Rethinking Future Food Chains: Systems Thinking and the Cascading Consequences of System Failures
By By John G. Keogh, M.B.A., M.Sc., and Carl J. Unis, M.Eng.
Disruptions in supply chains can cause severe economic losses to individual businesses and impact customer and supplier ecosystems within the wider global supply chain. Although some companies have robust business-disruption plans in place, when a disruptive event occurs, they may not detect it quickly and may forget to execute the plan. Moreover, they likely had not trained staff in simulation exercises on how to discover the events and how to implement business recovery planning. Rapid discovery of the event is crucial for the recovery process to start. Research by MacDonald and Corsi highlighted that some firms took weeks to discover the event and up to a year to recover. In these cases where the discovery was delayed, financial losses ranged from $50 million to $100 million.
The current coronavirus pandemic is a reminder of the complexities and unpredictability of nature and of our social and business ecosystems. It also serves as a reminder that dramatic changes can occur unexpectedly and have significant consequences for businesses and society. In chaos theory, change and time are foundational, and the term systems is used to mean an “assemblage of interacting parts.” Moreover, chaos theory reminds us that setting guidelines and defining decision rules to cope with complexity within and between systems is essential. However, knowing the rules of chess does not grant a player wisdom and strategies on how to react to the other player’s moves and ultimately win the game. Experience in playing the game of chess helps a player understand its complexities and strategies. In this article, we argue that systems thinking is a critically important competency that must be honed to ensure organizations can survive and thrive in the new normal, post-pandemic. We stress that learning the rules of the game is insufficient and strongly emphasize that the required systems-thinking knowledge, skills, and abilities are practiced in peacetime to hone organizational capabilities to react in wartime.
We start by reflecting on the evolution of our retail food system and explore the dynamic changes happening in real time. Unprecedented changes are occurring at the retail or front end of the food chain and disrupting how we conduct business. The entire food sector must be considered as an end-to-end system where disruptions in retail and consumer behaviors impact how the chain must react. Similarly, disruptions may occur at any point along the food chain, and coronavirus disease (COVID-19) outbreaks have closed numerous food processing plants (e.g., pork, beef, poultry, candy) in the U.S., Canada, and other countries. This end-to-end or systems view of the food chain is the core of this article.
Reflecting on the Evolution of the Food Retail System
In premodern towns and villages, food chain transparency—and ultimately trust—was established through the direct, face-to-face interactions between the shopper and the farmer or fishmonger, greengrocer, butcher, milkman, and baker.[4,5] Historically, weekend farmers markets were a fixture in many towns and villages around the world, and the foodstuffs sold there came primarily from local or regional sources. At that time, food chains were shorter, with fewer processed foods. That system evolved rapidly in the postmodern period, emerging from the 1970s when food chains began to globalize and becoming more complex and opaque. Many foodstuffs that were once considered exotic or limited by seasonality became available year-round. The food sector benefited significantly from technology-driven innovation and modernization in seeding, cultivating, harvesting, processing, packaging, distributing, and retailing food. In comparison with the traditional grocery store, postmodern supermarkets carried more than 33,000 items in 2018, according to Food Marketing Institute’s supermarket fact sheet.
Shifting from Retail to e-Commerce
As supermarkets and smaller food retailers are deemed essential to society during the pandemic, they have fared well despite episodes of panic buying, leading to stock-outs. But new guidance from our public health agencies has accelerated the consumer shift from traditional retail to e-commerce. Buying through e-commerce channels is safer than visiting a supermarket and provides convenience with options for curbside pickup or home delivery. The e-commerce acceleration is disruptive, likely unstoppable, and raises many questions about our food chain’s capability to deliver and preserve the integrity—and safety—of the food supply, as noted by Mike Troy and Gina Acosta in the Progressive Grocer’s “Annual Report”: “It’s tragic that it took a tragedy to wake many food retailers from their slumber, but it has, and they’re now all aboard the digital train, racing into the future. COVID-19 has served as the ultimate catalyst to accelerate innovation around the shopping experience of the future.”
We should be asking whether our current food chain can pivot to a new normal with a growing share of traditional retail purchases and restaurant meal orders going through e-commerce. What new problems does this shift create for the entire food chain? Do we need new product packaging and labeling? Will there be a move to bulk packaging and delivery to consumers in reusable containers? Can traditional retailers adapt their online presence fast enough and pick, pack, store, and deliver orders that combine frozen, chilled, or fresh products? What tools are available for traditional retailers to assist the in-store proxy shopper who picks and packs your online order but needs to engage with the consumer to propose a substitute product? Another question we should ask is whether neighborhood stores will exist in 10 years, or will they evolve to become delivery drop-off and consumer collection depots? Could we see a disruption in business models in which some traditional retailers become e-commerce players exclusively? On that note, the Canadian e-commerce giant Shopify became the most valuable company in Canada on May 7, 2020, with a valuation of C$121.2 billion after reporting 47 percent year-over-year revenue growth for quarter one 2020. The Ottawa-based company is also sitting comfortably on C$2.36 billion in cash, has no debt, and has more than 1 million merchants. Shopify was already experiencing rapid growth prior to the pandemic from new merchants with established businesses and strong followings. Notable new clients since the pandemic started include Canada’s largest grocer, Loblaw, the chocolate company Lindt, and household name Kraft Heinz.
