VUCA, short for volatility, uncertainty, complexity, and ambiguity, was starting back in the early of 1990s. This term is created by US army in the end of Cold War to describe the situation at that time. In today’s global supply chain, where product’s movement is no longer bounded by geographical area, which means more parties involved, greater and diverse risk, the more it is susceptible to unforeseen circumstances as well as fluctuations on price, and potential of global weather disturbances, VUCA can be said as our new global logistics and supply chain challenges in 21st century.
Volatility, Uncertainty, Complexity, and Ambiguity or VUCA are considered as the driver to provide accurate description of current business environment and it’s direct impact on supply chains (Miles, 2011). Miles also listed the element of VUCA as buyer’s market, globalization, corporate churn, reputation, and regulation.
Another expert, Sullivan (2012) identified VUCA as an acronym for an rapid changing environment with fluctuating trend known as Volatility, the situation when major disruptive changes occur frequently which is known as Uncertainty, the existence of enormous causes which are difficult to understand known as Complexity, and when the causes and the different circumstances behind the things lead to different understanding which is known as Ambiguity.
There are 2 types of volatility in supply chains, which are economic volatility and demand volatility. There are several factors that contributed to such disruption of economic volatility such as availability and price of primary commodities, currency fluctuations, geopolitical events, and etc. Somehow, companies may turn such economic volatility into their competitive advantage if they are more agile so that it becomes opportunity rather than threat. While in demand volatility there are factors such as increasing customer choices, product customization, rapid technological improvements, global competition and upstream supply fluctuations. Traditionally, supply chain processes were designed push-driven rather than pull-driven, but now the trend shows a different fact.
There are several strategies a company could use to manage volatile demand in a cost effective and efficient way:
- Supply Buffer Management
- Cycle Time Reduction Strategies
- Postponement Strategies
- Collaborative Processes
Demand volatility is related to the bullwhip concept. Bullwhip effect is an amplification of demand variability from downstream to the upstream site.
Uncertainty occurs when lack of information or understanding on supply chain system for the decision maker. Davis (1993) stated 3 source of uncertainty in supply chain system, which are demand, manufacturing process, and supply.
To cope an uncertainty circumstances, Mason-Jones and Towill (1998) created an uncertainty circle model which classified uncertainty on supply chain into manufacturing process, demand side, supply side, and planning and control system.
Figure 4 Improvement Strategies to Reduce Uncertainty
Under the manufacturing process uncertainty, MUDA or eliminating waste can be used as a strategy to cope such an uncertainty. Partnering scheme and information sharing seemed like a good strategy to deal with supply uncertainty. Under this condition, unreliable and poor performance of supplier becomes the main factor a company has to deal with supply uncertainty. Demand uncertainty is related to the gap between actual demands with the customer’s order. Postponing product customization and partnering schemes information are strategy to cope with demand uncertainty. Under control uncertainty, the impact is on transformation of customer’s order into satisfactory deliveries. A good decision support system and push/pull approach may suitable for control uncertainty strategy.
The word complexity refers to a vast and broad range of variations. Supply Chain Complexity is differentiated into 2 types, detail complexity and dynamic complexity. Detail complexity deals with exact number of numerous components or parts composing a system, while dynamic complexity refers to the lack of predictability in system’s response. While another source divides complexity into 3 main aspects, including operational complexity, logical complexity, and administrative complexity.
Operational complexity is mostly driven by globalization factors. Customers requires a various types of product nowadays, leading to a complex manufacturing and distribution system on manufacturer. A partnership and regulation also become the driver of operational complexity in term of market competition and government policy. As technology advances, the volume of data transmitted becomes greater than ever, which needs to be filtered to get the useful information. Incomplete information can lead to the amplification in demand causing the “bullwhip effect”.
In order to get on top of the complexity challenge, 4 stages of complexity management model can give a strategy to manage supply chain complexity as effective and efficient as possible. These four stages including identifying, measuring, analyzing, and controlling. In dealing with complexity, a company may face an excess inventory condition. Instead of unnecessary cost, excess inventory may become a useful things to cope sudden change in demand. Supply chain complexity triangle proposed by Wilding (1998) is also a useful method to manage complexity by classifying it into 3 combination of independent variables, which are deterministic chaos, parallel interactions, and demand amplification.
Ambiguity is defined as the inability to accurately recognize threats and opportunities before become real. Ambiguity deals with the decision makers not the information. Lack of knowledge of the decision makers to give meaning on the information, may lead to the different perception among supply chain parties. Hence, information sharing is important to improve supply chain performance.
As supply chain world becomes more complex, the enormous data and information flow to all directions across system can provoke a misinterpretation of supply chain player as information passed from one entity to another. So that it is required an accurate sharing and correct interpretations in supply chain parties and processes to minimize such an ambiguity occurrence. Kambil (2008) proposed some key concepts to tackle ambiguity such as awareness on language and systems across processes, reviewing variance of information to ensure that both side have common interpretation, and implementing joint planning and coordination across processes to achieve clarity in ambiguous situation.
In today current situation, supply chain activity has to deal with VUCA as the impact of globalization and technology development. Supply chain has to deals with rapid changing condition with fluctuating trend named as volatility. The lack of information creates uncertainty inside the supply chain system leads to the creation of bullwhip effect. Vast and enormous components, products, and players in the supply chain system add the complexity on the distribution and logistics system. Different interpretation of decision makers toward the supply chain information also becomes the obstacle in managing the system. In order to compete in this VUCA conditions, some strategies that are already mentioned above could be used as method to at least minimizing the impact of such a situation.
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