Operational Disruption is Becoming Normal

Call it what you want: black swans, unprecedented events, rogue waves, market disruption, etc. Whatever we call it, the reality is the same: uncertainty is the game. The financial crisis, Covid, supply chain disruption, rampant inflation, deglobalization — businesses today confront almost predictable unpredictability that severely complicates keeping operations in balance.

Resilience is profoundly important.

The Dangers of Rules of Thumb in Driving Operational Performance

There are (somewhat dangerous) adages that perfect is the enemy of good and that speed matters when confronting uncertainty. That unintentional impact is that “rule of thumb” thinking takes over as leaders accept than any planning assumption is inherently flawed. But the real impact of that approach is that assumptions merely echo the status quo that either work with aged data or abstracted data that does not capitalize on today’s ability to run your business with atomic-level data. It is what we know, what we are comfortable with…and what we use.

And we end up with a bad math equation where assumed variability of one factor (e.g., demand) is multiplied by variability in another factor (e.g., generic inventory targets), and another (e.g., irregular demand/supply review cycles), and another (e.g., rule of thumb supplier lead times) — and you end up with a level of confidence that is nearer to 20%.

Keeping Operational Balance with Item-Level Decision-Making

The proliferation of data and the speed to insight enables us to thread the needle; to respond rapidly with insights that radically improve the business confidence — and relevance — of business decisions. And we should distinguish systems like ERP from the ability to make precise decisions at the atomic level. You can access and use precise data irrespective of the system and frankly, you may want to have a decision-support capability that can also work independently of the system in case system workflow or business rules complicate your ability to access and capitalize on atomic-level data.

This is worth an example: A recent mid-market client had invested in improved data quality and integrated order management via a new ERP, but still wasn’t seeing the improved service with lower inventory and lower expediting levels cost benefits anticipated. River Rock Advisors (RRA) stepped in to assist in thinking about:

  • Inventory targets set at the item level (rather than generic ABC type categories)
  • The positive impacts of understanding real stock transfer times between facilities and supplier lead times
  • Improving planner education to understand the benefits of leveraging math at a more granular level rather than using multiple “rules of thumb”

As a result, on-time and in-full levels jumped with less inventory while still providing response levels to the crisis of the day.

Operational Resiliency is Born from Insights and Analytics-Based Decision-Making — Even in This Disrupted World

Once normal operations are based on better data (not perfect, of course), when disruptions do occur, then fact-based decisions (or close to fact-based) can be levered alongside institutional knowledge, industry insights, and common sense. The combination of “knowns” combined with knowledge will provide quicker, more agile customer- and margin-protecting sensible solutions.

Disruption is becoming an operational norm. Beyond the financial meltdown, Covid, geopolitics, and supply chain issues, we can now add severe weather and new sustainability requirements to that roster. There can also be an instinct of default to rules of thumb to maintain operational speed. But that will place you out of balance and in a competitively disadvantaged state.

Capitalize on the ability to rapidly analyze atomic-level data — in this case, item-level data — and integrate that capability into core operations. There is a way to have operational resiliency, speed, and precision in this disrupted world.

Connect with us to learn more about implementing this approach in your organization.