Managing Chaos

As a series of crises threatens the global economy, agility and resilience are the twin weapons to navigate through these chaotic times

Hapag-Lloyd CEO Rolf Habben Jansen’s third-quarter overview of his company had an ominous ring for suppliers of Harry Potter merchandise to departmental stores around the world preparing for Christmas shopping. Jansen warned:“If we look at the operational challenges that we have, they are currently still very, very significant, and we do not expect to see any normalization until Chinese New Year ’22. ……I would seriously hope that after that, we will see a gradual normalization — until we go into the next peak season of 2022.”

“We’ve run out of Harry Potter stock,” lamented ElvijsPlugis, co-owner of fandom-themed collectible shop House of Spells, based in Charing Cross, London. The firm now has 35,000 toys held up at ports, worth a quarter of a million pounds.

It’s a Mad Bad World!

A series of crises is threatening global economic recovery; and it’s happening all at once. The list is painfully long and torturous – inflation, COVID-19 third wave, cybersecurity, rising global debt, skyrocketing energy prices, and now an unprecedented shipping crisis, container, and labour shortages. While some of these were baked into corporate strategies, some were highly unpredictable giving sleepless nights to CXOs in every major organization. Manufacturing today is a highly globalized activity and depends on well-oiled complex and interconnected supply chains of hundreds of thousands of components. Global trade and manufacturing can collapse, even if a tiny link snap somewhere.

This convergence of crises has made strategists relook at managing chaos and uncertainty. Surviving the current chaos and thriving in uncertainty is high on the agenda of every CXO across organizations in every corner of the world. Agility and resilience are the twin weapons to navigate these turbulent times, which has few or no historic parallels. Companies at times need to respond with lightning speed to take advantage of an evolving situation or a crisis that is almost like a bolt from the blue.

The Show Goes On

During the multi-day celebration of Chinese New Year, movie theatres are typically full of families. However, in January 2020, due to the spread of COVID-19, most theatres were empty, and many had closed their doors. The Huanxi Media Group (Huanxi) stood to lose millions on its New Year-themed movie Lost in Russia. While most of its peers decided to postpone their releases, Huanxi approached Bytedance, the Chinese company behind the blockbuster app TikTok. Bytedance was not an obvious distribution partner, as its properties mostly stream short-form, user-generated content. TikTok, for instance, caps videos at 15 seconds — and Lost in Russia clocked in at over 2 hours.

In just two days,Lost in Russia racked up 600 million views on Bytedance platforms. Not only did the movie gain a huge following, but it also led to a flood of goodwill from Chinese citizens who were frustrated about not being able to leave their homes during the outbreak. By waiting, other studios missed out on a major opportunity to build market share and capitalize on a limited-term opportunity.

Investing Forward

Some companies have found the surge in demand for their services during these uncertain times as a good reason to create robust processes and invest for the future. Hapag-Lloyd is modernising and expanding its fleet. The company has ordered 12 ships, each with a capacity of more than 23,500 TEUs, at a total cost of $852 million. Apart from investing in our fleet, the company has also invested in other key areas of its business to boost its digital capabilities to provide better transparency on vessel departures and arrivals.

Swiggy, one of India’s largest food-delivery start-ups built a platform that included more than 160,000 restaurants in 500 cities. During the COVID lockdowns, restaurant activity, including deliveries, fell by more than 50%. Swiggy realised that its overdependence on fixed location, traditional “sit-down” restaurants as delivery partners was a severe vulnerability. In response, it started a program to add street food vendors to its platform, ultimately adding more than 36,000 of these vendors. While servicing these vendors was less profitable, they provided valuable “slack” during the crisis, while also delivering a societal benefit. As a consequence, the company rebounded to about 90% of its pre-COVID food delivery volumes.

Strengthening the Chain

The pandemic was a major wake-up call for supply chain professionals. Focusing on how to reduce global risk is now a very important part of company strategy and disaster preparedness.Global supply chains require a different kind of planning. To mitigate supply chain risk, many companies have established alternate suppliers, identified sub-suppliers and sub-sub-suppliers and the associated risks, and initiated much closer management control over the entire value chain. Some companies have adopted a new class of supply chain software that uses Artificial Intelligence to identify new risks and provide early warning signals.

Automation and demand forecasting are at the forefront of supply chain improvements that leverage AI and machine learning (ML), but organizational culture change is critical to drive true optimization.

Traditional supply chains follow specific, predefined workflows: Do A, then B, then C. This is how most manufacturing execution systems work. The opposite is a nondeterministic system, where workflows aren’t predefined and the automation itself has flexibility in how it handles business rules. Enhanced digital manufacturing solutions can shuffle and optimize manufacturing workflows, avoid unplanned downtime, and reduce product line switching costs.

Machine Learning delivers unprecedented value to supply chain operations: from cost savings through reduced operational overhead and risk mitigation, to enhanced supply chain forecasting, speedy deliveries, and improved customer service, to name a few. McKinsey forecasts that the most significant benefits of machine learning will be in providing supply chain professionals with more significant insights into how supply chain performance can be enhanced, anticipating anomalies in logistics costs and performance before they occur.

Planning for Chaos

The pandemic also showed that investments in robust processes paid dividends and that they should be designed in advance. The chaos is perhaps a good time to invest in intelligent automation, and demand forecasting for supply chain improvements that leverage AI and machine learning. By using embedded technology as part of the Internet of Things (IoT), companies are better able to understand their customers. The more connected devices that can track and analyse customer movement throughout a facility, the easier it is to understand customer needs and optimize for maximum impact.

Machine learning can help solve the problem of under-or over-stocking. Based on the data that can be sourced from many areas like the marketplace environment, seasonal trends, promotions, sales, and historic analysis, with ML you can predict the demand growth. And you can prepare to fill your stores in advance as well as prevent excesses of goods or important parts for manufacturing.

Data science and machine learning techniques make it possible to track all the factors that can influence accuracy in demand forecasting at a scale that wouldn’t be possible for analysis by humans. Information such as weather or real-time sales can improve warehouse management and self-management of inventory systems. Across industries, competitive differentiation today will emerge from superior digital capabilities and technology endowment, more agile delivery, and a progressively more tech-savvy C-suite.