The Supply Chain Squeeze
HOW SUPPLY CHAIN PHILOSOPHIES ARE SOMETIMES USED AS SUBSTITUTES FOR COMMON SENSE, EFFECTIVE LEADERSHIP, AND/OR ANALYTICAL HARD WORK
A few years ago, I received a phone call from the head of supply chain for one of the world’s largest laptop computer companies. After a few pleasantries, I asked for the nature of the call. The individual explained that as part of a new service initiative they were being required to radically reduce door-to-door times and wanted my advice on how to go about it. I suggested the typical options of parallel processing, automation, and next-day shipping. The individual shared that they had proposed each one but as a part of a new lean-austerity initiative the company was unwilling to invest the time or money in any of those options.
I suggested the obvious, that without the investment in time or money to re-engineer processes, automate, and/or increase transportation costs, they had put themselves between a rock and a hard place. The individual became despondent and started crying. I gently asked a question I already knew the answer to. “What’s wrong?”
The individual shared that they had been under that kind of pressure for the past year, and that the last person in their position had only lasted six months. I suggested that no one was meant to stand up under that pressure and that they were unfortunately at the intersection of two mutually exclusive philosophies — higher service at any cost and lower cost at any price. That’s why we say, “Don’t philosophize, optimize.”
Since supply chain logistics is replete with complex tradeoffs, optimization, RightChain™’s trade-off bunker buster, is one of the most critical, yet elusive concepts for supply chain professionals. Let me take a stab at simplifying the concept.
If I asked you to tell me the best way to travel from Atlanta, Georgia to Los Angeles, California, what would you say? When I ask that question in our seminars, most say by plane. When they say that so quickly they are making assumptions about the trip, that there is sufficient money available to buy a plane ticket, that time is of the essence, and that air travel is preferred. (That says a lot about our culture.) The real answer is, “It depends.”
Suppose I add something to the question and ask you to tell me the best way to go if you only have $100.00. What would you say? Now the range of options may be limited to hitch hiking or stowaway. Suppose I add that money is no object and that you must arrive within 12 hours. What would you say? Now the only option is to go by plane and since money is no object, why not charter a jet? Suppose I say that you must arrive in 12 hours and spend the least amount of money possible. What would you say? Now the range is even narrower and probably means getting the cheapest possible coach plane ticket. In that example, the “12 hours” is a constraint and the “least amount of money possible” is the objective function. In optimization format it would look like this:
Objective Function = Minimize Expenses
Constraint = Arrive within Twelve Hours
In any decision-making environment, without an objective function AND constraint(s), any answer is right and any answer is wrong. Since most business and supply chain decisions are not framed this way, how are business or supply chain decisions made? Unfortunately, it often comes down to who can write the most caustic email, who has the boss’s ear, who has the most political clout, who is the most upset customer, what did the stock analysts say, etc.
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