I watched Moneyball over the weekend for the first time, and I really enjoyed it. As a nerd, I love all movies that demonstrate the power of mathematics and analytics (On top of that, Brad Pitt did a fine job).
But while everyone loves the of using statistical insight to overturn old ideas and revolutionize baseball, but why are supply chain managers reluctant to apply similar winning concepts? According to a Forrester Business Technographics Survey, only 27% of supply chain management professionals and 22% of logistics and distribution professionals are using or plan to use big data analytics or plan to. At Forrester, I frequently discuss supply chain analytics with clients and how to leverage supply chain insights to drive business growth or improve operation efficiency. Everyone knows analytics is important, but there are still plenty of myths related to what to measure, what tools to use, and what types of analytics to apply. I’d like to briefly summarize my thoughts on these three topics:
- Focus on a few key measurements that matters the most. Don’t go down the rabbit hole of measuring everything in multiple ways. It wastes time and effort — and most importantly, it causes confusion. Define a few key performance indicators (KPIs) that accurately measure your top business priorities and stick to them. Your KPI could be perfect order percentage, on-time delivery, or perhaps percentage on base. Data will never be perfectly clean, but you need meaningful analytics, so clean it up as much as you can and establish an ongoing master program for data maintenance.
- A new tool does not guarantee quality analytics. You don’t necessarily have to buy a special tool for supply chain analytics. Take inventory of your existing toolbox. Enterprise resource planning (ERP) systems all have database reporting capabilities. If you own a modern supply chain planning or execution tool, it comes with a built-in reporting module. These modern tools all have plenty of prebuilt reports and allow users to customize them. I have worked with more than a few companies that own various tools but are still unclear about what’s happening in their supply chain. Don’t join this club.
- Understand different types of analytics. Analytics is a broad concept that covers a large family of different methodologies and techniques. To keep it simple, I classify it into reporting and advanced analytics. Reporting is the basic type of analytics that summarizes what has happened. Advanced analytics optimizes and predicts the future — and it often builds in advanced techniques such as operations research and machine learning. If your goal is to reduce inventory levels, simply reporting inventory histories is not going to help you much. Inventory optimization software is the right tool.
If you want to know more about key supply chain performance metrics and advanced supply chain analytics, check out: