The Most Powerful Supply Chain Management System

Nearly 20 years ago, someone wisely observed:

The most powerful computer system is the one that gets used.

This comes to mind today in light of the current debate in the supply chain management world between the different schools of thought—much of the debate seeming focused on deriding the demand driven operating model (DDOM) or DDMRP (Demand Driven Material Requirements Planning).

Some involved in the debate have stated more or less explicitly that the DDOM is too simplistic. They suggest that doesn’t have the sophistication required to effectively manage today’s complex markets and supply chains. Instead, they advocate for seemingly ever-increasing levels of complexity in the tools, including “probabilistic forecast driven multi-echelon inventory optimization.”

However, my more than three decades of working with supply chain matters and computer systems has shown me that, when the people using a system don’t fully understand the system, they are also likely to:

• Distrust the system outputs
• Ignore the system outputs (explicitly or implicitly), and
• Work around the system outputs to get to results they do trust

I, and many others, have found that system users will do this even if their home-brewed results are not leading them toward ongoing improvement.

Why? Because they clearly don’t think that the outputs from their complex computing systems are leading them toward ongoing improvement either.

The crucial factor is trust

People tend to trust what they understand and distrust what they don’t understand. (And, by the way, I have found that amongst our clients—small to midsized enterprises—there are very few supply chain managers and staff who are highly trained in statistical methods.)

They trust their own calculations because they understand the derivations of them—the underlying logic. They generally distrust “black box” outputs that cannot readily be reconciled in their minds to underlying data that they believe are relevant.

They may distrust the complex systems from the outset, or they may give these new systems a try and discover for themselves that, despite the sophistication, the results generally are not significantly different from previous methods in terms of improving customer services levels, reducing out-of-stocks on fast-moving items, or limiting the volume of excess stocks at the other end of the spectrum.

What I am saying is this: one of the reasons DDMRP, the DDOM and DDAE (Demand Driven Adaptive Enterprise) methods have proven to be so very effective at producing positive results is that everyone involved understands how the system works and, as a result, trusts the system’s outputs.

Finally, focus and agreement

Thus, they are not distracted from their goals by efforts to construct workarounds in order to find numbers that they do trust. Instead, they are focused on improvement. (And, if the enterprise wants to employ some “probabilistic forecast” as a factor in their buffer-sizing, they are certainly welcome to do so. Nobody’s stopping them.)

But, equally as important is the fact that the DDMRP and DDAE models keep everyone’s focus on “the surprise” in the data stream (the “tails of curve”)—which is where the real information lies. It also unifies everyone’s thinking around the proper responses and priorities.

Complexity tends to create a lack of focus—with too many factors to consider—and confusion over priorities. Pouring over huge volumes of data to see if the S&OP team is going to come to a consensus (forgetting even the possibility of unanimity) is not generally time or money well-spent.

In the midst of this debate, then, about which supply chain management system is the most powerful, I have come to this conclusion:

The answer lies, not in the sophistication of the underlying algorithms, nor in the complexity of ‘big data’ the system is able to process. Rather, powerful and effective supply chain management is found in the system that is able to be understood and trusted, and which, as a result, creates focus and a unified response to critical factors affecting FLOW.

My experience teaches me that, focus and flow will beat complexity and sophistication almost every day. (And, on the days when complexity and sophistication appear to “win,” it’s more by chance than any other factor.)