To help organizations recognize and successfully deal with good and bad variability, Involvation has developed the Wheel of Five for Supply Chain Management. This article provides an introduction to the tool.
In many boardrooms, the mantra is to improve service while reducing costs. That’s easier said than done, especially when forecasts are always wrong, plans are outdated before the ink is even dry, lead times are long and unpredictable, stock levels are sky high, fire-fighting has become the norm and there is a general air of mutual distrust… and no matter what you try, nothing seems to really help. In other words, the complexity has become overwhelming and many businesses are struggling to cope.
The good news is that much – if not most – of that complexity has been self-created. And if you can create something yourself, you can also stop creating it. The all-important question is: how? To answer that, we need to find the source of the complexity.
Final nail in the coffin
Imagine a world where there’s no variation, where everything is stable, completely predictable and reliable. Wouldn’t that be nice?! Thanks to first Henry Ford and later Taiichi Ohno, the automotive industry has come quite close to achieving that; car manufacturing is still complicated, but it’s no longer complex. The reason: because variation and uncertainty have been removed. Variability is a key source of complexity and the final nail in the coffin of every process (Hopp & Spearman, 2000). So it could seem that reducing complexity is merely a matter of rigorously eliminating variability, just as the automotive industry has successfully proved.
Unfortunately, it’s not quite so simple in reality. Unlike in the automotive industry, everyone in low-volume/high-mix environments must seriously consider chronic residual variability. Besides that, it can be necessary to accept variability in order to keep customers happy (e.g. an ice-skate manufacturer), or even to turn variability to your advantage by adding more of it (such as Zara). Such cases illustrate so-called ‘good’ variability. So besides eliminating ‘bad’ variability, it is also important to recognize, accept and organize ‘good’ variability.
Supply chain physics
To help organizations recognize and successfully deal with good and bad variability, Involvation has developed the Wheel of Five for Supply Chain Management. This tool is based on the laws of supply chain physics and contains five complementary guidelines/design principles for effectively managing complexity to achieve the business goals.
On the one hand, the Wheel of Five is intended to inspire an improvement strategy and solutions. On the other, it can be used to check whether improvement measures really do contribute to achieving the objectives. In a series of five articles, each of the five guidelines (Eliminate unnecessary variation in supply and demand; Absorb unpredictable variation using stock and time; Manage predictable variation with potential flexibility and effective decision-making; Avoid overburden by managing the workload and creating overcapacity in strategic locations; and Eliminate waste of capacity, stock and time) are explained in more detail based on case studies.