I interviewed Robert D. Brown III who discussed Applying Decision Analysis and Analytics to Supply Chain Management.
What is your background?
My formal education was acquired at the Georgia Institute of Technology in Mechanical Engineering. For last 20 years, I have been involved in applying the principles of systems engineering and decision & risk analysis to business problems. This began, as I think is typical for most engineers, in an operational and manufacturing environment. It wasn’t long into that professional track that my interests expanded to include questions about how to make the best strategic decisions for businesses. In other words, I became interested in asking about how we might optimize a business (if that was even possible) more so than how we might optimize, say, a local manufacturing operation. Over time, my practice has covered the range from local optimizations to global strategic perspectives in very diverse industry verticals including commercial real estate, telecommunications, electronics manufacturing, pharmaceuticals and biotech, petroleum exploration and production, information technology and systems, and education.
What does it mean to apply Decision & Risk Analysis to supply chains?
Decision & risk analysis is a framework for structuring the search for solutions to decision problems under uncertainty, where we understand a decision problem under uncertainty to be one in which we want to know the best allocation of resources to achieve goals and objectives when we don’t know that it is certain that those allocations will lead to certain success, however we might define success. For supply chains, for example, this might mean taking the steps to ensure that we have the necessary channels and suppliers in place and networked properly to satisfy market demands in the most economically efficient and robust manner possible; or it might mean at the logistics level taking the steps to ensure that we have the right kind and allocation of capital assets in place to transport goods from origin to market. None of the answers to those questions likely have certain answers because of the external forces acting on the business and the market, such as shifting regulatory risks, shifts in market demand, obsolesce vs. advancement of technology, etc.
Why is this important?
The importance of using decision & risk analysis is realized in at least three areas of concern: the ethical, economic, and strategic.
By ethical, I mean that decision & risk analysis properly applied ensures that directors observe their fiduciary duty of care. In short, decision makers deliver warranties that they have controlled for garbage in, garbage out, and garbage in between in their planning processes. These warranties are the
1. Warranty of Clarity
• The terms are well defined
• The right problem has been identified
2. Warranty of Coherence
• Reasoning is logical
• Preferences do not violate transitivity of preferences
• Evaluations cohere with the best knowledge of the day
3. Warranty of Thoroughly Considered Consequences
• A creative set of alternatives are considered
• Implications of choosing are clear
• The best alternative is revealed
(Adapted from Howard, Ronald A. “Heathens, Heretics, and Cults”. Interfaces 22:6. November-December 1992. pp. 15-27.)
By economic, I mean not only that the results of supply chain planning are an attempt to be capitally efficient, but that the actual process of finding solutions to supply chain decision problems is actually informationally efficient and effective. The effect is to ensure that decision makers front load the decision making process with the right amount of exploration and collaboration to avoid the unforeseen risks and cost of rework of flying by the seat of their pants, but not so much front loading that value is lost by attrition through analysis paralysis.
By strategic, I mean that decision questions about the supply chain are focused on the right business scope first, and the insights obtained there are pushed down to the appropriate operational levels as a consequence.
How is this done?
The practical process of decision & risk analysis goes beyond merely incorporating decision trees or operational simulations, although analogs to those would and should eventually be employed, but at the right time. Constructing operational simulations may supply a necessary but not sufficient contribution to the decision analysis process.
The first step, as I’ve alluded to, is to properly frame the supply chain decision problem. This means identifying organizational goals and objectives, partitioning the decision space so that we focus only on the key strategic decisions that need to be made now, constructing an array of meaningfully distinct and creative decision strategies (hypotheses about how supply chain decisions create value), and finally identifying the key uncertainties that affect our ability to achieve the identified objectives.
Next, we evaluate the decision strategies with the appropriate models and simulations to thoroughly understand the opportunity costs of each. The goal here is not so much to forecast the one best decision strategy, but to eliminate the weakest strategies from consideration and to quantify & prioritize the effects of the uncertainties’ ability to make us regret the contenders for the best strategies. This latter piece of analysis is referred to as value of information analysis.
Next, we construct a robust hybrid decision strategy from the remaining contenders for the best decision strategies based on opportunity cost tradeoffs, value of control analysis, and risk mitigation.
Finally, we communicate to all the key players what the strategies mean in terms of actual tactical execution, develop proper financial plans to obtain the right funding, and communicate to the market in appropriate ways that further facilitate success.
About Robert D. Brown III
Robert D. Brown III
President of Incite! Decision Technologies,LLC