In his highly-acclaimed book, Administrative Behavior: A Study of Decision-making Processes in Administrative Organization, Professor Herbert Simon, coined the term “satisficing” as a blend of satisfying and sufficing. The logic by which Simon came to the conclusion that managers (at all levels, including C-level executives) resort to satisficing may be summarized in the accompanying logic diagram (Current Reality Tree).CRT Satisficing - BoundedRationality.png

 

NOTE: You may read the diagram from the bottom to the top as if-then statements. The if’s is found at the beginning of arrows and the then’s are found at the tips of the arrows.

 

Don’t shrug your shoulders and walk away

Sure. You can shrug your shoulders and walk away, saying to yourself, “So, what? We don’t have any choice. That’s what we do, and everybody does it.”

 

Big Data doesn’t make you a better manager

Here’s the thing: What this logic really tells you is that big data, business intelligence, and so-called powerful analytics don’t inevitably lead to better management decisions.

 

More importantly, if you don’t recognize that fact, one of the “satisficing” decisions you are likely to make is to spend more money on big data, business intelligence and analytics efforts with zero, near-zero, or (equally as likely) negative return on investment.

 

Why?

 

Because at the same time that big data, business intelligence and analytics is putting more information at your managers’ fingertips, the increase in the volume of data will actually reduce the management attention that can be given to the truly relevant information. And, only relevant information is actually meaningful for decision-making.

 

What’s really needed

What’s really needed is not merely the flow of more information. There is a simple relationship between the flow of relevant information, the flow of relevant materials (in your supply chain), and the flow of cash and profits, leading to an increase in return on investment.

 

That relationship may be depicted like this:

DDMRP Flow-to-ROI Links.jpg
Increase the flow of relevant information (not just more information)—filter out the irrelevant informationand managers can immediately begin making better decisions about how to sustain the flow of relevant materials. This, in turn, leads to increasing cash flow. Increased cash flow leads to improving net profits, and while investments are held steady, and ROI is increased.

 

Traditional MRP (material requirements planning) systems that were conceived 50 to 60 years ago, and encoded as software 30 to 40 years ago, are simply not able to deliver truly relevant information for managing supply chains in today’s dramatically different business environment. The world has just changed way too much for these outdated methods to be effective. (The most effective witness to this fact is the fact that more than 90 percent of companies that have invested in costly MRP systems still supplement them to this day with spreadsheets and other workarounds.)

 

The answer is also not found in big spending on more and more expensive forecasting software. The forecasts are still wrong simply because there are too many variables and too much complexity in the supply chains. Things cannot be synchronized effectively.

 

The answer is to be found in finding simple, yet extremely effective methods for supply chain management.

 

Demand-driven MRP has proven to be such a simple, yet effective, method. You can read more about it here.

 

And, we can help you get started with it if you will contact us here.

 

Isn’t it about time to try something that makes sense in today’s world? What else are you still using that hasn’t changed since the 1950s or 60s?

 

 

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