Embracing Frontier-Tech to Navigate a VUCA World

In April 2023, Keith Fisher, President of Warehouse Automation at U.S.-based conglomerate Honeywell, emphasised the pivotal role of automation in mitigating the impact of the COVID-19 pandemic on labour shortages and surging e-commerce transactions. Fisher highlighted the advantages of "intelligent automated sortation equipment" that significantly improved order processing time and accuracy during great uncertainty.

Diving into details of this trend, Vijaya Sunder M, Assistant Professor (Practice), Operations Management, ISB; Tarik Zouadi, Associate Professor and Zakaria El Hathat, UIR Rabat Business School; and V Raja Sreedharan, Senior Lecturer, Cardiff School of Management published a study in March 2023 examining the relationship between companies’ logistics operations and various frontier technologies in an environment that is dynamic and unpredictable, often referred to as ‘VUCA’, short for volatile, uncertain, complex, and ambiguous.  

VUCA and Logistics: Then and Now

VUCA events are not new. From General Motors’s robot mania in the 1980s and Cisco’s 2001 inventory disaster to KFC’s chicken crisis in 2018 – logistics service providers have continually grappled with uncertainty.  

However, COVID-19 exacerbated regional and local crises, scaling them into a modern-day pandemic of a proportion not seen in a lifetime, and thrust it into a global spotlight. As the world grappled with manufacturing disruptions due to labour shortages, disorderly supply of raw materials and commodities, backlogged cargo, and invocation of force majeure clauses on contracts, the supply chain system faltered, affecting the availability of everything from toilet paper to microchips.

Such uncertainties, especially in competitive environments, influence strategic planning and decision-making regarding investments and practices. The U.S.-based logistics company Flexport’s CEO Dave Clark noted in a November 2022 interview that the pandemic made him realise that he wants “to provide so much visibility and certainty when it comes to moving freight, that the firm can dramatically cut the wasted dollars and emissions spent on moving excess stuff around.” 

It’s not just pandemic-level events or external “act of god” factors that trouble logistics firms, which are the backbone of the manufacturing industry. Moving towards custom or personalised products, shorter delivery schedules, and on-demand communication between seller and customer, several layers of complexity are added to an otherwise simple delivery process. There is an increasing need for better decision-making processes, business analytics, and innovation, particularly in dealing with disruptive challenges such as COVID-19.

Historically, researchers have faced challenges in accurately measuring VUCA’s impact on logistics, such as accurately measuring inflation variability over the years, given its typically irregular pattern. Business volatility can affect cost price-setting patterns, leading to price stickiness and uncertainty in firms' price adjustments.   

Incomplete historical data and ambiguous information have resulted in company executives delaying decision-making in the absence of a reliable outlook, the ISB study noted. While mathematical models can help minimise uncertainty and turn it into risk, dealing with pure ambiguity remains challenging. Therefore, there is a compelling need for a new approach to help managers make better decisions in the VUCA world.  

A VUCA world needs to leverage emerging technologies to deal with uncertain demand patterns, complex movements, and ambiguous decisions for flawless operations, which led researchers to coin the term ‘VUCAT’, adding the element of technology. The study advocates incorporating the Internet of Things (IoT), virtualisation, blockchain, artificial intelligence (AI), mobile devices, and service-oriented computing platforms within logistics operations to enhance their often manual-driven processes, thus minimising uncertainty and unpredictability.  

Logistics and Emerging Tech  

The logistics industry is dealing with an exponential amount of real-time data from smart devices, which requires complex computing algorithms to parse the information effectively and efficiently.  

The ISB study identified three primary thematic areas within logistics operations: preproduction, production, and transportation. These areas represent different phases of the logistics process – such as warehousing, packaging, shipments and delivery. The researchers then proposed how companies can integrate emerging technologies into these processes.    

In warehousing, the study recommended a combination of additive manufacturing and IoT data from connected sensors, transforming warehouse operations into more automated processes. “Smart warehousing” will include using RFID identification devices and virtual reality (VR) or augmented reality (AR) training equipment using wearable devices such as smart glasses, to minimise manual tasks and optimise space utilisation.

For packaging in logistics, environment-friendly, reusable, and sustainable packaging material is not just significant to address waste and improve customer satisfaction but is also key in improving logistics efficiency. Enter VUCAT, which suggests using an emerging technology, such as additive manufacturing images (or 3D scanning), which creates a fast and detailed model of a specific container, offering automated detection of possible damage, such as scratches and cracks. Additionally, historical data can help decide which container should be used and predict when it must be repaired or excluded from operations.    

