Designing supply chain in a VUCA (volatility, uncertainty, complexity and ambiguity) environment

 Author: Shubham Kumar Thakur

Topic: Designing supply chain in a VUCA (volatility, uncertainty, complexity and ambiguity) environment

Sub-topic: Hyper Local supply chain strategy

Originally written as part of article writing competition for Opsession, MDI Gurgaon in July 2020

In a VUCA or Volatile, Uncertain, Complex and Ambiguous environment, we are asking the designers to take into account a volatile market, unforeseen complexities, uncertainties that threaten to derail the whole chain and ambiguities in process execution that make the system inefficient. Hence, rather than applying blanket policy, care is taken to tackle each new scenario on its merits and make provisions accordingly.

A hyperlocal supply chain, delivers goods available to customers in shops within a 5-10 km radius. The goods are picked up from a pre-stocked shop by the aggregator and delivered to the customer, generally in under an hour. This speed makes it a game changing model that has the entire supply chain industry craving for a piece of the action. Furthermore, hyperlocal supply eliminates the need for any form of warehousing or multiple delivery partners, since it is available in ready stock in a shop that already sells it. It also carries a stamp of authenticity for people who like to know where their products come from, which in the non-existing online meat and seafood industry in India, can be a gamechanger.

Let’s break down VUCA in terms of a hyperlocal supply chain term by term.

Complexity refers to a situation that has “too many moving parts”. These are generally thought of as an accepted consequence of increasing scale or efficiency. However, this arrangement gives each “moving part” the ability to bring the whole system to a halt. As is learnt from online grocery businesses like BigBasket and MilkBasket, growing in scale requires more money, but also requires more manpower that you can trust. A local store has every chance of being misrepresented by a sour employee associated with an online aggregator, leading to valuable loss of on-ground credibility for the aggregator. It is pretty difficult for a bigger brand looking to penetrate in a hyperlocal market without roping in local stores to do their bidding. It is even more difficult for bigger brands to extend credit to customers (something that is the norm for local stores) without stacks of paperwork and a cumbersome verification process. The local store, operating on familiarity, can present the bigger brand with an opportunity to reduce this complexity. The bigger brand can extend credit facilities to the local store which the local store can further extend to customers based on the local store’s relationship with them, thereby reducing the amount of paperwork required. The big brand gets a loyal customer who is satisfied with the hassle-free process and the local store gets to build a long-term relationship with the customer. An obvious failure of this exercise would occur if the local shop is biased in their credit dealing or cooks the books with fraudulent transactions, both of which can break down the whole system.

Volatility generally refers to a situation that is unexpected or destabilizing, which, although has precedence and is well documented, is hard to ascertain the duration of. This generally arises when any of the parties involved have lost faith in the other parties. A price rise on supplier’s end that is not acknowledged by the aggregator or deep discounts offered by the aggregator that force the local store to operate at a loss are all examples of a volatile situation that can spontaneously combust. Furthermore, disruption by way of natural disasters, refusal to work by delivery personnel, credit overreach by local store and fraudulent transactions are all common causes of loss of faith in the market by customers and suppliers alike. This is evident in the recent scandal breaking out of Oyo Rooms. Oyo Rooms captured the low rent hospitality business by storm, emerging as the standard for a segment the entire industry was intent on keeping away from the spotlight. Oyo worked hard to legitimize the sector, framed a standard for local businesses to operate in and marketed the same to the masses effectively to ensure that it had global recognition. Oyo drove business to the hotels by giving deep discounts and undercutting the local competition with incomparably low prices. All of this burnt a hole in the pockets of both Oyo and affiliate hotels. When the purse began tightening, Oyo employees began infighting over clients, created fraudulent deals to meet monthly targets and delayed payments to affiliate hotels. The Oyo business model is a very successful example of a global model that caters to a hyperlocal demand which was marred by volatility created by operational transgressions and trust issues.

Ambiguity in a supply chain occurs when causal relationships are unclear, when partnerships work more on the unspoken word than written agreement and especially when all partners in the supply chain head into a new market with no definites and a lot of unknowns. An ambiguous relationship is formed when a bigger global brand steps into a new market and associates with a local store owner to get started. The store owner, who is otherwise accustomed to handling all aspects of the operation, is relegated to a position of being another cog in the wheel. The local store owner is not aligned with the best interests of the bigger brand and feels stripped of presence in a market that he had previously worked hard to penetrate. This will definitely hurt the bigger brand in the long run. Expansion in a new market leads to a lot of new hires, and when the team is small, a lot of overlap exists with multiple people donning different hats to get work done. When this team grows and individuals become more confined to a well-defined role, sometimes, this transition can be difficult on some team members. It is at this point that the team leader should take the time to have a chat to ease this transition, ensure that the right people feel heard and in turn these right people take the time to listen to others as well.

With this we come to the last step in the analysis, Uncertainty. In a hyperlocal environment, being undercut by the competition is as much a given as the tides in the river. After a company primes the market through awareness and robust network development, all it takes for the competition is to pour in more money to buy out the network. That’s all. All the hard work of the prime mover is undermined, but there is also a catch. When the prime mover puts in the grind of establishing a dealer or a service network, it also learns from the experience of what works and what doesn’t in that particular market. This intellectual property generally cannot be bought unless the entire prime mover staff is bought off. Hence, what the prime mover can do when faced with fierce undercutting competition is to ensure that the team sticks together and that their user experience, down to every interaction of the brand or its representative with a customer or dealer is notable and unforgettable. Nothing beats the human aspect in a supply chain. It is the weakest link in a supply chain but when the need arises, it rises to become the one link that holds it all together.