It’s high time to go beyond visibility

Digital systems that enhance supply chain visibility up and down are among the most important investments companies make today. Real-time visibility of inventory, capacity, supply, and demand conditions is central to agile supply chain operations in dynamic environments.

However, even excellent visibility may not be sufficient to adapt supply chains in time for more fundamental shifts. Most businesses encounter intensifying geopolitical tensions, revolutionary advances in artificial intelligence and automation, pressing environmental sustainability concerns, and growing societal pressures to foster diversity and inclusion. This means that supply chains increasingly need organizational vigilance in addition to better visibility.

Supply chain visibility has become a key strategic priority for operational managers and executives alike. Gartner Research reported it as the most funded supply chain initiative in 2019, the year before the COVID-19 pandemic made companies even more jarringly aware of its criticality.

Its importance has repeatedly been emphasized since then by surprise events such as the Suez Canal’s week-long blockage due to the grounding of containership Ever Given, business disruptions from China’s zero-COVID policy, and costlier ocean shipping with longer lead times around the Cape of Good Hope to avoid Houthi attacks in the Red Sea. In a 2022 McKinsey survey titled “Taking the Pulse of Shifting Supply Chains,” 67% of respondents reported that their companies had invested in dashboard technologies to enhance supply chain visibility.

A more recent 2023 survey of 2,000 companies in 15 countries conducted by the Capgemini Research Institute showed that investing in supply chain visibility and diversification was the number one strategic priority for companies, ahead of technology and sustainability.

Supply chain visibility seeks to provide real-time status of inventory, supply, and demand for finished goods and intermediate products, production and logistics capacity in the end-to-end supply chain.

This information helps operational planners develop agile responses to demand-supply surprises and builds resilience through quick recovery after a severe disruption. Gaining more visibility into the supply chain can be challenging because it requires companies to share information with their immediate customers and suppliers. Still, it is essential to maintain a collective competitive advantage in managing the supply chain smoothly.

It can be dangerous, however, to rely solely on visibility in managing supply chains, given today’s unpredictably evolving business environment. Visibility provides operational insights into the near-term state of an existing supply chain. However, it cannot provide insights into whether the supply chain can handle business environments undergoing a fundamental transformation.

In a now-classic Harvard Business Review article, “The Triple-A Supply Chain,” Professor Hau Lee (2004) used the term structural shifts to describe “near-permanent changes in markets” resulting from “economic progress, political and social change, demographic trends, and technological advances.” From this perspective, multiple structural shifts threaten to transform the business environment facing companies today.

Intensifying geopolitical tensions and polarization, advances in automation and artificial intelligence (AI), growing focus on environmental sustainability and diversity, the rising economic power of the Global South, changing work attitudes preferring location-flexible work without long-term commitments, etc. would shape the business environment to where today’s supply chain configurations could become suboptimal. How these developments will change the future business environment, individually or jointly, and what new supply chain configurations this will call for collectively, is still highly uncertain.

Supply chain vigilance

To understand the implications of these systemic transformations and to prepare for them, companies need another “V” capability: supply chain vigilance—a concept we introduced in an article for the Management and Business Review (Phadnis & Schoemaker, 2022).

Building on Day and Schoemaker’s (2019) seminal book about organizational vigilance—“See Sooner, Act Faster”—we defined supply chain vigilance as “a firm’s superior ability to seek and anticipate early signals of surprises in terms of risks and opportunities for its end-to-end supply chain by adopting an open system perspective.” In contrast to the operational insights about short-term first-order issues gained through visibility, supply chain vigilance aims to foster strategic foresight by taking a long-term perspective to understand second-order developments of fundamental market changes.

As a result, supply chain vigilance surfaces issues that may affect a company over a longer planning horizon, spanning several days to a few decades. Figure 1 presents a graphic contrasting supply chain visibility and vigilance, reproduced from our article.

To illustrate the difference between supply chain visibility and vigilance, consider the recent attacks of Houthi factions in Yemen on ships passing through the Red Sea. For a European retailer receiving goods produced by a manufacturer in China, visibility into the supply chain would reveal which cargo ships are transporting its goods and the ship’s location at a given time (when the ship is transmitting location data via the Automatic Identification System, which some stopped using as they traverse the Red Sea).

The retailer could know when it can expect to receive the goods and whether its inventory level is adequate to meet the demand if the ship decides to go around the Cape instead of taking the Red Sea route as initially planned.

The supply chain vigilance model would complement or challenge this information by asking different questions. Instead of viewing the impacts of the Houthi attacks as the main problem of concern, it would treat the attack as a weak signal of an underlying structural driver that may cause larger shifts in the future. It would change leaders’ focus from treating symptoms in the near term to understanding the deeper causes and their unanticipated consequences.

