Embrace Complexity – Revisited

Published April 17th, 2013 by Trevor Miles @milesahead 0 Comments

Tony Martins at Cyber Supply Chain published a very interesting blog over the weekend titled “The post-S&OP era – Managing in NOW mode” that explores the need and nature for more responsive and timely processes.

I agree very much with most of Tony’s perspective, but there are areas where I think the argument can be taken further, particularly in the understanding of the nature of the problem – which is complex – and the manner in which we can promote better resolution – through cross-functional collaboration. I very much encourage you to read Tony’s blog before continuing to read mine.

Tony’s Key Points

This whole thing is so 1990′s and yet so many people are still doing it. I’ve actually been in places that when I propose a completely different approach, I’m told “well that’s not proper supply chain management”.

Yes, I agree, and the reason being that people have defined an approach and processes to S&OP, and, more broadly, to Supply Chain Planning, based upon the technology that was available at the time these concepts were developed over 30 years ago. This required a reductionist approach of pulling the problem apart and focusing on functional skills such as demand planning, or inventory planning, etc. Nothing exemplifies this backward approach better than the 5 stage sequential S&OP process advocated by many experts in the field.

The problem is that the whole is greater than the sum of the parts, and an approach that starts from the perspective that the whole is the sum of the parts will never get us to a new level of capability and productivity.

 It’s almost as if a whole lot of people – senior Executives no less – believe that the world is on ‘pause’ while all this data is being processed. That, of course, isn’t the case and I am sure these Executives don’t think so either. And yet, they still think this is a good way to manage supply chains.

The essential issue is that people believe in ‘stability’, and that they can impose it on a supply chain.  As engineers – and most people in supply chain management today are engineers – we are taught to be deductive thinkers and our value is measured by how much we can pull apart a problem and devise an optimum solution. We feel threatened when we cannot reduce the problem to a set of known equations that can be solved and optimized.

The problem is that the world is messy (stochastic) and we have to make gross simplifying assumptions based upon very uncertain information – the demand forecast, and the supply forecast for that matter – so our optimum is not so optimal after all. In addition we way over-estimate the half-life of our (less than) optimal solution.

The core concept of NOW Management, as I call it, is that things change because specific disruptive events occur. If you made a plan, the plan continues to be good for a while until there is a disruptive event.

…, if Demand is changing, it can only be because of disruptive events – current events or future events.

You’ll have to allow me some disagreement.  It’s not that I disagree with the fact that there are disruptive events, but rather that I want to challenge the implicit assumption in Tony’s statement that the plan – both demand and supply – was correct in the first place.

Terra Technologies published a survey of demand planning capabilities in 2011 that focused principally on Consumer Goods companies, which, for obvious reasons, have always been at the forefront of demand planning.  The results of the study show that most companies achieve a weekly MAPE of 48%, meaning the forecast accuracy is only 52%. Anecdotal evidence from High-Tech suggests that the forecast error of supply lead time lag, is typically about 70% and Industrial companies cannot predict their forecast much better.

The problem is that since the supply plan aims to fulfill the demand plan, how optimal can the supply plan ever be? Not very is my answer. So the real issue is that as time progresses, we learn more and more about the true demand – which is not a disruption at all – and need to adjust very quickly to true demand.

As a consequence, my toes curl every time I hear that a company is using Plan Conformance as a KPI to measure the performance of their supply chain. Really?  The plan is ‘wrong’ and you are going to force your supply chain to deliver an incorrect plan?

Supply Chain Management in NOW mode can best be done (and I suggest that it can only be done) using social networking. I have written extensively about the power of Spontaneous Association to react to unexpected events at great speed, using the skills of qualified individuals in a dynamic, virtual network.

I mostly agree that it is the social aspect that is missing in our current deductive view of supply chain planning and management. I also agree very strongly that the only way to solve issues is through dynamic, virtual networks. Collaboration has been a hot topic, and much abused topic, for some time. More on this later.

And yet, it is not enough to let things happen spontaneously, as they do in the consumer world of social networks.  We need a little more control than that, but not a huge amount, that is based upon the concept of Responsibilities or ‘directed’ interactions. We definitely do not need something as rigid as a predefined business process orchestrated by a BPM tool. A much richer construct than social networks is Dynamic, Advanced, or Adaptive Case Management, which is implied, but not stated explicitly, in the process described by Tony to support NOW mode.

