Coronavirus: Black swan events and how to avoid them

Posted on 2 Mar 2020 by Nick Peters

The coronavirus crisis in China has had an unexpected impact on manufacturing. Manufacturers in China were shut down in a bid to contain the outbreak, and supply chains went into shock. UK manufacturers such as Jaguar Land Rover and JCB, who had come to rely on an uninterrupted flow of parts from China, were forced to scramble for continuity. JLR resorted to using suitcases to ship parts. JCB closed down production. What does this tell us about how supply chains will evolve in the future?

The Coronavirus crisis is a stark reminder that black swan events still have the capacity to bring chaos to the best thought-through systems. While companies seek to plug the holes caused by broken supply chains in 2020, how can supply chains avoid such unexpected, left-field events in future, and how advanced is the academic thinking behind it?

I spoke to Professor Richard Wilding OBE, Professor of Supply Chain Strategy at Cranfield University, about how future supply chains will be able to adapt to absorb such shocks.

We don’t even know what the UK’s supply chain is going to look like in 2021, certainly as far as the EU is concerned. Have you thought about what the supply chain of 2040 might look like? 

Richard Wildin on Coronavirus and supply chains
Professor Richard Wilding OBE of Cranfield University. Credit: Richard Wilding

We are giving it lots of thought because you’re seeing the seeds of certain trends already occurring. For example, by 2040 we may have high-speed rail in place in the UK. Then the trend to net-zero carbon is going to start having quite big implications for the way supply chains are structured.

Given that trade – certainly with Europe – is going to be less friction free than it has been, this suggests supply chains may start shrinking, bringing a great deal more of the manufacturing processes back into the UK.

At one level, that sounds exciting and positive. At another, quite worrying, because you have to guarantee quality and price as well as availability. 

Yes, the changes in technology mean we’ll see more flexible micro-manufacturing facilities. The current Coronavirus outbreak is going to further act as a driver for full supply chains. I’ve been working with a number of companies in recent weeks for whom this is actually quite critical, because they’ve got the majority of their supply chain infrastructure and manufacturing based in China. So it will act as a driver for further automation.

Also, do we really want to move goods around the world? And what are the implications of that? So we are starting to see increased drivers for near-sourcing.

Nike has announced an aspiration which I found quite interesting. They foresee installing 1,200 automated machines, basically 3D printers, that would enable nearshoring, reduce shipping expenses, import duties, overproduction risks, creating 30% fewer production steps and also 50% fewer people.

Their current supply chain has one million workers in 560 factories, 75 distribution centres, and 30,000 retailers. You start to suddenly see that the planets are aligning around Industry 4.0, which is then driving supply chains to look different.

This article first appeared in the March/April issue of The Manufacturer magazine. Click here to subscribe

With regard to friction in terms of borders and controls and everything else, I think that by 2040 things will be pretty frictionless. If you look at the technology which is being utilised across the supply chain, most of all the paperwork, all the things that could potentially delay us, passport checks for example, could by 2040 just be automated.

It might be already: we’ve been hearing in recent weeks about how the Chinese authorities can recognise people through facial recognition, and are using that as part of dealing with challenges in terms of the current coronavirus situation. That same technology can be used elsewhere to actually speed check people.

Another example: virtual weighbridges. Camera systems and various other technologies mean we’ll very quickly be able to identify the weight of a lorry and examine its seals and so on and so forth. Ultimately, we could completely change the way we manage customs interventions.

Nike’s 3D printed uppers for its Flyprint range. Image courtesy Nike.com .

If we look at the Nike example, they’re talking of small factory units being distributed across population areas so that transportation costs are minimised.

Basically, you can buy to order and take huge chunks of the supply chain out of the equation. If that model is replicated, how is it going to be possible to have a multiplicity of products on that basis? 

One of the things we do lots of work on is what we call form postponement, the postponement of the final configuration of the product as late as possible in that product’s journey. You might globally ship what is called ‘vanilla product’. So the vanilla product would then be customised in the local marketplace for the consumers in the way that they wanted. We will still have global flows of raw materials, but the final manufacturing, the final configuration, is taking place increasingly locally. And of course, that also enables people to keep supply chains down.

