Balanced supply chain management Part 3: Changing how we make decisions

From the September-October 2024 edition of Supply Chain Management Review.

September-October 2024

Back in late 2023, in response to global panic about the state of the supply chain, President Joe Biden announced the formation of the White House Council on Supply Chain Resilience. “We’re doubling down on our…

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In the past two articles (in the May/June and July/August issues of Supply Chain Management Review), we began our exploration of the concept of balanced supply chain management. Our argument was then and still is that balanced supply chain management is critical to the effective management of today’s supply chain, perhaps now more than ever with the recent pandemic serving as a powerful lesson—a supply chain that is becoming increasingly strategic and that has to deal with issues such as constant uncertainty and turbulence. 

Balanced supply chain management is also critical to a supply chain that is breaking out of a silo mentality.  The first article set the stage and identified some of the critical tensions that had to be addressed. In the second article, we examined the tensions that had to be addressed if the supply chain was successful in managing beyond its silo.
In this, the third article, we investigate how balanced supply chain management requires a change in how managers arrive at decisions. Specifically, we focus on the following tensions:

• Slow thinking ↔ fast decision-making.
• Long-term thinking ↔ Near-term thinking.
• Focusing on “desired outcomes” ↔ emphasizing solutions.
• Delivering the “right” outcomes ↔ delivering just the “right” numbers.

Slow thinking ↔ Fast decision-making

We begin this section by noting that many of these issues have been previously discussed in a prior article published in this journal (Melnyk et al., July/August 2023; “Managing like ‘Maverick’ in today’s turbulent dynamic environment”). At the heart of this tension is the difference between slow, deliberate, careful decision-making and decisions that are made quickly.  At first glance, there should be no contest.  In a world characterized by large datasets, improved software systems, enhanced analytics, artificial intelligence/machine learning (e.g., ChatGPT), and 3D printing, slow thinking should result in better decisions. It should also result in decisions that are more easily defended and justified. This is the approach to which we see many MBAs and other students being exposed.

Yet, there are several problems inherent in this approach. First, it contributes to a situation best described as “paralysis of analysis.” This condition manifests itself in several ways. The manager feels obligated to use every bit of information and data before making a decision. The manager is also willing to wait until the necessary data becomes available; in the modern supply chain context, time is rarely on one’s side. Second, incomplete or conflicting data challenges them as it distorts the notion that surely there must be the perfect data set that will lead intuitively to the best, most obvious conclusion. Finally, this approach takes time—time that may be unavailable. In some cases, you cannot afford, literally and figuratively, to wait. Further the cost of waiting until you are certain, presuming that certitude is possible, may result in the loss of critical opportunities. This point was well illustrated in an example that we have previously used.

In 2015, the authors visited a large warehouse located in Columbus, Ohio, where they were taken on a plant tour. During this visit, the senior executive leading the tour stopped and pointed out a new investment that had just come online. They pointed out that this investment had cost the company over $1.7 million. Then they asked us an interesting question—how long do you think it took us to go from being aware of the need for an investment to preparing the proposal, submitting it, getting approval, sourcing the buy, installing the equipment, and getting the entire system up and running? We thought for a moment and answered that in most companies such a request would take between one to two years. The guide looked at us with a grin and responded: “Seven months.” We were surprised. We asked—what if you had made the wrong decision?

The answer surprised us even more—the company could not afford NOT to make the investment. In a world where your competitors include companies such as Amazon (firms known to be aggressive and ever pushing the boundaries forward), waiting until you were sure of the need for the investment would have been too late as you would be left in the dust of your competitors or market shifts. The message that we took away was clear—decide fast, manage fast, or die.

Before going any further, we are not saying that slow thinking is flawed. When used for dealing with well-developed problems, where there is adequate data and enough time for decision-making, slow thinking is highly appropriate.  Slow thinking is appropriate for production planning; slow thinking is appropriate for sales & operations planning, generating plans to deal with potential risks and threats. Yet, there are times when fast decision-making is highly appropriate.

Fast decision-making is important when events are turbulent, data is incomplete and/or conflicting, or there is not enough time to wait in the hopes of things becoming clearer.  Fast decision-making is appropriate when it is necessary for the supply chain manager to change the plans to conform or deal with unexpected developments. Fast decision-making is necessary because “Murphy lives.” The more volatility there is, the larger that “Murphy” looms in, and affects the life of the supply chain leader.

