Variability, the enemy of flow
As any supply chain practitioner knows, variability is deleterious – variability runs against our ability to have the right product in the right place at the right time to satisfy a customer need, and thus secure or increase our company’s revenues.
Some have characterized variability as constituting “anti-flows” – disturbances that alter the flow, i.e. the very essence of the supply chain. The Muda, Muri, Mura of the Toyota production system, variability reduction at the heart of 6 Sigma – the importance of reducing variability to focus on customer value is at the core of operational excellence methodologies.
All this has long been documented. However, when you’re in charge of a supply chain link, you often feel at a loss. It’s all well and good to reduce variability, but how do you go about it, knowing that you’re spending most of your energy being tossed about by the latest event, and plugging the gap left by the day’s emergency?
Forms of variability
The Demand Driven Institute has documented four types of variability:
- Demand variability.
- Supply variability.
- Operational variability.
- Managerial variability
Historically, supply chain planning disciplines have focused on the first of these variabilities – demand variability – to the detriment of the others. Forecasting sales, measuring forecast accuracy and working to improve this accuracy have long been the alpha and omega of supply chain planning approaches.
Experience shows that these other variabilities have just as much, if not more, impact. This is particularly true of the last of these, the variability resulting from our decisions, our cognitive and behavioral biases, our implicit or implicit policies, changes in strategic orientations – it is often the one that inflicts the most damage.
What’s true at the geopolitical level – from Ukraine to world trade – one man’s will can generate extreme variability – is also true in the corporate world…
How to combat variability?
Or rather, how can we ensure that variability does as little damage as possible?
1 – Catching the right demand signal
The key demand signal is real demand, i.e. consumption by customers. Any other signal is an assumption. So you need to do what you can to pace your flows to consumption – and to get that consumption signal as far down the chain as possible. This article can help you capture the real demand.
When you need to make assumptions (forecasts), you need to do so at the most aggregate level possible.
2 – Inserting shock absorbers
No matter how good your initial plan, Murphy’s Law will strike. Actual demand will be surprising. The equipment will break down. There will be quality problems, and so on. So you need buffers to protect your flows and cushion variability
3 – Integrating inertia and rhythm
The reality of markets and supplies is that there is a lot of inertia. End-consumer consumption is stable. A supply flow doesn’t reconfigure itself overnight, and a factory doesn’t change country in 90 days. Of course, there are a few black swans events, but the vast majority of demand and supply flows are highly inertial.
The human and computer systems we use to plan our operations have no trouble imagining a very different demand from one month to the next, a drastic improvement in capacity, and overestimating the impact of decisions to change direction. How many S&OP cycles assume discontinuities that won’t happen?
The truth is that flows can only be reconfigured gradually, and you need to establish a supportive rhythm for your operations – average daily usage, average daily forecast – applied to your key processes. Flow is music: filter out the noise and establish the melody!
4 – Managing continuous improvement
To reduce variability, we need to reduce the dispersion resulting from processes. 6 Sigma practitioners have known this for a long time, but these principles of process statistical control are not naturally integrated into our management supply chain systems. There’s no control chart in your favorite ERP
With Intuiflow’s integrated management rules, anomaly detection, exception-based work and integrated BI, you have the levers to drive continuous improvement with your teams.
5 – Align teams and avoid self-inflicted variability
Last but not least, to combat the main variability, managerial variability – the variability resulting from our decisions, our cognitive and behavioral biases, our implicit or implicit policies, changes in strategic orientations – the solution lies in team alignment:
- Sharing common planning and execution principles – Demand Driven Institute training courses contribute to this.
- Co-construction of the supply chain model with the teams, for a shared understanding and responsibility.
- Clear signals, both at operational level (priorities) and in terms of reporting and performance analysis.
- Orchestrated meeting points – in particular an S&OP process focused on adapting to a changing environment and linking strategic and operational management.
