Lean SCM in VUCA Times

As Supply Chain Management became a staple in logistical practice around the world, many related business processes were optimized according to lean management principles. They revolve around growing efficacy and/or efficiency and therefore cutting process costs. In SCM, this was and is often realized by eliminating perceived waste and streamlining aspects of the supply chain. Just-in-time deliveries (saving warehousing costs) or wide-ranging reduction of lead times (elimination of wasted time) could be examples of this. This style of management is obviously beneficial: In a competing environment, it was and is vital to use resources as efficiently as possible – an attitude which also resonates with the reality of the looming climate catastrophe. While the logistics sector is not the most climate friendly, the lean management of its supply chains (beyond logistics) can cut costs dramatically and secure the success of lean practicing Logistics Service Providers, who are able to provide competitive options in transportation and warehousing.

The term VUCA describes an environment characterized by volatility, uncertainty, complexity and ambiguity. These factors signify unpredictability – an obvious enemy of lean management, which relies heavily on a flow of demand and supply, which, if not completely constant, is required to at least be foreseeable in nature (e.g. seasonal). Recent events could make the case for a VUCA environment in SCM: Financial collapses, inflation of prices and growing interest rates make for a volatile fiscal environment. Wars and unrest, embargoes and sanctions make logistical processes uncertain. Related fast changing political relationships cause complexity and ambiguity in legal aspects, not just for Jordan and Germany.

The combination of this current environment with the lean management trend causes a growing fragility of the chain’s links. This is (at least partially) due to one sided optimization, which usually exclusively takes the overall financial costs into consideration. Therefore, it perceives buffers and wiggle room in processes as a waste of resources, the elimination of which occasionally does not even stop for safety stock, as its holding is perceived as an unnecessary expense. This practice proves to be a nightmare for the management of associated risks, which rise with every tightening of the supply chain, as the pressure on each link grows. A commonly cited risk influencing the supply chain’s performance is single sourcing, highlighting the shaky reliance on a low number of suppliers to realize low prices through high volume and exclusivity – while insufficiently considering the threat of an outage. Other lean tactics involving different parts of the supply chain contain their own risks, be it in sourcing, production or delivery. As environments become more volatile, uncertain, complex or ambiguous, risks of a tight supply chain multiply, causing ruptures in a streamlined system that is laid out for a predictable setting. 

The combination of lean SCM and an extensive VUCA environment poses a growing threat to reliable processes and is a potential risk factor in a time of multiple uncertainties. Logisticians on the ground have to consider these new circumstances in their activities. Closely timed sequences are to be reviewed regularly in changing conditions, safety measures are to be reevaluated constantly to guarantee a robust and functional supply chain. It could be helpful to keep in mind that just like in tackling the climate catastrophe, the short-term profits and costs are not the only worthwhile measurement. 

Research on the relationship of lean methods and uncertain environments is an immensely important field to ensure the integrity of supply chains. Innovative projects on this topic can be conducted in the developing JOINOLOG center.