You need an agile supply chain to really make that work. We’re already talking in some quarters about the bimodal supply chain, which is very important to think about. Mode one is the focus on predictability or lean. That’s if you like, traditionally where we’ve been. Mode two is focused on exploration. It’s all about agility and speed. It’s dynamic, it’s iterative.

The challenge is to have a culture where there’ll be certain bits of the business that will work in a very, very lean way, but other bits where you’ve just got to have agility to be able to cope and configure products. I think that these technologies – for example, additive manufacturing, which is what Nike’s exploring – will enable us to actually be far more agile in terms of what’s happening.

The other technologies that we should be thinking about are AI, obviously, and blockchain. Blockchain is touted as being the great hope of future supply chain security of information and transparency. Do you think it’s going to be front and centre of the future supply chain? 

I believe that by 2040, we will have some sort of blockchain. But if you look at the sustainability of the way blockchain works, the amount of computing power required and the impact on the environment that the Bitcoin blockchain is having on the planet, it is not sustainable that every supply chain operates in a similar mode. Now the overall concept of blockchain is excellent. But at the moment, the computing and algorithms aren’t quite right.

What I say to our students here at Cranfield, is that it’s actually a very simple concept when you think about it. There are only three elements to it. You’ve got some encryption. You’ve then got this distributed ledger where everybody has a single version of the truth, and everybody has to agree for that version to be changed. And then finally, the key thing is we have rules and protocols about how we manage that. From a supply-chain perspective, there are great opportunities.

If you think about it, every bit of supply chain data could be put into some sort of blockchain-structured file system and various parties can have keys to open elements of that file, but not see everything. Customs might be able to open every single lock on the door, to get total transparency of what’s actually going on. I think the principle is excellent.

At the moment, I’m not sure this is going to be something that we’re going to be able to roll out across the supply chains in its present form, because of the impact on the environment and the amount of energy which is required to run it. I think what we’ll probably find is a similar sort of approach, but there will be a different way of doing it, which is less impactful on the planet.

Any manufacturer reading this is probably thinking to themselves, oh my Lord, yet more disruption in the coming years and decades, another thing that we have to prepare for – yet more cost and investment. Who knows which direction is going to be the right one? 

So often, evolution can appear quite revolutionary to those who are having to decide at which point to jump on a very fast moving conveyor belt. I’m wondering if there isn’t a danger in this, that it’s not going to be terribly smooth and that some people risk getting hurt in the process. 

I don’t think there’s any doubt that there are organisations which by 2040 will no longer exist, and these will be very big organisations that we hear about today. Just look at organisations over the last 20 years which have reached their pinnacle I don’t think there’s any doubt that there are organisations which by 2040 will no longer exist, and these will be very big organisations that we hear about today “ and then gone into decline and have fallen off the radar.

In supply chain terms, there are quite a large number of them. So yes, these disruptions are going to cause some significant changes. When I work with people on forecasting, I generally say that there are only two types of forecasts, the lucky ones and the wrong ones. So if at all possible, don’t bother doing either of them. You’re best off actually having a system which doesn’t need you to forecast. In other words, you are adaptable.

In that mode two which I talked about, having that agility enables you to actually respond and move as these disruptions to markets occur. Also, we’re now having to question whether a lot of the ways in which we have manufactured and done stuff in the past are appropriate?

If we look at the skills which people need to operate in industry now, they have completely and utterly changed. And so we are starting to say the old way of working, the way we worked from post-war to 2010 is over.

Things are changing dramatically. What we’re going to find over the next 20 years is that the way we do business, the way we interact with our customers is going to change and that is going to mean that suppliers and suppliers’ suppliers are all going to need to change as well.

Professor Richard Wilding is Professor of Supply Chain Strategy at Cranfield University.

He blogs at: www.richardwilding.info and tweets @supplychainprof

You can hear a full audio version of this interview at The Manufacturer podcast