What is the butterfly effect in your supply chain?
A ‘butterfly effect’ is when a small, localised change or disruption in the flow through a supply
chain has effects which cascade up and down the chain, sometimes having serious consequences for a business. The name comes from the thought experiment in Chaos Theory where a butterfly flapping its wings in Brazil could cause a hurricane halfway around the world. A better cliché might be ‘for lack of a nail, the Kingdom fell.’ Billions of pounds have been lost to butterfly effects on too-strained or too lean supply chains, and it is becoming more common.
But why is it happening more, now in the supply chain?
Ecommerce has changed the face of retail in many ways, but in particular it has made consumers more empowered than ever before. Unfortunately for retailers, when consumers are ‘given their heads’ they make a lot of unexpected, illogical choices. As spending power, information access, and impulse buying trends increase, markets are becoming more volatile and complex than they have ever been before. This leads to sales channels being highly fragmented, service demands being higher than ever, shorter product lifecycles, and lower profits all around.
DHL recently offered some sage advice about how retailers and online sellers of consumer goods need to re-evaluate the way they address logistics in general, and their supply chains in particular, in order to survive these devastating little catastrophes. The keys are adding flexibility and adaptability to your supply chains without adding cost, they say, but that is a lot easier said than done.
DHL suggested three trends which are adding to the threat, and a few thoughts about how to deal with them.
First, there is the fact that innovation is coming thick and fast in most sectors. When this is coupled with modern information access, the mere hint that the ‘new model’ will be available soon can cripple or destroy demand for current products for entire markets. Take the iPhone as an example.
Next, the increased number of shopping channels available to the consumer. Experts predict that 21% of sales will be conducted over smart phones in just two years. Online and mobile channels are cheap and fast to build, and just as fast to fall. This will make sudden surprise changes in demand that much easier for the consumer to act on, and make markets that much more volatile.
Lastly, personal income in growing markets is rising rapidly. Income nearly doubled in some markets over the last 10 years, and are predicted to grow 45% between 2010 and 2016 in many developing countries. This puts more money into play, but also many, many more consumers with full access to the mobile web, and many more impulsive, unpredictable market actors.
So what can be done?