Daniel Burrus, a global innovation expert, leading futurist, and strategic advisor tells his clients that, “whatever problem you’re trying to solve,” it’s probably not the real problem.
Solving the forecasting problem
If you talk to most supply chain executives, managers, and consultants today, they will tell you the real problem with supply chain management is that forecasts are not yet accurate enough to stabilize the supply network.
They will tell you that, if you are ever going to get to real and effective control of your supply chain, you need better (and, probably, more expensive) forecasting tools and processes.
Management control, they will tell you, is almost certainly linked directly to the effectiveness of your forecasts.
Well, like Daniel Burrus, we are here to tell you that you are trying to solve the wrong problem.
Because forecast are always wrong and forecasts that are specific enough to really work for execution will always be wrong.
I say “specific enough” because, wise as Daniel Burrus is, he frequently uses a very poor example.
He says that someone once said to him, “No one can predict the future.”
To this, he retorts: “Well, it’s summer now, and I predict that next it will be fall. And, I’m pretty sure I’ll be right.”
He’ll be right.
But of what use is such a “prediction” or “forecast.”
For a supply chain manager, it’s the equivalent of telling you, “Summer clothes are selling now. Next the demand will be for back-to-school clothes.”
That doesn’t tell you what products, colors, or sizes to order and stock. And, it certainly doesn’t tell you which stores will sell the most of which styles, colors or sizes.
But, if someone tries to tell you in advance—i.e., forecast—which styles, colors and sizes will sell in what quantities in which stores, I’m betting I’ll be right: They’ll be wrong!
Attempting to solve the forecasting problem is a Sisyphean task.
Effective control in supply chain management
Eli Schragenheim, in his cogent article entitled “The Managerial Need and the Illusion of Being ‘in Control’”, writes: “Being ‘in control’ means having good enough prediction of the future.” And, he goes on, “In order to be in control, we need a control mechanism.”
Of course, this begs the question: “What kind of ‘control mechanism’ will be effective to put us ‘in control’?”
Schragenheim obliges us with a very rational response: his definition of a “control mechanism” is this:
A reactive mechanism to handle uncertainty by monitoring [relevant] information that points to a threatening situation and [indicates] corrective actions accordingly.
The accompanying illustrative schematic of a demand-driven strategic buffer (as articulated by the Demand Driven Institute) is just such a mechanism.
An appropriately-sized and dynamically-managed demand-driven buffer is constantly being updated through a system that monitors relevant information, including actual demand, on-hand supplies, inbound supply orders, demand variability, replenishment lead times, unusual demand (demand spikes) and more.
And, it is telling supply chain managers and those responsible for execution the one thing they really need to know to protect FLOW in the supply chain: How likely is it that this buffer is going to protect FLOW?
If the buffer is in the GREEN ZONE, it is more likely than if it is in the YELLOW ZONE; and if it is in the YELLOW ZONE, it is more likely to adequately protect FLOW than if it is in the RED ZONE.
It also makes it very easy for supply chain practitioners to set priorities. All buffers in the RED ZONE demand attention before those in the YELLOW ZONE, for example. Furthermore, the LOWER the remaining buffer (stated as a percent of total buffer size), the higher the priority for action. That is to say, if two buffers are both in the RED ZONE, and one is at 8 percent of total buffer and another is 11 percent of total buffer, the 8 percent buffer should take priority.
Solving the real problem
Simply stated, the problem to be solved by supply chain executives and managers is not the theoretical one of improving forecasts.
The real problem to be solved is finding an effective way to know if FLOW is being protected in your supply chain and, if it is threatened, how to prioritize actions.
That is precisely what truly demand driven supply chains do.
If that is not what you are doing, you just may be another Sisyphus. Stop doing that!
It’s your turn.
Tell us about your successes or failures and how you are addressing the issue of management control in your supply chain operations. Leave your comments below, or feel free to contact us directly, if you prefer.