Here is part 2 on the important of Response Management. Make sure to check out part 1! Kerry Zuber, one of my colleagues who is a Lean/Six Sigma black belt, has introduced me to two great terms that are crucial to understanding the value and key capabilities required of effective response management:
- Time to detect This is all about knowing sooner that some event has occurred that is creating risk or harm to your organization or supply chain. This may be that a customer has changed their mind about an order, or a supplier has de-committed on a delivery date or quantity, or that a tsunami has occurred in Japan that has wiped out a large part of world-wide semiconductor manufacturing capacity. But not only knowing about the event sooner, but also knowing about the impact sooner (which lines will go down, which orders will be impacted), and, perhaps as importantly, knowing who is impacted sooner. Without knowing all of these three things you cannot act.
- Time to correct Once you know what went wrong, you need to act quickly to find a solution through compromise across multiple functions, even multiple tiers, often with competing objectives. The timeliness of resolution is a key measure of the quality of the solution. We still hear of companies that have not fully understood the impact of the Japanese tsunami on their operations and their ability to satisfy demand, let alone put into place a recovery plan. And yet it is often the day-to-day events, such as when a customer changes their mind on an order, where most margin or customer satisfaction is lost because either the response to the customer is too slow or actions are taking with little understanding of the financial and operational impact.
The significance of these two terms is that for the most part the physical supply chain is a constraint in that your ability to change it in the short term is very limited so every minute lost in detecting something ‘wrong’ and, once the event has been detected, every minute used to determine what to do to reduce or eliminate the risk or harm, is a minute taken away from being able to use the physical supply chain in some manner to reduce the risk. Even in situation where there is next to nothing that can be done to eliminate the risk, if you know sooner you can at least tell your customers who are impacted about the impact sooner so that they have more time to react. There are three core capabilities required that impact the time to detect and the time to correct:
- Being able to represent several versions of a multi-tier supply chain in a single data model so that there is a single version of the truth, and being able to represent several states – historical, present, and future – of the supply chain in order to determine what of significance has changed that is causing future harm to the organization, as well as several scenarios that represent alternative ways of solving the problems.
- Being able to determine who is impacted by the change and therefore who needs to be alerted, not only in your own function, but in other function within your own organization and people in your customers, contract manufacturers, or component suppliers.
- Being able to bring those people impacted by other the original threat or proposed actions together in order to collaborate on the resolution of a problem by testing several ways of resolving the issue and being able to reach compromise through sharing of the impact of possible courses of action on financial and operational metrics.
These concepts and capabilities can be applied to a broad range of business problems, not just the supply chain. In the diagram on the left we can substitute other function’s analytics for the supply chain analytics and still retain the core capabilities described above to solve response management problems in a wide range of business activity. Within manufacturing industries the supply chain is absolutely central to being able to get product to market. But within manufacturing companies response management issues are not constrained to the supply chain. Workforce management is an easy one to describe in this context because it is (or rather it should be) tightly coupled to the longer term revenue forecast. If a company anticipates their demand or sale revenue growing they need to ramp up recruitment because of the long lead time in recruiting and training people, but they also need to be very quick in shutting off the recruitment process if they see that their revenue is not growing as anticipated. In other words workforce management also requires the ability to plan for the future based upon anticipated demand, monitor actual performance against anticipated performance, and a quick response to correct the misalignments. What drives the need for response management is the fundamental fact that we cannot predict the future with a great deal of accuracy and our success or failure is dependent on how effectively we respond to the present, how we manage in the “now”. What varies across industries, across functions, and across business processes is how far into the future we need to predict what we think is going to happen, and how quickly we can affect change. But what does not change is that the time it takes us to detect that something of significance has changed and decide on the best course of action determines both the time we have available to carry out the course of action and the feasibility of the course of action, which is of course a key measure of the quality of the decision. So where do you think the next breakthrough will come from? Better forecasting or better response management?
I agree, planning is absolutely necessary and a better forecast will nearly always result in a more efficient supply chain.
What I argue though is that effectiveness is always a better measure. Ask your self whether every dollar you spend is best spent on improving your forecast or in improving your responsiveness. Of course if you have two dollars you can spend one on forecast improvement and one on responsiveness, but who is in that position today?
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