In the realm of shipments, VUCAT proposes to use computer vision and 3D scanning technologies, which can then be combined with the VUCAT-enabled packaging scenarios explained above, used in warehouses to improve efficiency. These practices, including using sensors to track environmental factors in shipping, can be especially useful for sensitive and costly products such as pharmaceutical drugs and electronics. Data such as temperature, humidity, package tilt, shocks, and vibration of packages can be stored, analysed and offered to clients and logistics managers in real-time during shipment processing.     

The final step of any logistics transaction is delivery, where VUCAT can improve efficiency. Sensors could alert delivery personnel of empty packages, which improves travel efficiency as the personnel could skip such destinations. Further, integrating sensors in mailboxes can alert customers to real-time delivery status and the actual location of a delivered package. In case of packages containing sensitive material, delivery personnel and consignees can obtain data to monitor the environmental status of the package.  

Big Data and Its Impact

VUCAT’s implementation rests on two pillars – IoT and blockchain. While IoT can track shipments in real-time, helping decision-makers, blockchain’s distributed ledger technology and unalterable data records will alleviate customer concerns about safety and security.   

The VUCAT implementation framework is classified into four groups: 

1. empowering technology users and decision-makers to use IoT and blockchain effectively; 
2. digitising logistics’ activities in which logistics tasks are executed electronically; 
3. data acquisition to record, assimilate, and analyse data using various sensors and devices; and 
4. smart logistics through which transactions could be made more secure and safe.  

The establishment of the VUCAT-based IoT and blockchain framework by these four groups carries significant authority and purpose. Its primary objective is to usher in a new era of decision-making prowess within the VUCA world, offering both businesses and end clients unparalleled real-time visibility and traceability of logistics activities. It advocates for the seamless integration of Blockchain technology throughout the transportation process. This integration ensures the preservation of immutable transactions, meticulously recorded by IoT sensors, thereby granting logistics the gift of absolute transparency and traceability, a boon especially for logistics' front-runners.

This implementation framework is poised to tackle the multifaceted logistics challenges of the VUCA environment, firmly establishing the pivotal role of technology. Embracing this framework enables the acquisition of data from diverse sources, including inventory, purchase history, production machinery, transport services, transactions, and incident alerts. It, in turn, facilitates streamlined logistics, best practice integration, and real-time data analysis ultimately enhancing logistics efficiency and control.

However, while the advantages are clearly established, one must be cognisant of the challenges that will need to be addressed in the adoption and implementation of VUCAT. Emerging technologies involve prohibitive setup costs that can materially impact the firm’s financial position. Further, the use, storage, and analysis of data could raise privacy concerns and firms will need to invest time into developing trust in the unassailable nature of blockchain technology. Data-based decision-making invariably depends on accurate data collection, which would need developing methods to filter important information from a plethora of information recorded by multiple sensors.

If any entity deploys the proposed VUCAT framework, researchers can analyse the operational and financial results to generate more insights and finetune the framework. Policymakers and regulators can also use the resultant VUCAT framework to identify points in the supply chain network that could be digitised to ensure a faster flow of logistics.   

Logistics and the Future

The evolution of the VUCAT framework is a natural step in bringing the logistics industry to embrace the latest AI-related solutions sweeping the business world. The transformation is not just the product of a VUCA future but also necessary to ensure that logistics firms keep up with customer expectations of a narrower and more efficient delivery schedule.  

AI-based technology can be harnessed to reduce human error, conduct primary operations automatically, and provide an outlook on revenue or operating margins, according to a September 2021 Forbes report.

Mærsk, in its May 2023 analysis, noted that AI-enabled real-time supply chain monitoring can pre-emptively note bottlenecks and delays, which can be rapidly addressed. The shipping company suggested the use of “digital twin” tech – that is, a digital representation of a physical asset – which will employ machine learning to predict outcomes. Mærsk also suggested using AI to conduct predictive maintenance of machinery, which will improve equipment effectiveness.  

Thus, the VUCAT framework has the potential to empower logistics firms to adapt, innovate, and excel in a world defined by volatility, uncertainty, complexity, and ambiguity. However, it is necessary to remember that the technologies are still evolving, and logistics companies need to continuously monitor the landscape for financial outflow, privacy concerns, and managing the immense measure of generated data.