Co-Founder, Berlin KraftWorks Inc.
In part 1 of this series I discussed some fundamental ideas and approaches required to start from scratch and build a supply chain system. If you take those to heart, you will find that you are immediately confronted with incredible, unlimited complexity and variability around what to do next. I call this chaos, that which is unknown, impossible to know, and virtually impossible to plan for. In an early-stage company, or at the earliest stages of any product development, chaos is all that exists.
Chaos can present itself to organizations as:
We are told that we need to plan, set rules, buy technology, and invest capital with the promise that we will eliminate chaos. But how do you eliminate that which is unknown and impossible to know?
Embrace the chaos
We are taught to view chaos as a bad thing. I argue that creativity in its purist form is chaos, and no innovation or leap of progress can be made without it. A music composer takes infinite complexity, the unlimited chaos of sounds, colours, and emotions and blends them into a masterpiece. Successful businesses don’t spend much time trying to avoid chaos, instead they manage those things that are within their control and build processes that can respond ever quicker to changing complexities and those things they can’t control. Life is chaos, to attempt to live life chaos free is futile.
If you are at an early-stage and building a supply chain from scratch, then you owe your very existence to chaos. Your new firm or product idea was born because existing companies or products failed to respond to some changing need, some complexity, some type of chaos. It is up to us to embrace and harness the power of chaos.
A balance between order and chaos
In part 1, I mentioned that you need to focus on those things which you can control. Those controls are required to ensure that your firm operates consistently, predictably, with known costs, benefits, and measurable progress for any given activity. In supply chain, this means that there is a hierarchy or universal organization of elements which must exist (and must exist as an interactive system) before any of those elements can function well. Back in the day, we referred to it as “the planning hierarchy”. My former professor and mentor, the late Lloyd M. Clive (co-author of the seminal book “Introduction to Materials Management”) used to tell me “tattoo that hierarchy onto your brain, and you will be able to navigate any conceivable supply chain challenge". After 20 years of testing that assertion, I can confirm that he was exactly right. However, and this is critical, this structured approach should not be applied to prevent chaos. Instead, consider that it is required to bring your focus where it needs to be to consistently and predictably manage what is known while also harnessing chaos by providing a system flexible enough to learn and adapt on a dime.
Processes for process’s sake – an unmeasurable waste
I have seen countless firms build process upon process, implement technology upon technology, in order to “improve performance” without consideration of the overall business case, or without a system thinking approach. This approach is flawed. The inevitable outcome is a strict, inflexible set of policies and processes which do the opposite of perform, they absorb capital and time (an unrenewable resource) and most often end up existing for the sake of existence. We’ve all just witnessed a great example in real life with young start-ups pivoting to fill PPE needs faster than the well-established firms could react, and go on to prevail in delivering value to their customers. Start-ups are full of chaos (unlimited complexity), while mature firms are full of order (constraints applied to reduce complexity). But its chaos that demands order to constantly evolve.
The planning hierarchy need not be complicated, in fact its better if it's not. It should be continuously measured and reviewed against the business case, to ensure that it is controlling that which can be controlled, predictably and reliably. And the business case should be continually measured against performance to the customer needs. Anything beyond that is waste. Early-stage firms will require only basic elements in their planning hierarchy, and if any of them become more effort to manage than the benefit they provide, you have to consider that it may be going too far.
Consider Continuous improvement, a well-known (and important) part of effectively managing process. But if there is a shift in the business case, or processes are no longer supporting the business case (ex. dominant focus on local-level performance metrics instead of system-level) firms are at risk of creating more waste in continuous improvement instead of improving performance. Dr Russel L. Ackoff, a pioneer in System Thinking once said “Continuous improvement isn’t nearly as important as discontinuous improvement.” And indeed, he was right. Discontinuous improvement is chaos. It is step-function change, as opposed to gradual ongoing improvement. It’s also the ability to pivot and adapt quickly when conditions or requirements change unpredictably, or when the customer demands it.
For early-stage companies, the adoption of process controls and best practices is not nearly as important as adaptation of principles to the specific situation of the firm or the product.
Putting it together
I usually tell those who are building a supply chain from scratch, to embrace the chaos but keep that seatbelt on. Process and a hierarchy are required to reduce the chaos to manageable terms, but the key is to adapt these to the firm's needs, not to adapt the firm to the process needs. If viewed with a system thinking mindset, the task of balancing chaos with order will be dictated by how well the firm understands and delivers to its customer. Chaos allows the firm to be creative, and well-developed order allows the firm to quickly adapt to changing conditions with greater speed, ease, and repeatability However, it’s critical to remember that the customer is the most important part and process must never consume more than the value it delivers.
In my next post, I’ll explore the planning hierarchy in detail and how it becomes the foundation for any firm’s supply chain (and operations), and how it can be adapted to early-stage firms.
Want to read more in the Creating a Supply Chain from Scratch Series? Click the links below:
Part 1 - Understanding What a Supply Chain is and When to Start Establishing Your Product's Supply Chain
Part 2 - Understanding Chaos and How to Work With It
Part 3 - The Planning Hierarchy: Unlocking the Path Forward
Part 4 - The Bill of Materials - The Journey is At Least As Important as the Destination
Part 5 - Supplier Management