Should We Eat Out or Eat at Home?
Physical distancing guidelines forced many restaurants to close while others became ghost kitchens with online or phone ordering, and curbside pickup and home delivery. Many smaller, less financially stable restaurants simply won’t survive, and others may opt to remain as ghost kitchens only. Smaller niche suppliers to restaurants and foodservice have been significantly disrupted and may not survive the pandemic. A big question on many people’s minds is whether consumers will return to restaurants after the physical distancing rules are relaxed, and businesses are permitted to reopen. Newly published research by Dalhousie University and Angus Reid on Canadian consumers revealed that 47 percent of Canadians intend to cook more at home after the pandemic. Surprisingly, 55 percent of the 18–34 age group will cook more at home. In comparison, 48 percent of the 35–54 age group and 40 percent of the 55+ age group reported plans to do the same.
Restaurant and Foodservice Suppliers Pivot to Survive
North America’s largest restaurant and foodservice supplier Sysco saw their business significantly disrupted, as restaurants account for 62 percent of their sales. But they rebounded rapidly and have become a disrupter themselves by quickly pivoting to a direct model to consumers and retailers.[10,11] Despite the big hit to their stock price, Sysco is a well-managed, financially stable company, and is sitting comfortably on $2 billion in cash. Surprisingly, with less than a month’s experience in direct to consumer, they are already performing exceptionally well against traditional retailers with a smart and easy-to-use website coupled with home delivery scheduling or warehouse pickup. The big question is, what does the future of our food chain look like with these disruptions, and are our food chains resilient enough to withstand another shock? And where might this shock come from, or does it even matter?
Don’t Look Back; Reimagine the Future
We often hear that hindsight is 20/20. How ironic is it that the pandemic hit us in 2020? To eliminate the potential of hindsight bias and friction, we should reflect on what works well today versus what hindsight suggests we could have or should have done in the past. Thus, we must spend time to reimagine our future food chains that can withstand a significant shock like a pandemic or natural/unnatural disaster. And importantly, we need to ask whether we have the critical knowledge, skills, and abilities, especially in system thinking and understanding the cascading consequences of system failures. Our future food supply chains must be resilient to a shock but also more efficient, digitized, and sustainable.
Systems Thinking: A Missing Skill Set?
The previous sections highlight the disruption of the food industry. Now the challenge is to ensure our food supply chains align behind the disruption at the consumer-facing front end. Reimagining the way we think about these challenges involves systems thinking to understand the complexities of the entire system and how the back end of the supply chain can build resilience to support the consumer-facing front end. Plus, how do the various food supply systems (e.g., beef, pork, poultry, grains) prepare and plan for policy interventions in sustainability, food security, and socioeconomic growth? How will our future food chains interoperate with ecosystems in energy and fossil fuels, tap into innovation and technology, optimize transportation, and consider climate, which has numerous regional considerations along our global food chains? There is little doubt that our future food systems are a vital area of focus in the coming months and years. But are we ready for the future today?
What’s Holding Us Back from Planning the Future Food Chains?
Many, if not most, organizations have silos (“cylinders of excellence”) that do not communicate very well with each other across divisions or subsidiaries in their organizations. This disconnect can lead to a multitude of challenges because timely, actionable information is not being passed to upstream and downstream organizations, which can lead to other issues within an enterprise system. Systems thinking allows people—as the basis of organizations—to prepare and plan in a broader systems context to understand what could potentially happen and perform risk and gap analyses to build better enterprise systems. This can have multiple benefits for the entire enterprise in question.
When it comes to systems thinking, simple rules can produce complex behaviors, as represented in nature. This means that something as simple as a policy within a small company can cause myriad issues with unintended consequences. The trickle-down repercussions could potentially be unknown to the individuals making the policy. Moreover, the individuals at the operational level may be affected in ways that the policy makers didn’t think possible. This situation often happens within organizations. It could be remedied simply by communicating intentions to the right individuals within the organization.
Networked systems are everywhere within an organization and know no boundaries. They encompass many disciplines and can be collaborated with to create interdisciplinary networks within an organization. It doesn’t matter how many nodes there are within an enterprise system; there will always be continuous uphill challenges with increased complexity. This goes for new as well as legacy systems within an enterprise. A sphere of influence is sometimes critical to influencing particular networks.
