June 7, 2021

The Butterfly Effect: Chaos Theory for Supply Chain Management

Chaos Theory: The idea that separate systems, operating in seemingly random acts, are governed by highly volatile laws and patterns. This, most likely, isn’t the first thing that comes to mind when discussing logistics and supply chains, but this thought exercise just may help reveal some powerful insights and make a case for digital transformation.

Take the Butterfly Effect for example: A phenomenon that suggests relatively small events can influence complex systems to create larger and larger impacts down the line. It’s no secret that minor setbacks in our supply chains can have major ramifications on things like delivery schedule, inventory availability and customer relationships. But let us walk through an example to illustrate how a small, minute change grows into a multitude of compounded issues, and discuss how digital connectivity across the supply chain could solve them.

Let’s say we’re an industrial pipe supplier and we’ve been contracted to supply piping and fittings for a refinery expansion in Louisiana. There are a lot of moving parts in the project, and the products we’ll be supplying are critical to moving on to the next phases of the expansion. Today, the raw material is scheduled to arrive at our pipe manufacturing facility, but it’s nowhere to be found.

Let’s pause here and quickly discuss the power of transparency and real-time data. In a connected and digitized supply chain, not only could we know exactly where our raw materials are at any moment, but we could already be forecasting potential delays to our manufacturing team and reconfiguring schedules to ensure we aren’t losing time simply waiting for the shipment to arrive.

But alas, we have no idea where the shipment is, or how much longer it will take to arrive. There’s nothing to do but bump the order, pushing it to another cycle. The raw materials arrive two days late, but because of the lack of transparency we’re unable to plan and unable to start work for another six days. We’re already eight days behind schedule.

The manufacturing process goes as planned and the shipments are ready to go to port. But we’re still eight days behind schedule and the ship has already departed without the pipe. The next ship leaves in three days, and getting your pipe on board is going to involve a substantial amount of back and forth and a painstaking amount of paperwork.

Another pause. Transparency and foresight aside, digitizing and automating processes can make them far less time-consuming. In fact, connecting with carriers would grant us more data and more insights, streamlining communication and putting us in a better position to negotiate rates and terms.

The ship is loaded and finally sent on its merry way, now eleven days late. But as the ship arrives in the port of Houston, the inspector who was set to arrive eleven days ago is now on a spring break holiday with his family. Our project manager is now back on the phone with other inspectors, working overtime to arrange for someone to head out to the port and check the shipment. It takes the better part of three days, but the shipment is now inspected and everything looks good, save for a few bent pieces that can be easily fixed at the coating facility. The problem is, the pipes are now arriving at the coating facility two weeks late. There’s another job in progress and it’ll be yet another few days before they can start work.

By this time we’re really hoping for a break, but there’s still a lot we’re unable to see. Without being plugged into critical supply chain data, we’re getting this information all-too late. What’s more, there are so many projects going on at once, our team doesn't even have time to check the weather—which is unfortunate, because by now it’s really starting to heat up in Houston. This only adds to the predicament because after sandblasting and coating, the humidity is now causing the drying process to take quite a bit longer than anticipated, adding an extra four days.

The shipment finally arrives at the refinery a total of 20 days late. This doesn’t look good on our company, and to make matters worse, the hold up in shipment and the connection of this pipe has caused three other contractors to wait around until they can connect their equipment and spools to run I&E. The entire project is now 45 days late, and all we can do is thank the heavens that the order was correct. If it hadn’t been, who knows when this nightmare would end.

If this sounds familiar, then perhaps Chaos Theory and Supply Chains have more in common than previously thought. Was all of this the butterfly effect of a shipment of raw material arriving just two days late? It’s definitely possible. But as we’ve outlined at several points along the way, there are plenty of ways these issues could have been mitigated through a digitized supply chain. The power of these connections can’t be understated. And we sincerely believe that the value these integrations can add to your business is sure to send more positive impacts throughout your supply chain.

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