When we say supply chain planning is always the key to having a successful supply chain, we don’t mean the planning around what to buy and when to buy it on a SKU by SKU basis. Instead, we mean the planning that goes into the underlying systems and methods that will inform the day-to-day decision-making processes.
If your company or supply chain is consistently failing to meet its strategic objectives, you can be pretty sure that the problem lies in the underlying theory and plans that presently guide execution efforts. Chances are, close inspection of the underlying theory and planning will reveal that two key elements are not being effectively accounted for in either the guiding theories or the planning for implementation. (In fact, in many organizations with into which we are first invited, if we ask about “the theory” that underlies their supply chain strategies and tactics, we are met mostly with blank stares—so, don’t feel alone if this is your case, too.)
So, what are these two key elements for which every good theory and plan fully account in order to achieve consistent success?
- Complexity, and
Complexity should be dealt with by first coming to grips with the reality of the complexity that exists in your organization and supply chain. We use the term “the reality of the complexity,” to distinguish this complexity from theoretical or merely product-based complexities. The important complexities that need to be fully comprehended are those that have to do with the realities found in the causes and effects of the chain of dependent activities and actions that must transpire as goods and services flow from their sources to the consumer.
Your company or supply chain may be faced with hundreds of thousands of such interactive dependencies every single day. It is impossible to detail them all.
However, by asking the simple question, “What is keeping us from making more money tomorrow than we are making today?” many of the critical points of failure in the chain of dependencies will likely surface out of the wealth of “tribal knowledge” held by the workers, managers and executives involved in the supply chain.
Using the feedback from such a simple question, we would suggest that you create (or get assistance in creating) a Current Reality Tree (CRT) that describes in logical and simple terms the key underlying complexities that are most significantly affecting your ability to reach your objectives.
One of the great benefits of uncertainty—especially when coupled with complexity—is that, coming to comprehend how much uncertainty is in our present system (read: company or supply chain), and where the uncertainly lies, also helps us starkly outline what we do not know (and, what, in most cases, cannot be known).
By definition, uncertainty cannot be controlled.
However, we can manage for uncertainty. We can take proactive steps to keep the effects of uncertainty in one part of our chain of dependent events or activities from propagating up or down our supply chain. When supported by a proper operating theory, we can plan for and create time, capacity and / or inventory buffers that are specifically designed to stop the propagation of waves of variability (the expression of uncertainty in real-life activities) up or down our supply chain.
We can, in many cases, even make simple changes that dramatically reduce or even eliminate sources of variability in our supply chains and organizations that may be presently self-induced.
Getting Above the Noise Level in the System
Sometimes we find that companies and supply chain managers have no idea if they are achieving the goals and objectives their plans at all.
Because they have been troubled for so long in attempts to reach challenging goals, their goals and objectives have been whittled back time and time again.
Perhaps, in their ambitious days—just out of college, or taking on a new challenge in a new company—they set a goal to reduce stock-outs by 15 percent over twelve months. However, due to lack of an effective theory and practice for achieving such an ambitious goal, they failed. In fact, they repeatedly failed.
So, now they set more “achievable” goals—say, reducing stock-outs by five percent over 12 months.
The problem is, when analyzed, “the noise” in the system is creating fluctuations in stock-outs year-over-year of 6.4 percent. In such a case, the noise in the system is drowning out any possibility of knowing if the actions the firm is taking is having any effect whatsoever in reaching the target stock-out levels.
Absence of a Theoretical Basis
In the absence of a clear theory upon which to base plans and actions, everything naturally tumbles down to a single common denominator: trial and error. Sometimes actions seem to have a positive effect; but, other times the very same actions seem to have no effect at all, or even a negative outcome.
Ask yourself this question: “Do we have an underlying theoretical basis for how we have designed our supply chain operations—whether internal or across our broader supply chain?”
If you can answer, “Yes,” to that question, then ask this: “Can we articulate in two or three sentences the guiding theory for our supply chain operations?”
If the answer to that question is, “No,” then chances are you are in denial about your answer to the first question.
As someone wisely observed: “If you cannot describe what you are doing in a few succinct sentences, then it’s not a process.”
Allow me to give you an example of an answer to the above questions regarding “an underlying theoretical basis” for supply chain design:
“We have an established method for determining stock quantities for each stock position we take. This method takes into consideration both lead-time and variability for each stock position. Our stock positions are strategically selected to absorb variability and / or decouple lead-times, and we can calculate the estimated ROI of each stock position we hold based on the underlying principles.”
How are you doing in achieving your objectives? Are the objectives you set above your system’s noise level, so that you can actually know if you achieving success? How does your supply chain management theory account for the factors of complexity (as described above) and uncertainty?
We would be delighted to hear from you. Please leave your comments below.