Supply Chain 2.0: Managing Supply Chains in the Era of Turbulence

Purpose – An underlying principle of supply chain management is to establish control of the end-to-end process in order to create a seamless flow of goods. The basic idea is that variability is detrimental to performance as it causes cost in the form of stock-outs, poor capacity utilisation, and costly buffers. This paper questions this approach and argues that in the light of increasing turbulence a different approach to supply chain management is needed. Design/methodology/approach – The paper reports on the authors' work on a Supply Chain Volatility Index and shows how current supply chain practices may no longer fit the context most businesses now operate in – primarily because these practices were developed under assumptions of stability that no longer hold true. The paper illustrates the findings with case study evidence of firms that have had to adjust to various aspects of turbulence. Findings – The paper is able to show that most current supply chain management models emanate from a period of relative stability, and second, that there is considerable evidence that we will experience increasing turbulence in the future. This calls into question whether current supply chain models that feature some dynamic flexibility, yet are built on the general premise of control, will be suitable to meet the challenge of increased turbulence. Practical implications – It is argued that what is needed to master the era of turbulence is structural flexibility which builds flexible options into the design of supply chains. This marks a major departure from current thinking and will require revisiting the management accounting procedures that are used to evaluate different supply chain decisions. The paper presents guidelines on how to manage supply chains in the age of turbulence: by embracing volatility as an opportunity rather than viewing it as a risk, by understanding its nature and impact, and finally by shifting the exposure to risk by building hedges into the supply chain design. Originality/value – The paper questions the fundamental premise upon which current supply chain models are built and proposes an alternative approach to build structural flexibility into supply chain decision making, which would create the level of adaptability needed to remain competitive in the face of turbulence.