The Value of Common Sense: A Series of Supply Chain Examples
Common sense is uncommon. Lately common sense seems to be in short supply. However, it is worth pursuing as there is a powerful return on investment (ROI) in using common sense. Frequently, clients gain dramatic improvements in customer performance, profitability, and process upgrades simply by utilizing a bit of common sense. Thus, we thought we’d share a few examples.
While developing a demand plan for an engineer-to-order (ETO) company, we kept common sense in focus. What does that mean? We added up the figures to see if we were in the ballpark of historical rates, growth trends, and customer/ product line trends. It sounds simple, yet we find that these types of common sense approaches occur only 20% of the time. As we went through this type of thinking, we picked up the phone and asked Sales, customers, and Customer Service resources for insights to tweak our plans. Why was it important? We had to order materials months in advance, hire and train employees ahead of time, and submit capital expenditure plans with 6-12 months of lead time. If we used the wrong demand plan, we would waste precious resources.
In working with a client to get a ballpark for capacity insights as part of a SIOP (Sales Inventory Operations Planning) process, we wanted to determine if the hours, pieces, or workload seemed to make sense. The client had two facilities that produced similar items. As we went through a sophisticated tool to calculate hours in one case and compared it with gut feel in the other case, there was a huge discrepancy. Is it feasible to be 20 times faster in one facility vs another? Certainly, it is possible if there are differentiating factors such as automation, skilled resources, unique setups, etc. However, if the processes were largely the same, there is a calculation problem. We worked through the information to get in the same ballpark. If we hadn’t, we could have made serious decisions about customer pricing, layoffs, and other topics on incorrect data. This type of issue arises frequently with MRP. Check if what MRP says makes sense before proceeding.
In reviewing cost, we found that labor and burden rates were significantly different among facilities. Although this could be accurate, it makes sense to take a step back and see if it “adds up” from a common sense point-of-view before making decisions. As we reviewed ballpark hourly rates and differences in compensation, we found minor variances. There was nothing that would explain significant variances. It turned out to result from different allocation methods. Neither was wrong; however, comparing apples to oranges wouldn’t result in smart decisions. Thus, we adjusted our thinking and discussed how to illustrate directionally correct facts for enhanced decision making.
In working with a client on a complex analysis with data from their ERP system, quoting / customer relationship management (CRM) system, supporting tables, and spreadsheets, the results didn’t “add up”. Because the process was so time consuming and complex and the process was historically proven directionally correct, the team relied on the results. However, they quickly realized that common sense was left at the door. The bottom line number took a dramatic turn from one week to the next. Unfortunately, the issue wasn’t obvious when looking at a sea of details which seemed correct in their individual silos. The good news is that the issue was caught and corrected relatively early in the process, but it was a great reminder of the value of common sense.
Common Sense Strategies
Common sense often just requires taking a step back and looking at the big picture. Does your conclusion seem reasonable? Has this type of result ever occurred before? If there is a divergent trend, did something occur out of the ordinary? Answering these types of questions will go a long way to instilling common sense.
For example, in the complex analysis example, start by checking totals. It is absolutely crazy how many times we receive reports without totals. How can you check if you are in the right ballpark without a total? In addition, review trends. Does your result make sense vs last week, last month, and/or last year? Does it make sense vs budget? How about in comparison to the the latest forecast? Does it make sense with feedback you’ve received? You never know when a computer glitch might occur, an large error is made in an ERP transaction, logic changes or something else happens that causes a large discrepancy. Thus, even if the process works 364 days of the year, do a quick common sense check before publishing.
We have yet to see client examples that don’t “work” with this type of common sense review. Give it a try and let us know what you find.
If you are interested in reading more on this topic:
Hurricanes, Common Sense Strategies & Predictive Planning Strategies