philosopher did (Democritus) ‘that you cannot enter the same river twice’ in other words there is no perfect copy when it comes to the natural world. The conditions are always somewhat different.
In the seventeen hundreds Scottish philosopher David Hume raised the problem of induction generating knowledge. Put simply, if you rely on past experience to learn everything about the present it assumes continuity. The problem comes from an event occuring that no one has previously experienced – discontinuity. There are no fractals to examine! There are such examples in the contemporary business world that spring to mind as singular events where there is no experience such as the Tsunami’s in Asia in places like Sri Lanka; The Icelandic Volcanic eruptions grounding aircraft because of black cloud dust in the atmosphere for weeks; the Covid-19 Pandemic and global supply chains held up by the Evergiven ship effectively log jamming the Suez Canal. These are occurrences I would indentify as ‘Black Swan’ moments. These are not events that could be predicted with certainty. You could not have forecast these matters using traditional forecasting techniques or mathematical models – there was no data on which to build the forecast and this is exactly one of the problems with forecasting. This is why short term forecasts yield the highest accuracy, medium term less so and long term they are likely to be highly inaccurate. Unless the past resembles the present and can be extended as a continuity to a future state it is near impossible to predict. You could always try tea leaves, tarrot cards, crystal balls and the dark arts of course.
The Moral of the Tale
When faced with unforseen, unpredictable unique events business people need to be agile, adapt to changing circumstances and offer flexible responses to the problem faced. Agility, flexibility, responsiveness and resillience are concepts that supply chain professionals recognise and they are well placed to make a contribution when disruption occurs. They may not be able to predict the unpredictable but they will be able to respond when it happens.
Forecasting is of course useful to predict demand when you have established patterns for products and services that are likely to be similar in future time periods. When systems are stable it is easier to predict trends. When disruptions occur and the system stability changes it is much more difficult to predict trends and develop forecasts with any accuracy. Jay Forrester’s work on system dynamics discusses this topic in detail. As mentioned earlier generations of supply chain students who played the ‘Beer Game’ learned about system stability and the ‘bullwhip’ effect. Assumptions built into the forecast need to be transparent to determine conditions under which they hold good.
You can listen to my podcast on this topic to find out more.
When you get the invitation to the ‘C’ Suite it is something you worked for, you may feel worthy and you hope you will now be rewarded for your business experience, organizational and leadership skills developed during your career. Those things may have qualified you and opened the door to the office of CEO but your future success will rest on results not the attributes that others have acknowledged in appointing you. However, it is worth reflecting and acknowledging all may not always be as you had imagined. There will be times when you wish you had protective clothing similar to the photograph to protect you from the outside world which can be a hostile environment. It may not just be the outside of course sometimes threats come from within your own organization. So what are the responsibilities that accompany the invitation into the ‘C’ Suite strategy room?
Leadership is defined by results not attributes.
Peter Drucker
CEO’s Responsibilities
The Chief Executive heads up the ‘C’ Suite. The ‘C’ Suite is comprised of the Board of Directors responsible for running the company. The CEO leads and the directors direct. The Board are paid to manage the business on behalf of shareholders and they balance the needs of other stakeholders including employees, customers, suppliers and wider public interests. The organization’s culture determines how this works in practice. For example, is it top down or collaborative but no mistake the CEO has the ultimate responsibility for the company meeting its objectives. Responsibilities come in the form of leading the organization and all that means. There is no hiding place. Every decision will be scrutinised, analysed and criticised, it goes with the territory.
Leadership is the capacity to translate vision into reality.
Warren Bennis
The CEO is responsible for leading, developing and executing organizational strategy and achieving the goals set. Organizational effectiveness, efficiency, profitability and return on investment are three concerns for those occupying the ‘C’ Suite. As Warren Bennis put it “leadership is the capacity to translate vision into reality”. It is a skill developed through experience.
Between 70-90 per cent of a company’s assets are tied up in the supply chain. If you work in or are responsible for your organization’s supply chain it is likely to represent much of the Balance Sheet value. Fixed Assets can include warehousing, production, handling equipment, plant and machinery including delivery vehicles, cranes, fork-lift trucks, ships and in some cases aircraft. Inventories on many company balance sheets represent somewhere between thirty and fifty per cent of the value. When you add it all up you will see why the supply chain contains a lot of the value and it all needs to be managed to achieve the company’s strategic and operational objectives. Supply chain pro’s come in all shapes, sizes, from different backgrounds with a range of skillsets. Having the ability to communicate effectively in written and spoken word along with numeracy and analytic skills will establish a good foundation for the future. Today roles carried out in the supply chain provide an excellent training ground to learn about business. Forget the MBA as a stepping stone to a leadership career learning on the job may be more valuable especially if it is in the supply chain. If you know about sourcing, procurement, production operations, warehousing, distribution and customers then you have acquired a range of transferrable skills that might take you all the way to the ‘C’ Suite and even to CEO.
You may think about acquiring formal qualifications on the job as part of your continuous professional development while you get paid. Staying in touch and keeping abreast of competitors demands a commitment to continuing professional development (CPD). CPD can take many forms and it is not just the formal qualification, short and long course routes that matter. Learning from others inside and externally, keeping up with trends and as any sporting professional will tell you there is no substitute for real game time by which I mean experience.
Experience is not what happens to you; it is what you do with what happens to you.
Aldous Huxley
Supply chains are a source of value, cost and differentiation. When Michael Porter first wrote about competitive advantage I doubt he was thinking necessarily about supply chains although he did introduce the term value chain to the world in 1985. The term ‘supply chain’ was only coined in 1980 and did not come into wider use until much later. Nevertheless, supply chains are the central focus for many businesses wanting to achieve competive advantage. It is easy to see why it covers every stage from sourcing through to delivering the goods and services to customers. Supply chains are the central spine of most organization operations embedded in wider networks creating value for supply chain partners and customers. I once read that if you wanted to move to senior roles as a supply chain professional you needed to talk the language of finance – ROI, Profit Margins, Asset utilization and less so about fill rates, returns, backhauling, work-in-progress, fullfilment, stock-outs, back-orders, purchasing and sourcing. The truth of it is like most things in life somewhere in between. Isn’t it about time that the the ‘C’ Suite occupants were able to speak supply chain? Understanding the organization’s supply chain offers the capability to understand the business and potential sources of competitive advantage. Well the good news is that some do!
Many people on the Board of retail businesses, FMCG and manufacturing companies have spent some time working in the supply chains of businesses where they cut their teeth. The skills are transferrable and could take you on a journey to the ‘C’ Suite and even to CEO. There are a number of notable CEO’s with previous when it comes to supply chains including Tim Cook at Apple, Alan George Lafley at Proctor and Gamble, Tom Hayes at Ocean Spray Cranberries Inc. and Mary T. Bara at General Motors. This experience has proved invaluable when they step up into leadership roles. It has a number of benefits that include respect from the workforce knowing that you are one of them cut from the same cloth, know and understand the detail of what makes the business tick, and the skills you learned performing supply chain roles not only informs what you do but also helps identify capabilities and competencies that the organization requires. Flexibility and agility are not just supply chain concepts they are necessary to think, plan and guide an organization to a future position. Experience of teamwork and development roles on the way up will prove necessary at the top to move the business forward. Supply chain pro’s have a lot to offer when it comes to being the CEO.
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