Within enterprise systems, everything is connected. Being able to deduce how one would reverse-engineer processes to understand the impacts on the particular ecosystem in question is essential. How the system embraces that change is a lesson in systems and enterprise architecture as well as in the systems-thinking thought processes necessary to conduct further analysis. Everything that was designed and developed in our physical world was developed by a human at some given point with state-of-the-art technology. The other thing to consider is that the designers of those systems had individual perceptions of how that particular system should be designed. Some types of systems thinking influenced them to that conclusion.
Technological change is constant. People will continually adapt to new ideas, innovations, and methodologies that will allow them to look through a different lens at a problem so that they may address the uphill challenges within their organization. People tend to replicate naturally occurring things or systems. These naturally occurring things must adapt to their environmental conditions or die/fail. Systems thinking allows you to look at the possibilities and the potential vulnerabilities that could cause a system to succeed or fail. Systems thinking is not about taking a technology like blockchain and seeing where it can fit into your organization. You must first understand your systems, their embedded business processes, and their dependencies on data or information from an internal or external authoritative source (the authoritative source is the data attribute creator or owner). This must be done at a very detailed level to expose the data and information architectures before defining use cases for any technology to have a chance at addressing problems. Most organizations struggle with poor data governance, and new technology projects can spend 70–80 percent of their effort on cleaning and fixing bad data.
Systems thinking allows you to consider some of the challenges you could be faced with around the topic of systems complexity. The strength or weakness of the node of the system in question will allow you to functionally decompose that part of the problem to understand the particular challenges that you may be faced with upstream or downstream from that problem, which will lead to other questions that you may not have considered previously.
Systems thinking creates an opportunity to develop resilient systems architecture within an enterprise system. Cascading failures denote failures within systems. Changing the way we view these problems allows us to create resilient systems architecture for positive cascading implications within an enterprise system that could potentially allow for buffer zones, so that a system could be designed to fail at the first or second node rather than fail completely. This would allow other opportunities for discussion to devise a better system design for the enterprise.
End-user validation is another critical constraint for systems thinking and systems architecture. This means that involving everyone in the preparedness and planning process, from the operations level to the C-suite stakeholders, to create better systems design through systems thinking and validation of operational processes is an important consideration that traditionally has not been valued within enterprise systems architecture. This needs to change, and to communicate up and down the chain within an organization is essential.
Preparedness: Practice in Peacetime What You Will Do in Wartime
Essential job-related education and subsequent hands-on training—the application of what was learned—are foundational for roles like firefighters, police, and soldiers, and can be done in a classroom environment. But these example roles and many critical functions in business or government cannot complete all their necessary training in a classroom. Indeed, we must remind ourselves that education and training are not the same. These examples are with roles and organizations that are in a constant state of readiness or preparedness. They train and fine-tune their skills and abilities in dedicated training facilities or on the job under supervision. When we educate on business continuity and disaster and emergency preparedness, where and how do we train our businesses and government officials? Can we ever train our staff in crucial aspects of business continuity and emergency planning? The answers to these questions are: It depends.
Every community is subject to being impacted by a natural or unnatural (deliberate) disaster in some form at the local, state or province, and federal levels. Specific geographic areas of the country will determine the type of preparation and response based on where the disaster may occur. For example, hurricanes are specific mainly to the southeastern U.S.; floods are more common in the Midwest, Northeast, and Northwest. Wildfires and earthquakes are more common in the western regions of the U.S. Specific education and training form a critical role in the emergency preparation stage and may be a determining factor in how effective the response is, should the event occur.
The emergency management life cycle (EML) is constant during any disaster. Within the EML, there are many interconnected complexities that can cause the life cycle to fail rapidly. It takes only one component failure to impact the EML. That one failure can be connected to many things. One of the primary reasons why many natural disasters cascade out of control within 24–48 hours is the interconnected systems and infrastructure that quickly cascade out of control. The secondary and tertiary effects could be larger than the primary event itself.
Crisis situations and complex emergencies are very challenging. Life-or-death decision making may be at the core of these problems. Extreme events may change rapidly, pose significant uncertainty, have time constraints, and challenge our decision making. Multiple levels of coordination are needed among agencies and organizations. Lifeline infrastructures (electric power, fuels, transportation, communications, water, food) are what keeps communities and organizations running—they support the enterprise systems of our daily lives.
Decision makers in disasters and crises have hours to days to make most decisions to reestablish the lifeline infrastructures. However, complexity and time are two different problems to address, despite being directly related to each other. Complexity is not a friend of rapid, time-constrained events. We need to create clarity from the complexity that disaster events create. If we can understand the types and severities of potential disruptions, we can set a corrective action to address them faster and potentially with less cost and business disruption.
