Black Swans, Butterflies And Supply Chains: Predicting The Unpredictable
VP of manufacturing, technology and innovation at Jabil. Over 20 years of experience helping global teams deploy cutting-edge manufacturing.
Around this time last year, orders for big-ticket manufactured goods experienced the second-biggest decline on record as global manufacturing came grinding to a halt for those companies unprepared or unable to shift operations swiftly and seamlessly. In Nassim Nicholas Taleb’s book, The Black Swan: The Impact of the Highly Improbable, Taleb describes the increasing prevalence of “black swan” events as unexpected occurrences that produce extreme impacts felt broadly across our increasingly complex and interconnected world.
Taleb also regards technological breakthroughs, such as the development of the personal computer and the internet, as “black swans,” alongside major historical events including World War I and the terrorist attack on September 11, 2001. The Covid-19 pandemic fits the description pretty well, too, but Taleb doesn’t fully agree because others, like Bill Gates, previously shared pandemic premonitions.
Whether predicted or not, black swans are outliers with far-reaching ramifications. They are also related to another phenomenon called the “butterfly effect.” Considered part of “chaos theory,” the butterfly effect is the notion that one small occurrence can influence a much larger complex system. This is often described using an allegory that a butterfly flapping its wings could hypothetically cause a typhoon on the other side of the globe. An apt example could be the container ship that ran aground in the Suez Canal while disrupting international shipping and global supply chains.
Add Brexit, trade wars plus geopolitical issues and clearly the past 12 to 18 months have accumulated enough disruption to make even the hardiest supply chain professionals cringe.
Risk And Resilience
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According to McKinsey Global Institute, companies across a wide swath of industries can “expect supply chain disruptions lasting a month or longer to occur every 3.7 years.”
The pandemic tested supply chain risk and resilience in record-breaking ways. Still, it didn’t shake the resolve of global procurement and supply chain teams that forecast, plan and strategize how to mitigate every risk that threatens business continuity.
When intelligence, speed, data and technology all come together, typically anchored by sophisticated data analytics, the result provides end-to-end visibility across global supply chains. Real-time scenario planning can assess the impact of potential disruptions from unforeseen disasters caused by changes in the environment and the global economy. In some cases, such as annual events like hurricane season, adequate preplanning can lessen disruptions.
Other disasters, including cyberattacks, can occur suddenly and have immediate impacts on global supply chains. Preparing for these occurrences is difficult, requiring “what if” analysis and artificial intelligence (AI) to reduce risk while increasing supply chain resiliency. In the case of Covid-19, however, many companies weren’t prepared for the sudden and lasting disruptions to supply chains and logistics operations.
Getting From Point A To Point B
When pandemic-related travel restrictions shuttered most passenger air travel, it caused a major ripple across the air cargo industry since large volumes of freight travel in the bellies of passenger planes. Limited capacity led to higher rates, just as a massive uptick in e-commerce drove unprecedented demand for increased cargo transportation.
A year later, freight rates remain high. To combat this and remove logistical bottlenecks, many manufacturers have devised multiple distribution and regionalized manufacturing strategies. Embracing different routes and rationales for getting products from point A to point B is an excellent place to start — and easier said than done.
We need to quickly synthesize what happened and immediately plan for the next black swan and butterfly effect. How do we plan for an unforeseen event? Even if we had all the necessary data, could we collect, connect and share it to speed decision making when time is of the essence? How do we extrapolate the most meaningful insights so we’ll know next time how to respond faster with greater agility? Is it even possible to predict the duration and impact of unpredictable events?
All this reminds me of my advisor in college. He always seemed to anticipate our questions and the accompanying “what if” scenarios during class discussions. Then again, he was armed with the answer key, so he was able to present a story that was substantiated by the end result. He was adept at stitching together the various data points and evidence to reinforce the lesson.
Connective Tissue Reduces Surprises
Sometimes referred to as the “science of surprises,” chaos theory is highly sensitive to initial conditions that invariably affect end results. Luckily, the manufacturing industry is rooted in continuous improvement, constant reviewing and reiterating processes to achieve the highest quality. The ability to put together the connective tissue is what continues to drive innovation and advancement across the sector.
For that reason, I am confident we will apply knowledge gained from the pandemic to improve supply chain resiliency while reducing risk. I also believe the greatest value will be gleaned from examining the connective tissue that links production processes from beginning to end. Those two endpoints contain the highest propensity for chaotic change and, therefore, the greatest overall risks. If we focus on the ends, it’s possible to extrapolate that if there’s disruption, this is how it will disrupt the center of the chain.
From an engineering perspective, the goal is to know, from end to end, what something needs to look like and how it needs to function. When that knowledge is combined with supply chain intelligence, you can better navigate the journey from the initial idea to the final delivery of finished products. What we’ve learned over the past year is that the smartest or safest route isn’t always a straight line.
Despite facing one of the biggest disruptions in recent memory, manufacturing has come back, and we have smart supply chains to thank for the speedy return. As digital supply chains continue to evolve, we will get smarter, faster and more flexible in response to chaotic events. We have the mindset and the methodologies — and because of the pandemic, we now have valuable lessons to inform future decisions.