Best-in-Class Supply Chain Planning is All About Managing Outliers

"Walmart says reducing inventory glut will take 'couple quarters' " Said a recent news headline. As per the same new headline, Target was struggling with the same challenge. In many articles, these events were characterized as outliers from a supply chain planning perspective. Now for a moment, let us put this headline aside and think about Walmart's capability to invest in best-of-the-breed supply chain planning solutions. Is there a tool or solution that the Fortune 1 company can not buy? Chances are, if a solution is out there in the market, hyped, advanced, and emerging, Walmart already has it. And yet it occasionally runs into these challenges. Now for a company the size and depth of Walmart, these challenges are nothing more than a blip. But in my perspective, this is an issue that companies of all sizes need to think about. Why did their supply chain planning solution, in this case, inventory planning solution to be more specific, fail? You will get a few usual answers when you pose this question in the field. One is that these "outliers" are the nature of business. Another may be that the planning system does not handle such outliers the way it should. While the first answer is a fact, I tend to disagree with the second. Thanks to technological advances, most of the leading inventory planning solutions now can handle these outliers. The key is, for the end-users, and the processes designed to handle these outliers, to work in sync with the planning tool when such events occur. Unfortunately, despite all the tools available, when we run into outlier events, we tend to activate the outlier principle: We either indulge in knee-jerk reactions when it comes to leveraging a specific process or we are not confident enough to trust the planning solution in these "unusual" circumstances. And promise to ourselves that when things get normal, we will become the best in class inventory planning function we want to be. If your organization keeps running into the "outlier" principle of supply chain planning, again and again, every time your operations get into that "outlier" zone, your inventory planning system is flawed. The system here is a combination of people, processes, and technology. The test that the system works is when you can leverage it in these "abnormal" situations. Isn't that how you "stress test" hardware? Because everyone can manage things when things are normal. Those who have devised the art of managing the abnormal, are the ones who will rule within the next two decades. As mentioned earlier, since most best-of-breed tools can handle outliers, it is important to orchestrate a system to handle these outliers when leveraged effectively.

Eliminating the Use Case Fallacy

A good way to test this system is through a use case pilot. This is where I need to highlight the fallacy of use case methodology that exists today. In order to accelerate "transformation", we often do not design use-case processes for evaluating new algorithms or solutions effectively. And this is where we miss evaluating if the solution can handle outliers. As mentioned earlier, since most leading solutions can help you manage these outliers, if you test these outliers in a use case pilot project, and run into challenges, either your internal resources or the solution vendor will be able to illustrate how the solution could have helped address the challenge. A use case pilot is not about testing if a solution can provide x% efficiency but also about how the solution can help support resiliency.