One key question (as of this writing) is whether the Houthi attacks will broaden the Israel-Hamas war far beyond the Gaza Strip, affecting global business more broadly. Also, might they reflect the widespread anger among Muslim nations about the war that may spill over into boycotting products of companies headquartered in the countries supporting Israel (as experienced by McDonald’s and Starbucks)? Will the attacks inspire disruptions to maritime trade in other parts of the world?

Exploring such strategic vigilance questions about the supply chain will require more than digital solutions; it calls for high-level dialogs in organizations.

Triple-A supply chains Lee (2004) argued that supply chains need to master three “A” qualities: agility, adaptability, and alignment. They pertain, respectively, to a supply chain’s ability to respond quickly to temporary changes in demand and supply, adjust the supply chain’s design to structural shifts in the environment, and create incentives so the supply chain partners work in sync toward the same goal.

While supply chain visibility enables agile response to operational surprises in the demand-supply environment, vigilance creates awareness about structural shifts that occur over longer periods to facilitate strategic supply chain adaptation. Complementing visibility and vigilance, with appropriate incentives, can help align supply chain partners’ operational and strategic moves better in their longer supply ecosystem.

Building supply chain vigilance

Day and Schoemaker’s work (2019) suggested that organizational vigilance rests on four pillars in general: leadership commitment; foresight capabilities; flexible strategic planning; and coordination and accountability. We discuss these four qualities further below and suggest they can offer antidotes against an overly narrow operational focus on just logistics activities.

Leadership commitment

Leadership commitment to supply chain vigilance requires an organizational culture that encourages employees at all levels to spot weak signals from sources outside their immediate work domain and communicate them for further exploration. A vigilant organization encourages its employees and partners to be alert to external changes that may be relevant to its supply chain ecosystem. A company’s network of customers, suppliers, and logistics service providers is a rich domain for spotting weak signs such that leaders become aware of potential structural shifts in the business environment before others do.

The opposite of a leadership committed to vigilance would be an organization where performance is measured solely in terms of efficient execution of the existing set of supply chain operations. Even though performance indicators may be well-defined and quantitatively measured, the real story of strategic interest may lie outside these metrics.

Many organizational leaders may have risen by proving their mettle in executing supply chain operations precisely and diligently—but at the price of a narrow focus and weak peripheral vision. Management literature uses the term exploitation to describe the intense focus on leveraging current assets and processes to short-term advantage, in contrast to exploring new possibilities.

A focus on exploitation, in itself, is not problematic and may provide a competitive advantage in stable times. However, it can be debilitating when turbulence and turmoil ensue since it requires an exploratory mindset to see threats or opportunities ahead of time.

Foresight capabilities

These involve tools such as peripheral scanning, scenario planning, and options thinking, which can help firms anticipate and leverage structural shifts in the business environment. Future scenario narratives are usually limited from two to five, depicting qualitatively distinct future environments by emphasizing known trends and critical uncertainties differently in terms of relevance, interactions, and strategic import.

Scenarios are not specific predictions; instead, they paint plausible prototypical futures the company may have to contend with. No probabilities are usually assigned to the scenarios since the set of scenarios is neither mutually exclusive nor exhaustive.

Each scenario should be treated as an open-ended viewpoint about the future, based on evidence, inferences, conjecture, and mental models that together present a coherent argument and hypothesis about what could happen broadly.

Multiple scenarios are used to help a company stress-test its current strategy and think outside the box about navigating business environments not yet envisioned.
In contrast, quantitative forecasting is the dominant approach for planning in supply chain management. Forecasts provide a point estimate or interval range of preselected variables such as demand, commodity prices, currency exchange rates, etc. They are typically based on historical patterns, assuming that these patterns will largely repeat themselves in the future.

This assumption can be valid for short-time horizons but may not hold over longer periods, especially in business environments undergoing structural shifts. Some supply chain managers, accustomed to working with quantitative forecasts, may dismiss the qualitative scenarios as lacking rigor. The basic choice managers face here is between being roughly right or precisely wrong. It is imperative to articulate the distinction between scenario planning and quantitative forecasting, i.e., strategic thinking versus operational planning, respectively.

Flexible strategic planning

Flexible strategic planning builds on foresight analyses by imbuing long-term decisions with uncertainty about the future, respected in the planning process and fully reflected in any estimates (so, no point estimates) and strategies (so, no rigid plans).

As a result, the strategic assets and initiatives will be implemented with flexibility so they can be adapted as the business environment evolves and some of the uncertainty is being resolved. Indicators and warning signs of change should be identified in the monitoring system for the business environment, akin to a strategic radar that guides airplanes or ships.

