Do Not Limit Yourself To Linear Thinking

View From The Ridge: 45

March 4, 2016

John Moffitt

John Moffitt

Vice President, Sales and Services

In several of my past articles I’ve referred to sayings or phrases that I have picked up from colleagues, employees, and friends. We should never stop learning. With that in mind, I will share something a former boss once told me. He always operated on the rule of Seven Why’s. When confronted with a question, recommendation, or absolute statement he would ask “why” seven times. This usually ensured he got to the root of the underlying problem, rather than treating symptoms or solving the wrong problem. Put this into practice yourself, and you can avoid most of the consequences that result from a linear mode of thinking.

Over the past few weeks, I’ve had a number of conversations with customers and prospects who could benefit from the Seven Why’s. For most of us, we were taught a couple of basic things when using a planning system. One being that the forecast is key, and the optimal economics of the buy are critical. Why is this? What happens if the forecast is unpredictable, spiky, and intermittent? Should we just follow the “rules” and work our exceptions (whatever that means)? Or, should we start to investigate the cause of the demand? If we can determine the reason for a certain pattern of demand, we will be better off.

Imagine the following example. Someone who buys a loaf of bread every day for three weeks, then doesn’t buy any for a week, and then returns to a loaf every day for three more weeks. Traditional forecasting would smear that demand, so it appears that the demand is an average of 5.25 loaves per week. If we replenished against that and ordered once each week, we would not have enough bread at times and have a surplus at others.

Perhaps a better way would be to ask why the demand pattern is so consistent. Does the consumer use exactly one loaf every day, or do they use less than a full loaf and after three weeks accumulate a full week of daily excess to allow for no purchases? Maybe they are feeding the leftovers each day to the ducks. Maybe they are out of town once every four weeks. Again, asking “why” might result in a different solution.

Someone may have an excellent record doing what they were taught by working exceptions and regularly looking at the order cycle optimization, but they still miss service. “Why” can be a really powerful question.

Linear thinking can also be illustrated in this next example. Let me first say that we have always encouraged Order Cycle Optimization (OCO) to be run periodically. It is significantly more beneficial to run OCO more often than once a year when configuring the system. Is it protocol or tradition that causes us to run it quarterly? Some Blue Ridge customers even have performance measures in place to monitor how often OCO is run for each supplier.

The premise behind OCO is to balance the order placement cost with the carrying costs of the inventory. The assumption is that the demand is steady. It is looking for the “correct” days of supply to order. Suppose the demand pattern fluctuates dramatically period-by-period with some recurring seasonal variation. How often should we run OCO?

It is quite possible that if we blindly conform to the OCO recommendation we will produce an order every 7, 14, 21, or some other number of days. The problem is that the order size might be one truck for one week, and ten trucks the next. Suppose the compelling operational requirement is to have a steady flow of truckloads being ordered from a supplier, or more importantly, being received. This suggests we need to balance the order volume (dollars, cases, pallets, etc.) rather than the days of supply. Again, why are we just following the “standard” practice?

Finally, my last example has to do with imaginatively using the system to respond to a business condition that is a little out of the norm. A customer has location specific assortments that account for roughly 75% of the total assortment being stocked in any single location. As they forecast requirements for the entire assortment into the distribution center (DC), they look at the stocking location needs and buy into the supporting DC to handle that volume. The difficulty comes in that any location can order an item that is not stocked in their specific location to meet special requests from their customer. The customer is trying to determine how much additional safety stock is needed to provide the cushion for these requests from stores not normally stocking the goods.

The “why” question comes to mind. We know we are going to have this “extra” demand, but why is it considered “extra?” Because it comes from stores not eligible to carry the item? Why would you not capture this “extra” demand? Because we don’t have a location for these transactions because it is not in stock. Why not create a virtual location to accumulate this demand? Not only can you track it, but you can also understand the pattern, variation, and volume of it. This will allow better calculations of safety stock, orders, and everything else.

My main point is, do not take things at face value and don’t just follow the protocol. Always ask “why” and try to understand the reason that things happen the way that they do. The system is just a tool to manage situations. More often than not, there are several ways to solve a problem. Don’t get caught in the trap of “well, that is the way I was taught” or “that is the way we have always done it.” Try to think broader. I call it matrix thinking as opposed to linear thinking.

If you have a situation or challenge you want to talk about, call me, send me a note, or call our LifeLine services folks. We can help you explore different ways of looking at things.