“Moneyball” and Your Business

 

It’s MLB playoff time, and my team (the Tribe) is there, again.  (Pregnant pause to enjoy the moment.)

A while back, the film “Moneyball” showed us how the Oakland A’s built a super-competitive sports franchise on analytics, essentially “competing on analytics”, within relevant business parameters of a major league baseball franchise.  The “Moneyball” saga and other examples of premier organizations competing on analytics were featured in the January 2006 Harvard Business Review article, “Competing on Analytics” (reprint R0601H) by Thomas Davenport, who also authored the book by the same name.

The noted German doctor, pathologist, biologist, and politician, Rudolph Ludwig Karl Virchow called the task of science “to stake out the limits of the knowable.”  We might paraphrase Rudolph Virchow and say that the task of analytics is to enable you to stake out everything that you can possibly know from your data.

So, what do these thoughts by Davenport and Virchow have in common?

In your business, you strive to make the highest quality decisions today about how to run your business tomorrow with the uncertainty that tomorrow brings.  That means you have to know everything you possibly can know today.  In an effort to do this, many companies have invested, or are considering an investment, in supply chain intelligence or various analytics software packages.  Yet, many companies who have made huge investments know only a fraction of what they should know from their ERP and other systems.  Their executives seem anxious to explore “predictive” analytics or “AI”, because it sounds good.  But, investing in software tools without understanding what you need to do and how is akin to attempting surgery with wide assortment of specialized tools, but without having gone to medical school.

Are you competing on analytics?

Are you making use of all of the data available to support better decisions in less time?

Can you instantly see what’s inhibiting your revenue, margin and working capital goals across the entire business in a context?

Do you leverage analytics in the “cloud” for computing at scale and information that is always on and always current?

I appreciate everyone who stops by for a quick read.  I hope you found this both helpful and thought-provoking.

As we enter this weekend, I leave you with one more thought that relates to “business intelligence” — this time, attributed to Socrates:

“The wisest man is he who knows his own ignorance.”

Do you know what you don’t know?  Do I?

Have a wonderful weekend!

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Does Your Demand Planning Process Include a “Quantitative Sanity Range Evaluation”?

There is a process that should be part of both your demand planning and your sales and operations planning.  The concept is simple – how do you find the critical few forecasts that require attention, so that planner brainpower is expended on making a difference and not hunting for a place to make a difference?  I have heard this process called a “Forecast Reality Check” and a “Forecast Reasonability Check”.  Just to be difficult, I’ll call it a Quantitative Sanity Range Evaluation (I have my own reasons.)  It may be similar in some ways to analyzing “forecastability” or a “demand curve analysis”, but different in at least one important aspect – the “sanity range” is calculated through bootstrapping (technically, you would be bootstrapping a confidence interval, but please allow me the liberty of a less technical name – “sanity range”).  A QSRE can be applied across industries, but it’s particularly relevant in consumer products, where I have seen a version of this implemented first hand by Allan Gray, a really smart gentleman – back when I worked with him for End-to-End Analytics – just so you know I didn’t think this all up on my own!

At a minimum, QSRE must consider the following components:

  1. Every level and combination of the product and geographical hierarchies
  2. A quality quantitative forecast
  3. A sanity range out through time
  4. Metrics for measuring how well a point forecast fits within the sanity range
  5. Tabular and graphical displays that are interactive, intuitive, always available, and current.

If you are going to attempt to establish a QSRE, then I would suggest five best practices:

1.  Eliminate duplication.  When designing a QSRE process (and supporting tools), it is instructive to consider the principles of Occam’s razor as a guide:

– The principle of plurality – Plurality should not be used without necessity

– The principle of parsimony – It is pointless to do with more what can be done with less

These two principles of Occam’s razor are useful because the goal is simply to flag unreasonable forecasts that do not pass a QSRE, so that planners can focus their energy on asking critical questions only about those cases.

2. Minimize human time and effort by maximizing the power of cloud computing.  Leverage the fast, ubiquitous computing power of the cloud to deliver results that are self-explanatory and always available everywhere, providing an immediately understood context that identifies invalid forecasts. 

3. Eliminate inconsistent judgments By following #1 and #2 above, you avoid inconsistent judgments that vary from planner to planner, from product family to product family, or from region to region.

