It’s easy to flip through history books and pinpoint pivotal times that seem obvious now, yet no one seemed to see coming. World War I. The dissolution of the Soviet Union. These are black swan events — single points in history so jarring, you feel their ripples worldwide. Now, COVID-19 joins that list and its’ impact to supply chain strategy is top of mind for many logistics leaders.
“COVID-19 is certainly the ‘black swan’ that has disrupted global supply chains unlike any modern-day event short of a world war,” says Joel Sutherland, Managing Director of the Supply Chain Management Institute. “Yes, there have been other ‘black swan’ events, such as 9-11 and Fukushima. But nothing that has impacted so many people around the world for such a prolonged period of time.”
Featured Expert
Joel Sutherland
As the Managing Director at Supply Chain Management Institute, Joel Sutherland is an undisputed authority within the industry. He’s been a speaker, author, program contributor, workshop leader and guiding voice for more than 40 years, bridging classic concepts with the evolving industry.
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“COVID-19 is certainly the ‘black swan’ that has disrupted global supply chains unlike any modern-day event short of a world war.”
Joel brings a wealth of insight to the conversation of coronavirus vs. supply chain. He has more than 40 years of experience as a supply chain executive, educator, consultant, and public speaker. He’s the former Board Chair of the Council of Logistics Management (CLM) (2001-2002) and was responsible for developing the definition of supply chain management used by the Council today. He even led the effort to change the Council’s name to its current moniker, the Council of Supply Chain Management Professionals (CSCMP).
Today, Joel is a subject matter expert in high demand, contributing to the WSJ, The Economist, USA Today, US News, and other trade publications/journals. He was kind enough to sit down with RateLinx to discuss his take on the pandemic and what it means for the future of supply chain management.
A Black Swan Sends Ripples Across the Pond
A black swan event is an extremely rare, mostly unforeseen negative occurrence that can have massive, severe consequences. These events have three hallmark traits:
- They can’t be predicted or anticipated with any real certainty;
- They have substantial fallout and rippling (negative) effects;
- They’re often rationalized in hindsight or insisted to be obvious.
The coronavirus pandemic hits all three. The world is on the second trait of this event, feeling the ongoing economic damage it’s causing. For supply chain leaders, the fallout has and continues to be nothing short of unprecedented, impacting supply chain strategy.
“Because supply chains are global, with a single product potentially relying on hundreds (if not thousands) of suppliers in different geographies and countries, the steps taken to mitigate this pandemic are staggering,” he says. “Many international borders are closed, and most forms of international transportation are limited. For products and services requiring international transactions, the effects are significant.”
The steps taken to re-stabilize global supply chains will determine how quickly we recover from this event, and how well-equipped we will be for future calamities.
“For companies like the U.S.—where we can revert back to local suppliers for our critical needs—mitigation effects are possible over time,” says Joel. “As a result, I believe we will see a resurgence of reshoring production back to the U.S. from low-cost countries such as China—especially for products in demand in the local market.”
Can Technology Pull Supply Chain Out of a Swan Dive?
The suddenness of black swan events is usually followed by a gradual recovery—one that’s measured in years, or even decades. But supply chain managers don’t have years or decades to reinvent the wheel on their supply chain strategy. They need solutions now, so it’s no surprise supply chain leaders are throwing their weight behind technology.
“A development that is incredibly exciting is the confluence of new technologies that will enable ‘smart’ production of nearly all products as well as increasing supply chain efficiency and effectiveness,” says Joel. “Starting in Germany with Industry 4.0 and migrating to China with China 2025, new technologies have the potential to change the world. These include AI, cloud computing, robotics, IoT, predictive analytics, autonomous vehicles, 3D printing, blockchain, and more.”
While we may be ‘living in unprecedented times,’ these technologies aren’t novel. They’ve been slowly emerging for the last decade. The pandemic has just lent a sense of urgency to making them work at scale. These technologies are part of a solution to power past the effects of coronavirus on supply chain strategy.
“Does this [technology] meet the criteria for ‘unprecedented?’ Not in my opinion. Industry 4.0 represents the 4th industrial revolution, so by definition, we are in the midst of a major leap forward, much like the first industrial revolution in the late 18th and early 19th century started the transfer of hand labor to machines,” says Joel.
Recognize Risk and Plan for It
If there’s a silver lining to a black swan event, it’s a new appreciation for risk management. According to Joel, this is something sorely needed for supply chain’s successful future. In addition, supply chains need to plan for whatever the next disruption may be.