However, to be clear, fast decision-making is not an ad hoc, spur-of-the-moment action. It is a disciplined action, based on familiarity with the existing plans and an awareness of the developments taking place. It is also an activity in which the organization places its trust in the person who is in contact with the developments and the organization supports the decisions made by that person. Support means that the organization not only invests in adequate training for the supply chain manager, early and often; it also means that the organization can differentiate between “smart” and “dumb” failures (a smart failure is where the decision-maker did everything right, followed all the appropriate procedures but something unexpected occurred contributing to the subsequent failures; dumb failures involve actions taken that past experiences had shown would not work). In short, organizations should correct for dumb failures but should never punish smart failures. Rather, they should learn from smart failures—something the best, most adaptive organizations do.

Balanced supply chain management requires understanding that both types of decision-making are appropriate and have their place. The challenge facing the supply chain manager is to know when to use slow-thinking decision-making and when to focus on fast-thinking decision-making.

Long-term thinking ↔Near-term thinking

Long-term thinking vs. near-term thinking, at first glance, would seem to be an extension of the prior discussion. Long-term thinking deals with understanding what you want the supply chain to do and then making the necessary investments to achieve that vision. In contrast, near-term thinking is driven by short-term problems and the need to address the resulting issues. The potential problem with near-term thinking is that often “short-term solutions create long-term problems” for the supply chain.

There are numerous examples of this tension in practice that are familiar to the readers of this column.

• Starbucks, which markets itself as offering affordable luxury, allows its customers the ability to customize their café lattes. The result—Starbucks can now make a café latte in one of 382,201,280,000 combinations. This explosion of options has increased service times (both means and variability), increased inventories (many of which are perishable), and made staff training more complex (and we have not even considered the impact of Starbucks offering food). More importantly, this increase has adversely affected its digital customers—customers who place their drink orders often using their smartphones and have the expectation that their drinks will be available at the times specified. These customers arrive only to find their drinks are not ready. Rather than waiting, they leave. The result—extremely dissatisfied customers.
• MyTwinn—a manufacturer of customized life-like dolls started in the 1990s—initially sold its products direct to its customers. These customers wanted these dolls for holidays and birthdays. MyTwinn understood that on-time delivery of a quality product was critical to its success. It had mastered the ability to produce a complex product. After all, you could get a MyTwinn doll in one of over 60,000 variants.  However, the company continued to be plagued by a problem that affects most small to medium-sized enterprises—a lack of financial capital. To address this problem, MyTwinn signs a contract with Toys R Us to supply them with 25 of its most popular dolls. The resulting contract seemingly addresses the financial worries of MyTwinn. However, there was a small problem—what Toys R Us wanted was very different from what the other customers wanted. Toys R Us wanted a low-cost product that was delivered in large batches.  As MyTwinn struggled to meet these new demands from Toys R Us it decided to move production to China. The result—lead times went up, quality fell, shipments were missed for Christmas 2001 and 2002. Complaints with the Denver Better Business Bureau (MyTwinn was located near Denver) went from 300 in 2002 to 2,100 in 2003. On Dec.19, 2003, MyTwinn declared Chapter 7 bankruptcy.
• In a recent article published by CNN dealing with the problems facing Boeing (Isidore & Muntean, 2024; “Cockroaches of the factory:” Workers paint a picture of chaos and dysfunction at Boeing), a situation emerged where the management of Boeing was concerned with maximizing stockholder value. To that end, they put pressure on the workforce to increase the output of airplanes (more airplanes produced meant more revenue, which positively contributed to stock prices).  Boeing, which previously built a world-class reputation on the quality of its products and the innovation of its engineering (in the 1960s, there was an adage: If it ain’t Boeing, I ain’t going!), found that its workers could no longer maintain the quality levels needed. The result—on Jan. 5, 2024, an Alaska Airlines plane (flight 1282) taking off from Portland, Oregon, lost a door plug. The reason was that the retaining bolts were missing. Now, due to the increased level of inspection from the FAA, Boeing output for the first half of 2024 fell by some 70%. Ironically, Boeing is now faced by a new adage: if it’s Boeing, I ain’t going!