4. Reflect reality.  Calculations of upper and lower bounds of the sanity range should reflect the fact that uncertainty grows with each extension of a forecast into a future time period.  For example, the upper and lower limits of the sanity range for one period into the future should usually be narrower than the limits for two or three periods into the future.  These, in turn, should be narrower than the limits calculated for more distant future periods.  Respecting reality also means capturing seasonality and cyclical demand in addition to month-to-month variations.  A crucial aspect of respecting reality involves calculating the sanity range for future demand from what actually happened in the past so that you do not force assumptions of normality onto the sanity range (this is why bootstrapping is essential).  Among other things, this will allow you to predict the likelihood of over- and under-shipment.

5. Illustrate business performance, not just forecasting performance with sanity ranges.  The range should be applied, not only from time-period to time period, but also cumulatively across periods such as months or quarters in the fiscal year.

If you are engaged in demand planning or sales and operations planning, I welcome to know your thoughts on performing a QSRE.

Thanks again for stopping by Supply Chain Action.  As we leave the work week and recharge for the next, I leave you with the words of John Ruskin:

“When skill and love work together, expect a masterpiece.”

Have a wonderful weekend!

The Value Network, Optimization & Intelligent Visibility

The supply chain is more properly designated a value network through which many supply chains can be traced.  Material, money and data pulse among links in the value network, following the path of least resistance, accelerated by digital technologies, including additive manufacturing, more secure IoT infrastructure, RPA, and, potentially, blockchain. 

If each node in the value network makes decisions in isolation, the total value in one or more supply chain paths becomes less than it could be.  

In the best of all possible worlds, each node would eliminate activities that do not add value to its own transformation process such that it can reap the highest possible margin, subject to maximizing and maintaining the total value proposition for a value network or at least a supply chain within a value network.  This is the best way to ensure long-term profitability, assuming a minimum level of parity in bargaining position among trading partners and in advantage among competitors.

Delivering insights to managers that allow them to react in relevant-time without compromising the value of the network (or a relevant portion of a network, since value networks interconnect to form an extended value web) remains a challenge.

The good news is that many analytical techniques and the mechanisms for delivering them in timely, distributed ways are becoming ubiquitous.  For example, optimization techniques and scenarios can provide insights into profitable ranges for decisions, marginal benefits of incremental resources, and robustness of plans, given uncertain inputs.

When these techniques are combined with intelligent visibility that allows you detect and diagnose anomalies in your supply chain, then everyone can make coordinated decisions as they execute.  

I will leave you with these words of irony from Dale Carnegie, “You make more friends by becoming interested in other people than by trying to interest other people in yourself.”

Thanks again for stopping by and have a wonderful weekend!

Supply Chain Action Blog

The supply chain is more properly designated a value network through which many supply chains can be traced. Material, money and data pulse among links in the value network, following the path of least resistance.

If each node in the value network makes decisions in isolation, the potential grows for the total value in one or more supply chain paths to be less than it could be

In the best of all possible worlds, each node would eliminate activities that do not add value to its own transformation process such that it can reap the highest possible margin, subject to maximizing and maintaining the total value proposition for a value network or at least a supply chain within a value network.  This is the best way to ensure long-term profitability, assuming a minimum level of parity in bargaining position among trading partners and in advantage among…

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On Memorial Day Weekend

Let us remember and honor all who serve a higher good than their own comfort and fulfillment. This is Memorial Day weekend for us in the U.S., but may our memory serve us well when the calendar does not. Let us never forget when uncommon valor becomes a common virtue and those who shirk not their duty, nor shrink from their sacrifice leave their families bereaved. May God bless all who have bravely and knowingly walked into the “valley of the shadow of death” but have never returned, freeing others to pass by unharmed. May they rest forever in our hallowed memories of the price of peace with liberty.  May God bless the families who will always suffer without them. And, may God bless those who have returned but not without cost and their families who suffer with them.

The Value Network, Optimization & Intelligent Visibility

The supply chain is more properly designated a value network through which many supply chains can be traced. Material, money and data pulse among links in the value network, following the path of least resistance.

If each node in the value network makes decisions in isolation, the potential grows for the total value in one or more supply chain paths to be less than it could be

In the best of all possible worlds, each node would eliminate activities that do not add value to its own transformation process such that it can reap the highest possible margin, subject to maximizing and maintaining the total value proposition for a value network or at least a supply chain within a value network.  This is the best way to ensure long-term profitability, assuming a minimum level of parity in bargaining position among trading partners and in advantage among competitors.

Delivering insights to managers that allow them to react “in the moment” without compromising the value of the network (or a relevant portion of a network, since value networks interconnect to form an extended value web) remains a challenge.

The good news is that many analytical techniques and the mechanisms for delivering them in timely, distributed ways are becoming ubiquitous.  For example, optimization techniques and scenarios can provide insights into profitable ranges for decisions, marginal benefits of incremental resources, and robustness of plans, given uncertain inputs.

