Pearson on Excellence: Insight to Action—The eyes of dynamic operations

In our previous column we introduced the concept of “dynamic operations:”supply chain networks that respond quickly and smoothly to changing business conditions. We also identified dynamic operations’ four enabling capabilities and looked briefly at how they work together to help companies identify, accommodate, and even benefit from supply chain disruptions. The first of these capabilities is “insight to action.”

Think of insight to action as the ability to sense, capture, and analyze external and internal data, and turn it into usable business intelligence. In effect, you’re using information to react swiftly to both threats and opportunities—buffering risk while leveraging risk’s upside.

The foundation of insight to action is often a command center that emphasizes real-time monitoring and visibility, while constantly simulating scenarios that may or may not happen. Think of it as a streak-free window through which companies can see potentially disruptive events (weather anomalies, supply disruptions, demand drops) as well as fast-breaking opportunities (evolving markets, technology innovations, favorable currency swings, information about competitors’ actions).

Zara—one of the world’s most innovative clothing retailers—provides a textbook illustration. Zara’s entire operations strategy is built around speed to market—delaying production and even product design until market-signal information is available.

Toward this end, store managers use command-center-like capabilities to tightly monitor sales and market trends and then make appropriate, last-minute manufacturing, product assortment, and inventory decisions. Leveraging these attributes, Zara’s time to market, from design to store shelf, is two weeks to five weeks compared to the industry average of six months.

In the fashion world, this is a huge competitive advantage. When Madonna performed one evening in Spain, an outfit identical to the one she wore at the concert was selling in Zara’s stores three weeks later.

Advanced risk-management capabilities are equally important in the world of insight to action. This means not only identifying supply chain risks, but understanding trigger points, assessing their impact, formulating mitigation strategies, and developing mechanisms for minimizing exposure over the long term.

Insight to action depends heavily on predictive analytics and simulation engines. Unlike descriptive analytics that helps companies understand what already happened, predictive analytics uses sophisticated statistical modeling, forecasting, and optimization to predict potential outcomes and assess the operational impacts of prospective supply chain decisions.

Analytics and simulation also help companies improve demand planning, evaluate the “cost of risk” and compare production-allocation scenarios based on product profitability.

Consider the case of a global high-tech manufacturer that uses a “resiliency scorecard” to help predict, quantify, and respond to risks associated with manufacturing, supplier management, component quality and integrity, and testing. The company associates manufacturing resiliency with the existence of viable alternative sites, qualified manufacturers and likely delivery response times should a disruption occur.

Similarly, insights developed from analyzing a supplier’s behavior—using financial information about public companies and correlating the data with supplier performance metrics such as lead times and service levels—allow the organization to develop a “supplier score” and formulate contingent actions.

Making it happen
There are many ways to build insight-to-action capabilities:

• Enhance your organization’s modeling capabilities to simulate high/low-probability events and gain a better understanding of how the supply chain reacts under each scenario.

• Develop a command center to monitor weather patterns, port activity, consumer behaviors, geo-political events, and currency fluctuations—any event that might signal a market opportunity or cause an adverse supply chain reaction.

• Develop tools and processes that help evaluate the cost of risk and determine the most economical responses.

• Focus IT staff on the ability of systems to talk to one another in real time.

• Develop real-time metrics and align them with alert mechanisms.

Insight to action’s overarching benefit may be the chance to concurrently reduce costs and increase revenue. On the cost side, companies can improve their ability to anticipate and respond quickly to disruptions—leveraging “better eyesight” to rapidly understand, respond to, and even leverage, supply chain disruptions.

Cost-related results can include greater cost transparency, better process management, enhanced material sourcing, improved labor utilization, and higher capital efficiency.

On the revenue side, superior market and supply chain insights can help companies: 1) recognize and adjust to disruptions more quickly than competitors; 2) make rapid, rational pricing adjustments as circumstances shift; and 3) accelerate speed to market to capture new opportunities. In short, the cost-lowering, revenue-enhancing potential of dynamic operations begins with insight.