At the heart of this tension is that the supply chain manager must be able to review these requested short-term changes irrespective of where they originate, identify their implications, and communicate those implications to everyone else. In some cases, these short-term changes originate because of the conflict between the fundamental mission of the supply chain (to enable the system to make credible promises to its customers that the people involved in the supply chain can be realistically expected to deliver) and the needs of those around it.

A customer has encountered a problem—they need to change their order quantities. That customer leans on the firm’s marketing people to accept this change and to accommodate it. Marketing then approaches the supply chain manager with this request. Their goal is to have the supply chain agree to accommodate the customer’s request. The problem here is that agreeing to accommodate these changes adversely affects the fundamental mission of the supply chain. If accepted, and if the supply chain knew that accommodating these requests was not feasible, it is the supply chain and its credibility that suffer.

In such conditions, the most appropriate action for the supply chain manager is to do the following:

• Inform everyone that the request cannot be accepted because it is not feasible.
• Explain why the request is not feasible (this is necessary to respond to the inevitable question of why).
• Provide options along with their associated costs (this puts the decision back into the hands of those making therequest). In short, this is risk management and quantifying the risk for the C-suite.
• Short-term actions should not compromise long-term objectives.

Focusing on “desired outcomes” ↔ emphasizing solutions

This tension is fundamental to supply chain management. At one end, we have a focus on solutions. Solutions are attractive because they represent a concrete, specific plan for addressing a given problem. If inventory is too high, then we use lean techniques; if quality is spotty or problematic, we turn to the various tools of statistical process control (e.g., Cp/Cpk, control charts, cause and effect analysis). Solutions imply that we know what the underlying root causes are and we have a plan in place to deal with these issues. Focusing on solutions comes naturally to supply chain people. Solutions emphasize execution, which is a mode of operation that is very comfortable for most supply chain managers. More importantly, a solutions-oriented approach underlies most supply chain management programs, whether they are offered at community colleges, universities, or by professional societies. We are taught tools such as MRP, Lean, SMED, Takt Time, Pareto Analysis, and process flow analysis. Then, why worry about outcomes? To answer this question, we must understand why clear, concise desired outcome statements are so important.

Desired outcomes identify what it is that we as supply chain managers are trying to achieve. Desired outcomes attempt to identify the specific outcomes that we are trying to achieve. Desired outcomes define in very specific terms the future state that we are trying to achieve. In turn, the solutions define the specific path. Desired outcomes are important for several reasons.

First, they ensure that everyone who is involved in addressing the specific problems facing the firm understands the end state they are trying to achieve. This clarity is important for alignment and coordination (where alignment describes the extent to which the individual actions taken within an area are in support of the overall objectives, while coordination describes the extent to which the actions taken by different areas such as marketing, finance, human resources, and supply chain are consistent with and supportive of each other).

One of the authors saw what happens when there is a lack of a clear, consistent understanding of the desired outcome. A company considered at the time a market leader was faced with a critical problem. The president of the company called a meeting of the various high-level executives (there were 12 of them). After extensive discussion, a course of action was agreed to (the focus was on the solution). The author interviewed each executive after this meeting to determine how they understood what was supposed to be done. Imagine his surprise when he discovered that each executive had a very different view of what the desired outcome was. Consequently, it was not surprising to find that as the execution of the solution took place, each group did it differently. In many cases, the solutions being deployed were at odds with each other. The result was frustration, anger, and a lack of progress. 

By the way, if you think that this outcome was unique, consider the results of a research project carried out by Sull, Homkes, and Sull and reported in the Harvard Business Review (March 2015 “Why strategy execution unravels – and what to do about it”).  These researchers carried out a large-scale survey of some 7,600 managers in 262 companies operating across the world. The question that their research posed was that of identifying what kept these managers up at night. The major issue they uncovered was the inability of two-thirds to three-quarters of large organizations to effectively link strategy with the successful execution of these strategic plans. One of the reasons for this inability was that execution did not equal alignment.

Before leaving this first point, it is important to recognize that a clear, concise, commonly agreed upon understanding of the desired outcomes is critical because it forms the basis of developing and deploying the appropriate performance measures and metrics. These measures and metrics make the desired outcome clear and meaningful (i.e., stated in terms that the users can understand) to those charged with developing the necessary solutions.