If these capabilities can be combined with intelligent visibility that allows you to see every area and metric of your end-to-end supply chain in context, then everyone can make coordinated decisions as they execute.  

I will leave you with these words of irony from Dale Carnegie, “You make more friends by becoming interested in other people than by trying to interest other people in yourself.”

Thanks again for stopping by and have a wonderful weekend!

Leadership: Motivation or Manipulation?

Motivation is the inspiration to do the right thing.  A leader imparts it.  The best colleagues, clients, and partners embrace it.

Do you know when you are being motivated and when you are being manipulated?  Do you motivate people or manipulate them?  Is there a distinction and if so, what is the difference?  Is there an appropriate time for each?

Tricking someone to do what you want them to do is manipulation.  Those who respond to it are either taken in by the superficial validation of own importance that is implied by the manipulator or driven by a fear of the consequences of questioning the manipulator.

OK.  So what?

Most of us are called upon to be both leaders and followers.  Part of wisdom is knowing when to do which and how.  As a leader, there will be situations when time does not permit a comprehensive explanation and as followers, there are times when we need to accept the decision and execute without an argument.

But, leaders owe it to their stakeholders to do the following:

  1. Live their values – The more you do this, the less time you will need to spend on points 2 and 3.
  2. Communicate them clearly – Keep them few and short.  They can be phrased as expectations.
  3. Give direction and expect initiative that is consistent with those values.

And when following, you owe it to your leader and organization to question when the direction you are given appears to seriously diverge from either the leader’s stated expectations or your own core values.  You need to be able to orbit your leader’s values and expectations and the direction that you are given while maintaining your own values.

So . . . Resolve to do the following:

Decide on your own core values and live them as consistently and transparently as you can.

As a follower, there will be times when you disagree with the leader and must dutifully carry out your responsibility (within obvious moral limits) as a member of the team, but you can do it with comprehension and not out of either fear or a need for validating your worth.

No leader or follower is ever perfectly consistent and always acts out of motivation or is never manipulated, but isn’t it a goal worthy of continuous pursuit?

Finally, I leave you with this thought for the weekend:  “You can’t lead others until you serve something greater than your own ambition.”

I would be delighted to know your thoughts on this subject.  Have a wonderful weekend!

__________________

Footnote and Question:  There will be those, both leaders and followers, who serve nothing more than their own immediate self-gratification.  These folks may not embrace leadership from either position.  Do we need to resort to manipulation in order to move some of these people the the right direction for the organization?

A Few Random Thoughts

This week, I was privileged to attend the INFORMS Analytics Conference in Huntington Beach, California and the IEG S&OP Conference in San Francisco.  I heard some insightful points and thought I would list a couple here (with appropriate attribution) along with a few thoughts of my own.  I hope that at least one strikes a chord with you.

If you use a heuristic to solve a problem with 100% complete and clean data, using a data model that exactly represents reality at any given moment, you still have an inexact answer.  But since such data and data models are rare (or nonexistent), even a pure optimization is still inexact and, in effect, a heuristic solution requiring both art and science on the part of the analyst. (Colin Kessinger, End-to-End Analytics)

If the purpose of Sales and Operations Planning is to make the best integrated decisions for running your business, then you will have a firm, published schedule and people will schedule other meetings (even customer meetings) around it. (Bob Ratay, SAP),

Key capabilities in an S&OP decision-making process are business agility, versatility, and elasticity.  (Olaf Gelhausen, Infineon)

S&OP is about a range, not “one-number” – one plan with a range and distribution of probabilities, but not one number. (Olaf Gelhausen, Infineon)

The best business decisions, even very qualitative ones such as those in the fashion industry are built on a foundation of rigorous data analysis and decision modeling, providing the qualitative decision-maker the largest head-start possible by reducing the “solution space” and delivering insight into the most sensitive tradeoffs.

Working with people is the hardest part of any business challenge – by comparison, the mathematics are relatively easy.

In business planning, longer term investment decisions require detailed scenario analysis.  Near term execution decisions require existential insight into the cash flow changes and their causes.  One might call the latter, “analytical awareness”.

Once sources have been qualified, sourcing decisions among sources (both near and far, “in” and “out”) should be cost-optimized and dynamic (Olaf Gelhausen, Infineon).

Thanks for dropping by Supply Chain ActionPlease feel free leave your random thoughts as a comment below or send them to me, and I’ll try to include them in an upcoming post.

Until next week, always choose life, light and love and don’t forget to laugh along the way.

Have a wonderful weekend!

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