Contrasting such flexible strategic planning with more traditional operations reveals the difference between risk and uncertainty. Risk analysis tries to force-fit future variables into well-defined probability distributions, which allow for precise expected value (EV), variance, and covariance calculations.

Such simplification is problematic, however, in unstable times for at least two reasons. First, the use of probabilities may not be logically valid or precise in an altered business environment. Assigning probabilities to individual events requires one to characterize the sample space of all events and estimate the probability of each event based on evidence.

Second, even if such estimation of probabilities were possible, choosing the supply chain asset with the highest EV (which ignores variance) can result in implementing a static supply chain asset that cannot adjust to the future business environment. More sophisticated approaches would use expected utility analysis rather than EV, but even that model has its own problems.

Coordination and accountability

The last pillar of supply chain vigilance is to assign responsibility for gathering weak signals and create an organizational process for sharing and deliberating that information across functional silos. Some companies, especially large organizations, may have a team (perhaps in the strategy group) tasked to conduct such vigilance.

However, typically, operational employees are not involved in such vigilance activity. This is a lost opportunity since their eyes and ears may spot more early warnings than managers farther removed from the frontline. Supply chain employees are often among the first to encounter the signs of impending changes in demand patterns, supply issues, and capacity concerns.

However, tapping and rewarding these often-disjointed isolated observations requires a systematic approach, including training in scanning, reporting, and sense-making. An employee swamped with operational responsibilities may not have the absorptive capacity, motivation, or bandwidth to distinguish signal from noise and thus may not share the information with others unless such information-sharing is made simple and/or incentivized.

Nearly all big surprises that derail companies foreshadow themselves in some way or another. Usually, several people inside harbor inklings about them, but they don’t know when, how, and to whom to report the hunches, misgivings, or faint stirrings that prove to be prescient (from 9/11 to Hamas’ invasion of Israel).

Vigilance-building in supply chain organizations

Geopolitical polarization, technological advancements, attention to environmental sustainability, shifting economic powers, etc., will likely reform the structure and operations of supply chains in the future.

Yet, how these forces will evolve is difficult to predict. The business environment that will emerge as they interact is even more challenging to envision. Our research and discussions with industry leaders show that supply chain executives recognize the challenge these long-term ambiguous developments pose. However, most lack the organizational tools necessary to deal with the challenge and may end up focusing almost entirely on more concrete and often pressing operational issues. Their visions of the industry over the long term are often depicted in terms of today’s or yesterday’s issues.

It is illustrative how many executives we have spoken to since COVID-19 now consider the contingency of a global pandemic when asked to describe the future; it was rarely mentioned in our dozens of interviews with senior corporate and supply chain leaders in the prior decade (Phadnis et al., 2022).

Exemplary supply chain vigilance at UPS

Encounters with structural shifts are not new for supply chain executives, nor is the application of scenario planning. UPS, an iconic supply chain company, is renowned for its practice of scenario planning to foster supply chain vigilance. UPS started using scenario planning around 1997 when the package shipping industry faced new developments.

Trade was becoming more global, and a business model called “e-commerce” was emerging. How either would evolve was uncertain. UPS’ leaders often rose through the ranks by demonstrating operational excellence. Masterful applications of industrial engineering methods helped refine the operations to perfection but could not guide the organization to navigate the structural changes emerging in the business environment. It required a mindset shift to understand and adapt to the new environment.

Scenario planning helped broaden UPS leaders’ mindsets by presenting four distinct, plausible futures the company could face. It made its executives more sensitive to the relevant developments in the market and enabled their sense-making. UPS became more vigilant of the changes through the scenario practice as the aforementioned drivers drove a structural shift in the package shipping industry. Among its various strategic initiatives, the acquisition of Mail Boxes Etc. (MBE) stands out as the epitome of its supply chain vigilant.

UPS added 3,500 MBE stores for $191 million to adapt its package distribution network from a network of industrial sorting facilities to include consumer-friendly retail stores to support packaging and shipping needs. Its competitor, FedEx, realized the need to match this move. Two years later, its acquisition of 1,200 Kinko’s retail stores came at a hefty $2.4 billion.

Examples from the authors’ projects

The authors of this article have independently facilitated vigilance building through scenario planning in business, government, and non-profit organizations. Schoemaker’s (2022) book— “Advanced Introduction to Scenario Planning”—provides a broad overview of the history, evolving methodologies, and benefits of considering different scenarios about what the future may bring.

Such broad cases as the future of biosciences, as well as South Africa’s development after apartheid, illustrate the challenges and opportunities inherent in taking a wide-angle view of the future. It took a long time for South Africa to overcome the West’s boycotts, resulting in the 1994 election of Nelson Mandela as president and the abolition of the apartheid regime. Schoemaker detailed an intricate supply challenge facing Merck after its wonder drug Vioxx showed side effects of strokes and heart attacks. Merck’s single-minded focus on making the drug preeminent in pain medicine caused it to overlook a series of weak signals that resulted in the drug’s withdrawal worldwide, numerous lawsuits, and a loss exceeding $2 billion in damages.

