Forget perfection, focus on reducing supply chain risk

Not only is my golf game terrible, it also hasn’t improved in 20 years. I’ve learned to accept it. Still, improving shouldn’t be so hard. It seems like no amount of new equipment or practice makes a difference. Perhaps what I need is a change of perspective.

A friend advised me to accept the inherent variability that comes with the game. Instead of planning for the perfect shot, understand the variability of every aspect of the game – your swing, the ground conditions, that northeasterly breeze. Then, based on that, don’t aim where you want to hit — aim where you’re most likely to minimize the risk of disaster.

This advice also has relevance for supply chain management, where many leaders aspire to make it an exact science. While this may be laudable, eventually the laws of diminishing returns kick in.

Rather than trying to “perfect” the supply chain, maybe a better approach is to focus on risk – and then build out the capabilities needed to manage it.

Sorting the supply chain: The dimensions of risk

But first, what are the three key aspects of supply chain risk:

• Risks you faced in the past: Past risk is all about analysis to tell you something about the here and now. How did past risk scenarios play out relative to what you anticipated? Was the risk hidden or ignored? By analyzing past risk, you can apply lessons learned to current circumstances.
• Risks that you may face in the future: Future risk is about prediction. Unfortunately, the sources of future risk are many – a new pandemic, geopolitical tensions, trade wars, inflation, climate disaster, raw material, and labor shortages, changing consumer demand, and competitive moves. This list goes on. What is the potential for any of these to impact operations? And what can you do today to protect against the risk if it materializes?
• Risks that are happening right now: Present risk is about responsiveness. How big is the risk? Should we respond now or sit tight? Insight into past risk will help you make better decisions, as will any plans you may have to deal with future risk. Then, with the right capabilities in place, you can better understand the present risk and make informed moves.

But the question remains, how exactly do you evaluate risk?

Bayes’ Theorem and the importance of relevant information

On YouTube, I came across a video by Julia Galef on Bayes’ Theorem about calculating the probability of an event based on an understanding of prior conditions. Rationality, it turns out, is not so much about knowing facts as it is about knowing which facts are relevant.

Galef illustrates this point with a scenario: imagine an introverted student crossing a college campus with books in hand and eyes averted. Is this student more likely to be a math PhD candidate or a business major?

Most people choose the math student because when it comes to introversion (for this thought experiment), 75% of math PhD candidates fit the bill while only 15% of business majors do.

But consider this: for every math PhD candidate, there are 10 business majors (a 1:10 ratio). If there are 20 math PhD candidates, there are 2,000 business majors. Do the math and you’ll see that 15 of the total pool of math PhD candidates are introverted – versus 300 for business majors. Clearly, the shy student crossing campus is much more likely to be studying for a career in business.

The context-aware supply chain

Bayes’ Theorem shows us that we humans aren’t always the clearest thinkers. As a result, for effective supply chain management we need to get systematic –leveraging whatever tools and artificial intelligence we may need to understand context and make better decisions.

To succeed, follow through on three courses of action:

1. Connect every process: Integrate processes for design, planning, manufacturing, logistics, maintenance, and service. When all silos work together and share information, you can dramatically increase visibility. This can help you better understand what the relevant facts are.
2. Collaborate with your ecosystem: Create dynamic, digital connections across all your suppliers, contract manufacturers, logistics partners, and services providers. The result is full visibility into every partner’s capabilities, capacity, and performance.
3. Contextualize every decision: With connected processes and robust collaboration, you can understand the context for  decisions. Now, you can work together as one business to avoid the gaps, inaccuracies, and mistakes that slow progress and increase costs. And with access to AI and other intelligent technologies, you can detect patterns that humans cannot. The result is better decision making.

Wholesale distribution trends transforming the industry

After a tumultuous start to the decade, what are the trends wholesale distributors should watch for? See the top trends, including increased competition, personalization, and resilient supply chains.

Go for supply chain risk resilience, not perfection

At a time of growing complexity and uncertainty, supply chain perfection is perhaps unattainable – or at least not worth the effort. Few if any plans go as initially conceived.

A better approach is to focus on mitigating the risks that could derail operations. With the right frame of mind and the right capabilities in place to help you execute, you can dramatically improve your supply chain game.

Learn why supply chain professionals now rate risk resiliency as their top priority – and what they plan to do about it.
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