To elaborate, we utilize Figure 1 from MacDonald and Corsi,1 who integrate various scholarly contributions into a frame with system performance and time axes within an enterprise system. Both risk management and disruption management are the overarching frames in this model. Risk management is performed before disruption management; if done well, emergency situations simulated and staff trained and tested, the event discovery may be faster and the disruption time frame may be shortened. Once the event is discovered, the disruption management phases of postdiscovery, recovery, and redesign can start. The system performance curve can be a direct representation of what occurs through a disruption event process from start to finish. This can be anywhere from a small to a substantial disruption that could jeopardize an entire business enterprise. Learning from these curves is critical to understanding the event from start to finish.
For example, during Hurricane Sandy, communication gaps arose when power companies’ line trucks were not permitted through a checkpoint by state police to repair power lines in communities. As a result, the disruption to electric power lasted longer than it needed to because of a lack of integrated communications between systems (police and power companies). Examples of business recovery times in Table 1 are taken from research by MacDonald and Corsi. The analysis highlights the disruption events that were opportunities to be better managed and those that were well managed.
In one example of an external disruption with a third-party logistics warehouse start-up, the company had existing disaster preparedness/business continuity plans but did not utilize them and did not exercise or practice them regularly. While the discovery was made the same day the event occurred, the time between discovery and recovery was 8 months, and the cost was between $3 million and $7 million. For a small company, that can be devastating and cause other disruptions within their enterprise system and to their trading partners.
In a second example, there was an internal disruption, leading to a product recall. In this case, the company had a plan, but it took weeks to discover the problem. The recovery time was 6 months, and the cost to the company was estimated between $50 million and $60 million. With proper preparedness and planning, such as a tabletop simulation exercise or mock recall, the discovery may have been quicker, and the recovery time may have been reduced and less costly. That is, if no other cascading effects were caused by the problem in internal or external systems. In fact, you may recover from the product or supply issue, but the consequences of litigation, including government fines, penalties, or lawsuits, may take plus or minus 5 years and should not be underestimated. Of note, the U.S. Food and Drug Administration provides free tools such as the “Food Related Emergency Exercise Bundle,” which is a compilation of scenarios for both intentional and unintentional food contamination events.
Our food and agriculture systems are very complex and interact with many other systems. The cascading consequences within one system can be severe, but we must look more broadly at the cascading impacts one system may have on interconnected systems. Hence, a formal business disruption management plan is a critical requirement for all businesses. Moreover, educating staff but not rehearsing—participating in tabletop and near-functional exercises—in peacetime can be a recipe for systems and business failures.
Astute business leaders will seek out opportunities to educate and train their staff in the competencies required to ensure systems thinking is foundational to their business strategy. Multidisciplinary and cross-functional training will add elasticity to organizations and improve their vertical and horizontal defenses against disruptions. Hence, systems thinking extends to all external dependencies and linkages a business has, including exchange partners and externalities that may occur. The quick discovery of a potentially disruptive event is essential, and using technology as a trip wire or early warning system is invaluable. Moreover, the creation and testing of these trip wires and creating circuit breakers to disrupt the severity of the event is an essential consideration. Before doing so, organizations should first consider if they have an adequate data governance framework. For example, data and information must be “clean” and the authoritative sources of each data attribute defined. Once these essential aspects are completed, and business processes are understood in detail, organizations can start to reimagine future use cases in their food chains where more resilience to a shock can be created. Finally, business leaders and business schools could explore aspects of military or civil defense training that may be beneficial in developing competencies in complex systems thinking.
John G. Keogh, M.B.A., M.Sc., is a strategist, adviser, and management science researcher with 30 years of executive leadership roles as director, vice president, and senior vice president in global supply chain management, information technology, technology consulting, and supply chain standards. Currently, he is managing principal at Toronto-based niche advisory and research firm Shantalla Inc. He holds a postgraduate diploma in management, an M.B.A. in management, and a master's of science degree in business and management research in transparency and trust in the food chain. He is currently completing doctoral research focused on transparency and trust in global food chains at Henley Business School, University of Reading, using the lenses of agency theory, signaling theory, and transactional cost theory.
Carl J. Unis, M.Eng., is a systems engineer with expertise in continuity of operations, continuity of government, devolution, infrastructure, supply chain logistics, and emergency management. He has a master’s degree in systems engineering from Stevens Institute of Technology. C.J. was formerly the critical infrastructure protection program manager for the New Mexico Department of Homeland Security and Emergency Management. He has served as a federal agent in the capacity of providing classified transportation for the Department of Energy, National Nuclear Security Administration—Office of Secure Transportation, as well as holding numerous positions for the U.S. Marine Corps in the capacity of performing internal embassy, dignitary, motor transport specialist, and classified material security duties.
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