Disruptive changes to supply chains are more common than ever.
More than three-quarters (76%) of supply chain professionals say disruptive changes have increased compared to three years ago. In addition, 72% agree that disruptions have become more impactful (see Figure 1). And, disruptive changes are coming from new sources and at a more rapid pace.
Consider the unexpected production halt of Boeing’s 737 Max, for example, due to quality concerns. This prolonged event has led to disruptions at many suppliers, including Spirit AeroSystems — which announced a layoff of 2,800 employees. To put the supply chain ramifications in perspective, Boeing’s global spend with 13,000 suppliers totaled $60 billion in 2017 — roughly the size of the economy of Panama.
Throw in growing climate risks, geopolitical issues such as Brexit and tariffs, and unpredictable events like sudden increases in shipping or freight costs, and the environment for disruption is ripe.
While disruption increases, so has the complexity of the decision-making environment. Because of that, we’re seeing the emergence of decision-making behaviors that hamper the ability to respond to disruptive changes.
As a result of the increased complexity, supply chains are beginning to feel the manifestation of bad decision-making behaviors — an indication that employees are struggling to make good decisions in the face of disruptive change.
The actual decision-making environment is more complex, with more data, more complex tools and systems, and a greater number of stakeholders involved. Gartner data indicates that employees struggle in this environment, often feeling overwhelmed by all of the information they have access to when it comes to disruptive change-driven decisions. This can lead them to cherry-picking data points or reverting to gut instincts (although the data we have is better than before).
These behaviors undermine decision quality. In fact, more than 80% of supply chain professionals report that decisions made in response to disruptive change could be improved — either more accurate, faster or more cost effective.
Many CSCOs are looking to technology and analytics to improve decision quality. And while investments in technology can improve decision making, many organizations have yet to see meaningful results from technology.
However, there is a solution.
New research from Gartner has found that placing constraints on decision making inputs like people, information, time and escalations has the most significant impact on improving decision quality.
Constraints in this context are not performance-limiting restrictions on a system. Instead, constraints are limits that are strategically applied on decision-making inputs. In this way, decision constraints can be leveraged to create better outcomes.
So, what does it mean to apply a decision constraint?
- Time: Limit time to gather information, deliberate in meetings, reach a decision
- Information data: Limit the amount of data by synthesizing / helping decision makers make sense of it
- Escalations: Limit formal and informal escalations
- People: Limit the number involved and limit the number accountable
Responding to the recent tariff dispute between the United States and China was the impetus for using constraints at Schneider Electric, where tariffs were likely to force a change in production location for a valued product line. Schneider’s team anticipated reaching a decision would take 12 weeks, in part because of the time required to fully analyze and consider different scenarios. The team also anticipated that escalations would likely happen given the potential financial impact of the decision and the large group of people involved in high-impact decisions.
Recognizing the need to speed up the decision-making process without sacrificing decision quality, Schneider applied a series of decision constraints. For starters, time-to-decision was reduced by two-thirds — to four weeks. That had a cascading effect on information, such that only the information that could be prepared in that amount of time would be used to make decisions.
Schneider put a strict limit on escalations, and assigned one individual to be responsible for ownership and decision. By abiding by these limits, Schneider executed a successful response in half of the expected time.
Constraints are becoming a valuable tool to empower leaders and individuals to make and own decisions, and to take appropriate risks to make decisions in the face of change. However, the use of constraints is still rare. Only 6% of decision makers report that they have experienced decision constraints in their decision-making processes (limits on people, time, information and risk). However, those interested should consider the following three steps:
- Identify what decision inputs should be constrained — Analyze past decisions to identify where constraints should be applied. One consumer products company conducts a decision-making root-cause by studying decision inputs to identify those that create bottlenecks and then apply constraints specifically to those.
- Set up decision constraints — Design a decision-making process with defined constraints to make them repeatable and scalable when responding to disruptions.
- Get the organization to embrace a new decision-making environment — Ensure staff feels comfortable with decision constrains by developing a decision-making process which enforces the use of constraints but has flexibility to adjust as needed.
Gartner Supply Chain