I’d like to suggest an alternative process that encapsulates the process he recommends.

  • Monitor the supply chain constantly to detect significant changes – which includes disruptive events – constantly based on predefined thresholds.
  • Direct an alert to the person responsible for the event and create a case file, what Tony calls posting.
  • Determine if the event has significant business impacts on other parts of the supply chain.
  • Direct alerts based upon the business impacts of the event to as many people as necessary notifying them of the case that has been opened.
  • Short term actions, governed by longer term operational and financial objectives, are identified and tested in what-if scenarios to determine the likely operational and financial impacts of these changes.
  • If the impacts of changes mean that other people need to be involved – which is determined through Responsibilities – they will be invited to participate in the case, while others who have filled their tasks may be pruned.
  • Then, other actions are taken to re-plan activities affected by the disruption.
  • From drawing up action plans, people naturally evolve to executing those actions until the situation stabilizes.
  • Since inevitably some trade-offs will need to be made between KPIs, a voting structure and approval process is required to govern the promotion of an action plan to execution.

Where Complexity Shines

In essence, if we adopt the process above, we end up with the Cynefin Framework combining aspect in the Known, Knowable, and Complex quadrants, with the express hope of avoiding the Chaos quadrant.

Complexity

It is important to support several quadrants of the Cynefin Framework because, for example, process efficiency, and by implication cost reduction, is obtained through the adoption of standard best practice processes.  And contexts will change meaning new issues will arise, which we have not dealt with before meaning that the issues can no longer be dealt with adequately through best practices.  Equally over time we may gain insight through pattern recognition meaning we can adopt a best practice approach to solving this class of issues.

Another perspective of the Cynefin Framework is to look at the necessary capabilities required to deal with each of the quadrants.

 

This diagram illustrates very clearly why social concepts are so important, where standard Business Process Management approaches can be used to support the Simple quadrant, but are insufficient to support the more ad hoc approach required to support the Complicated and Complex quadrants.

Yet another perspective of the Cynefin Framework highlights both the skills and capabilities required to deal with each of the quadrants as well as the role of Best, Good, Emergent, and Novel practice within the quadrants.

Unfortunately, we tend to adopt the practices of the bottom two quadrants – Chaotic and Simple – when in fact most of our supply chains operate in the top two quadrants – Complex and Complicated.

We tend to consider that all issues can be reduced to best practices when in fact the exact conditions that direct our actions – both cause and effect – are almost never repeated. Best practice is indeed suitable for the usual and mundane events, but then these are unlikely to require much attention. All too often we force significant events to be dealt with through Best Practice thereby both overestimating the benefits and underestimating the risks. Commoditization and a slow death lie in wait in the Simple quadrant.

All too often people in the front line wizen up the impracticality and inappropriateness of Best practices in dealing with real world issues, and in the absence of any supportive infrastructure gravitate to the Novel quadrant where ‘seat of the pants’ approaches dominate. Clearly this is not sustainable either because costs go up or quality goes down.

The question is how we gravitate to the top left Complex quadrant. But, before discussing that in too much detail I also want to deal with the issue of complexity.  Some time back I commented on a blog entitled “Embrace Complexity” that describes a Harvard Business Review devoted to Complexity Science. Some colleagues have expressed their concern that I seem to be promoting complexity. Well, not really. In fact quite the opposite is true.

What I do believe is that a supply chain is a very complex network that cannot be disaggregated into a set of functional silos in which best practices are applied without context and acknowledgement of the interconnectivity between functions. In other words, the whole is much greater than the sum of the parts and therefore reducing everything to best practice robs the organization of vibrancy and change, or adaptation to meet new business opportunities and challenges. In other words I start from the idea that a supply chain is a complex web to which we need to bring simplicity by focusing on what is important rather than through simplifying and therefore robbing the supply chain of the richness of the network of interactions.

My favorite diagram in this context that captures the duality of simplicity and complexity is below.

This is where we have a lot to learn from Generation Y on the use of social networking concepts in an enterprise world. It is not as simple as providing an unstructured social platform.  There needs to be sufficient structure to promote timely resolution of issues and sufficient lack of structure to promote ad hoc and creative solutions to issues that transcend a single function.

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