Flostock News #13 Shale Gas

Virtual Reality for VUCA

It is a VUCA world

The world is increasingly Volatile, Uncertain, Complex and Ambiguous (VUCA), according to a new book by Andrew Winston, “The Big Pivot”as discussed in HBR. VUCA sounds like cursing and in a way it is. And the Vuca-ness is increased not only by the effects of climate change, but also by politics, trade agreements and increased globalization. He refers to Ataleb with his famous book The Black Swann as well. Winston suggest 5 remedies: be divers, build buffers, gamble part of your buzz big-time, be fast to fail and be modular. We’d like to add a 6th remedy: build a virtual reality model in which you can incorporate all known problems plus any Black VUCA Swans that cross your path. Modeling will not help you turn Black Swans into White Swans and predict them, but you may ride the VUCA waves with more ease and it will make it possible to benefit from understanding the effect of the Black Swann on your business. 

All Oscillations are damped, according to Flostock’s 13th Law of Demand.

All Oscillations are damped

All oscillations in the real world are damped because there is always friction and there is no such thing as perpetual motion. Even a gigantic oscillation like the orbiting moon is damped by the tide of the oceans: its circular speed is slowing down and at some point in time the moon will crash into the earth. The same is true for economic waves. Phenomena like the hog cycle, which seemed to continue forever, in reality are damped. The Lehman Wave was certainly damped, although much less than most people anticipated. Royal DSM and Flostock wrote in a recent article, that the damping of a single destocking pulse in the resins business was only 40% per year, so taking 4 years to subside.

Alternative 5 to the Flostock method: Life cycle Analogy

Whale Curve

Life cycle analogy (LCA) is a qualitative forecasting method based on the idea that similar products will have a similar life cycle pattern, so if you know how a previous product did in the past, you have a fair assumption how a new product will do. The main disadvantage is immediately clear: this is a very rough approximation. Results from the past never give a guarantee for the future. Times change. Preferences change. Competing technologies change. In reality a lot of people unconsciously use LCA and call it “experience”. What can be valuable however is the shape of the product life cycle. This shape can be used in combination with other, more quantitative methods, as a sort of trend line representing Market Share development and the penetration of a product into an end market. The Flostock models can work with this.  

How Shale Gas will affect us

Fracking

The Shale Gas revolution is changing the petrochemical world.  Shale Gas will more and more replace other feedstock  in crackers, to produce the raw materials for the hungry supply chains of the chemical industry. But a different feedstock (which is a flow and not a stock, by the way) gives a different split in output products, distorting all mass-balanced flows that so carefully have been set up over the last 150 years. Some products will be abundant, others short. Some capacities (stocks in modeling terms) will be closed, others strongly expanded. Some products can be shipped over the globe, other products will require a transatlantic move of capacity. And this change will be at agonizing speed, creating volatility, giant capital expenditure and huge inefficiencies everywhere. With a good supply chain model it is possible to quantify these effects. Without a model the daunting complexity prevents clear decisions. Flostock is endeavoring in a major effort to build such a model and make it available to the industry. Contact us if you want to participate.