For those interested in developing a better understanding of performance measures and the roles that they play, please see Melnyk et al. (“Are your performance measurements destroying your supply chain?” SCMR November 2019; and “Are your performance measurements destroying your supply chain? Part Two,” January/February 2020).

Second, a clear understanding of the desired outcome is needed to be successful with fast decision-making. As previously noted in this article, plans often unravel because of unexpected changes. How the manager responds in dealing with these changes and their subsequent success is greatly influenced by their understanding of the desired outcomes. More importantly, the desired outcomes form the basis by which changes to the underlying plans are formulated, made, and justified.

Third, focusing on the desired outcomes often stimulates and nurtures creativity by supply chain leaders and players. The importance of this point was driven home in a conference on humanitarian supply chain management that was held in November 2010 at the University of Virginia. At that conference, there was a presentation by the female Coast Guard commander who was charged with working with the civilian authorities in the aftermath of the 2008 Haiti earthquake. At that time, because of problems with roving gangs, there was a concern over the security of food, water, medical supplies, shelter, and power.  She was told by the civil Haitian authorities that they wanted 150 armed Coast Guard shore patrol personnel (note: this is a solution). There was only one way of meeting this need—to pull 150 armed Coast Guard shore patrol personnel from existing bases. The problem with this solution is that because of its size (the Coast Guard is the smallest of the five military branches), this solution would have adversely affected the ability of the Coast Guard to ensure the security of its domestic bases. As she completed her presentation, she noted that these difficulties could have been avoided had there been a focus on the desired outcome.

The desired outcome for this situation was clear and simple—to provide 24/7 security for food, water, power, shelter, and medicine. When stated this way, a larger number of potential solutions could have been generated—solutions that did not compromise the security of Coast Guard bases.

In short, focusing on solutions narrows the focus; there is only one way of doing things. Focusing on desired outcomes broadens the options by generating multiple possible solutions. Finally, the solutions generated should be supportive of the desired outcomes. The task for the supply chain manager is to ensure that these two elements are consistently aligned and that there is correct focus on the appropriate elements at the right times (desired outcomes at the beginning, the execution as we move toward achieving the desired outcomes).

Delivering the “right” outcomes  ↔  delivering only the “right” numbers

This final tension can be regarded as an extension of the prior tensions. Here, we are dealing with the same tensions that have adversely affected companies such as Boeing, where the pressure to meet apparently unrealistic production objectives compromised the ability of Boeing’s personnel to build a quality, safe, and highly engineered product. Delivering the “right” numbers cannot take place if it affects the “right” outcomes. The resulting short-term actions will ultimately generate significant long-term problems … but then again, what gets measured, gets done.

Where do we go from here?

To this point, we have addressed most of the tensions laid out in the first article. We have shown that the tensions facing the modern supply chain manager must be managed carefully and with a full understanding of the implications of the potential problems created by not appropriately dealing with these tensions. These tensions must be appropriately “balanced” (hence the reason that we have named this approach as balanced supply chain management). Yet, there is an unresolved issue to be addressed—how does the supply chain manager attain balanced supply chain management? The answer lies in a theme introduced in the second article—managing at the edges and learning to live with chronic uncertainty.

To address these tensions, the supply chain manager must be willing to work beyond the friendly confines of supply chain management—they must be willing to work on an on-going basis with the other functions of the firm, as well as with customers and suppliers.  This is a skill that is essentially foreign to most supply chain managers. Yet, it is a necessary skill that must be developed. Development of this skill will be explored in the fourth and final article of this series. 

About the authors

Steven A. Melnyk is a member of the department of supply chain management at the Eli Broad College of Business at Michigan State University. He can be reached at [email protected].

Nick Little is the director of the Railway Education Center for Railway Research & Education at the Eli Broad College of Business at Michigan State University. He can be reached at [email protected].

Lee K. Levy II is a retired Major General of the USAF, and CEO of The Levy Group, LLC. He is a doctoral candidate at Vanderbilt University and holds the Directorship Certification from the National Association of Corporate Directors. Levy can be reached at [email protected].

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