Day and Schoemaker’s (2019) work on vigilance building and improving peripheral vision is available as an online training program via Udemy, including videos, exercises, templates, and trained presenters. (The course can be accessed at: https://business.udemy.com/cohort-collection/becoming-a-vigilant-organization/.)
Phadnis et al. (2022) present three extensive case studies of the authors’ first-hand applications of scenario planning in supply chain contexts in a 2022 book titled,

“Strategic Planning for Dynamic Supply Chains: Preparing for Uncertainty Using Scenarios.”

The case studies explore supply chains from three different angles: an organizational function (Hoppy Brew, a brewer), a business model (Medford, a pharmaceutical distributor), and freight transport infrastructure (the Future Freight Flows project). Leadership commitment was central in all three projects. The first two projects were launched by the respective company’s chief supply chain officer (CSCO); the last one was initiated by the Transportation Research Board of the U.S. National Academies to provide a common framework to U.S. transportation planning agencies to guide their freight infrastructure investment decisions.

Circa 2012, Hoppy Brew’s executives were grappling with structural shifts brought about by driving forces such as climate change (e.g., availability of water, farmland arable to grow barley), consumer preferences (e.g., (non)acceptance of genetically modified organisms in foods and beverages, demand for customization), regulations (e.g., cost of obtaining and maintaining liquor licenses, excise and taxes on alcoholic drinks), increasing urbanization, and more. Three scenarios were created to describe the distinct futures in which the company may find its business and deliberate the appropriate supply chains.

The project also identified a set of indicators to monitor the changing business environment. One of the project’s outcomes was Hoppy Brew’s decision to develop a new distribution capability to deliver small lots of beer in densely populated urban areas.

Medford’s CSCO recognized that the supply chain leadership team needed better supply chain vigilance in the U.S. healthcare industry after the passage of President Barack Obama’s Affordable Care Act. It could add millions of Americans to the healthcare system and substantially grow the volume of pharmaceuticals, but it faced constitutional challenges.

Other uncertainties about the regulations and initiatives to tackle increasing healthcare costs, track drug pedigree from production to patient bed, reduce misuse of pharmaceuticals for recreational purposes, and the emergence of biologic drugs needing cold-chain distribution, etc., clouded visions of the future.
Medford supply chain executives excelled in operational execution but struggled to articulate long-term strategic initiatives by considering these diverse developments. The project developed four scenarios. The supply chain executives used them to break out of the operational mindset and think systematically about the industry’s structural shifts and how they may need to adapt Medford’s distribution network.

Four scenarios for the Future Freight Flows project differed along two critical uncertainties: the nature of global trade and resource availability. The research team field-tested the scenarios in six workshops at various U.S. transportation planning agencies.

Several dozen experts representing shippers, carriers, community groups, etc., evaluated various freight infrastructure initiatives using the scenarios. The multi-scenario evaluation revealed which initiatives were robust across the multiple scenarios and which ones needed to be implemented with flexibility. Comparisons of pre- and post-workshop assessments showed that the use of multiple scenarios had enhanced the experts’ preference to flexibly implement the strategic infrastructure assets.

Conclusion

Developing vigilance as an equal complement to visibility will enable an organization to adapt its supply chain better and faster to structural shifts. This is essential as the business environment is being transformed unpredictably by geopolitical tensions, automation and AI, environmental sustainability, economic shifts, the changing nature of work, and more.

Yet, an extensive review of 64 leading management journals, published in a 2024 issue of the Journal of Business Logistics, shows that supply chain adaptability remains the least understood of the three triple-A qualities. Although several informational, structural, and relational factors and management tools are found to be correlated with supply chain adaptability, questions about how to invoke them remain unanswered.

Our overarching supply chain vigilance framework offers a practical approach to rectify this glaring weakness in supply chains today. •

References

Day, G. S., & Schoemaker, P. J. (2019). See sooner, act faster: How vigilant leaders thrive in an era of digital turbulence. The MIT Press.
Phadnis, S. S., & Schoemaker, P. J. (2022). Visibility isn’t enough—Supply chains also need vigilance. Management and Business Review, 2(2), 49–59.
Phadnis, S. S., Sheffi, Y., & Caplice, C. (2022). Strategic Planning for Dynamic Supply Chains: Preparing for Uncertainty Using Scenarios. Palgrave Macmillan.
Schoemaker, P. J. H. (2022). Advanced Introduction to Scenario Planning. Elgar.