supply chain

Structure in decision-making in the Supply Chain.

Many executives make the mistake of aligning decision making and problem solving. They are essentially different. In this article the possible pitfalls and a structured approach to circumvent the biggest pitfalls.

Problems are not solved by making decisions, but by a good analysis of the problems. Problem solving is related to the problem, where decision making is related to the person. You would say an open door, but this paradigm underlies the misguided view that decisiveness is about making decisions. This has been the hype of recent years in politics. Show decisiveness, make decisions, but do we also solve problems?

This approach encourages decision-makers to yield to the latest hypes and trends more quickly and easily. “The fix it all solution”. Organizational decisions and certainly supply chains are so complex nowadays that the person who analyzes and solves problems should preferably not be the same as the person who makes the decisions. No longer ‘the common sense and gut feeling’ approach.

Decision

According to the literature, the theory and practice of decision-making can be divided into 3 types: Decisions under certainty, decisions under uncertainty, decisions under risk.

The most famous is ‘decision under security’. These are the short-term decisions, the consequences of which are reasonably well understood. However, in today’s supply chain, ‘risk decision’ is the most common. However, the methods used to provide insight into and limit the risk are often insufficient.

Payoff model. Under this model, the optimal cost / yield ratio is determined.

regret model. This principle minimizes the risks. It shows what the possible costs are if the best possible decision has not been taken.
Value matrix. The possible outcomes are weighted in this matrix based on their yield and probability factor.

We now have 3 models, each with its own outcome. The question is which model best suits reality and does it also include the right criteria and considerations. But what next? All three models and their outcomes seem reasonable. First of all by typing decisions differently. One of the most effective types is presented by David Simchi-Levi in ​​”Designing and Managing the Supply Chain”.

1) Strategic decisions have a long life (usually 1-10 years) and an effect on the organization. These include target audience and their characteristics, product and service selection and design, distribution network configurations such as numbers and locations of facilities, structure and processes of the supply chain, supplier relationships. The previous example is a strategic decision.
2) Tactical decisions include decisions that usually have a term of one year. These also include purchasing and supply contracts, production decisions, inventory policy, sales and Operations Planning.
3) Operational decisions refer to day-to-day decisions such as scheduling, quotes, transportation, etc. These decisions usually last only a short period of time and are less important if a wrong decision is made. With a good management system, these can be quickly detected and corrected. People will spend relatively little time or resources in making such decisions. It is wise to draw up a set of rules and to ensure a control system.

Structural approach.

Many of us are used to making decisions based on quantitative data. The return on a project, or the expected demand for a product, is easily explained in terms of numbers. In the example above, we developed a payoff matrix and applied financial criteria for the decision. But this is only a criterion. In the real world, many factors are involved. Inherent in many supply chain decisions are factors such as business strategy, competition, customers, suppliers, bureaucracy, language barriers, governmental issues, etc. – all of which are qualitative in nature. So the subjective man (the decision maker) inserts inevitable prejudices when he includes certain criteria and excludes others.

It is not uncommon for the effectiveness of decision-making to be determined on the basis of the result achieved. And often this is the desired result in advance. But this approach is risky as the well-known joke about health operations shows.

surgery performed successfully and patient recovered
surgery performed successfully and patient died
operation failed, patient recovered
operation failed, patient died.

Is the desired result the success of the operation, the recovery of the patient or a combination of these? Be careful