“Companies must put the effort into developing a thorough risk plan in place—even for “black swan” events—if they are to survive a major disruption”
“An area often discussed, but more commonly ignored, is Supply Chain Risk Management. I often ask business leaders to identify the person/department accountable for managing risk in their organization. I most often receive a shrug in response,” says Joel. “This involves a committed effort to understand potential risks to a firm’s supply chain (including suppliers’-suppliers to customers’-customers). Not to mention, the probability for such a disruptive event, the impact on your supply chain should it occur, and a well-thought-out mitigation plan.”
Planning for the unplannable might seem counterintuitive, but it’s not about planning for every potential calamity. Rather, it’s planning for resilience and flexibility regardless of the nature of the risk.
Supplier Risk Management
“Companies must put the effort into developing a thorough risk plan in place—even for “black swan” events—if they are to survive a major disruption,” says Joel. “There are a myriad of things that need to be done, so I can’t list all of them, but let’s just start upstream with suppliers. This is where the supply chain starts, so shouldn’t you make sure your firm has selected quality suppliers who provide the necessary resources, visibility, scalability, quality, etcetera?”
In Joel’s experience, risk planning goes hand-in-hand with mitigation, which runs peripheral to a strong supply chain strategy. It’s not just about building a strong, stable supply chain—it’s about preserving it.
“Strategy is easy, execution is tough,” says Joel. “I don’t want to leave one with the impression that developing a strong and meaningful supply chain strategy is easy, because it’s not”. Part of the challenge is bridging the gap between developing and executing a plan.
“I have seen many thorough and wonderfully written plans sit on the shelf gathering dust because they leave the execution component out. Assign accountability—who specifically, not which department or business unit—with due dates, metrics of success, penalties and rewards established, next steps, etcetera,” says Joel.
He goes on further to say, “if I were to identify the one key element that seems ignored too often, it’s strong project management skills.”
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Supply Chain Strategy Leadership in the Face of a Black Swan Event
Black swan events do more than serve as the catalyst for change—they enable the rise of leaders. Before the world can begin to rebound, leaders need to take charge and forge the path to recovery. This is especially important in the context of supply chain strategy in a post-COVID-19 world.
The pandemic continues, but it’s never too early for leaders to emerge. Joel believes tomorrow’s leaders need to make sure they’re setting their feet in the right direction to establish themselves today.
“Leaders inspire and motivate others to follow. That said, not all leaders lead in the right direction—that is, towards the desired [optimal] outcomes. We must earn the recognition of effective leadership over time with a high level of success,” he says. “There will be failures or shortcomings along the way, and we should expect these. Leaders demonstrate they are not afraid to take chances and will learn and improve from their mistakes.”
As Joel sees it, supply chain leadership is another risk assessment to embrace. The decisions leaders make in the most uncertain of times require confidence. Those who understand risk and don’t shy away from it are the ones poised to bring certainty to the future.
“Success in managing supply chains requires some level of risk. Whether this be entering new markets, creating new products, outsourcing production or distribution, or introducing new technologies,” says Joel. “It is rare that successful leaders succeed in everything they do, but successful leaders always learn and improve.”
Stability and Confidence are Key to Supply Chain Leadership
Beyond a willingness to embrace risk, supply chain leaders also need to represent stability. In ‘these uncertain times,’ leaders who represent confidence, stability, and a direct connection to the people that rely on them will be the ones who guide supply chains into safer waters.
“Working within the Toyota culture taught me the value of creating trust, empowering people, and recognizing success,” he says. “I learned that MBWA (management by walking around) was more important than issuing orders to an unseen workforce. Engaging the people actually doing the work, from forklift drivers to inventory analysts and line supervisors, not only educated me to become more knowledgeable. It enabled me to make more informed decisions. And, it earned the trust and respect of the people I was responsible for leading.”
Black Swans Can Bring Progress
Despite being unanticipated and catastrophic, yet obvious in hindsight, all black swan events in history have one thing in common. They were all followed by progress. WWI ushered in amazing advances in medicine and engineering, among others. The fall of the Soviet Union contributed to the formation of the European Union. Coronavirus will follow this pattern, bringing new advancements and opportunities to how we orchestrate, manage, and adapt global supply chains.
Joel’s focus on technology, risk management, and leadership, suggest a future where supply chains are ready for the unknown. Even another black swan event.
