Executive Briefings

Finding Supply Chain Tipping Points

The continuing weak economic environment is forcing companies to find new ways to instill greater efficiency and agility into their supply chains, says John White, president of Fortna. "Companies are having to look to areas they have not focused on before and do more at the margins," he says. "Practices that did not seem important when business was booming are now being targeted for service, cost or flexibility improvements."

To help companies make better decisions in this new environment, Fortna has researched ways to identify and analyze key tipping points. "The idea is to understand the inflection point at which an answer shifts from being right to being wrong," White says. All decisions are based on assumptions and all assumptions will be wrong to some degree, White says. The purpose of the research is to better understand how outcomes are affected when assumptions don't match reality, and to recognize when a right decision becomes wrong so appropriate action can be taken, he says. "Having a better grasp of when decisions need to change enables companies to respond in a more flexible and agile way and makes them more comfortable in making decisions," says White.

One example of employing a tipping-point analysis is in relation to distribution networks, he says. "We have a number of clients that have been growing either organically or acquisitively and who want to determine the best distribution network to support their changing operations," says White. "They would be much more comfortable with this decision if they knew how much wiggle room they had." For example, he says, suppose models gave them the same answer as long as fuel increases did not go above 40 percent, he says. "Knowing the amount of wiggle room in there makes supply chain executives more comfortable with large capital expenditures to support growth."

To view video in its entirety, click here

The continuing weak economic environment is forcing companies to find new ways to instill greater efficiency and agility into their supply chains, says John White, president of Fortna. "Companies are having to look to areas they have not focused on before and do more at the margins," he says. "Practices that did not seem important when business was booming are now being targeted for service, cost or flexibility improvements."

To help companies make better decisions in this new environment, Fortna has researched ways to identify and analyze key tipping points. "The idea is to understand the inflection point at which an answer shifts from being right to being wrong," White says. All decisions are based on assumptions and all assumptions will be wrong to some degree, White says. The purpose of the research is to better understand how outcomes are affected when assumptions don't match reality, and to recognize when a right decision becomes wrong so appropriate action can be taken, he says. "Having a better grasp of when decisions need to change enables companies to respond in a more flexible and agile way and makes them more comfortable in making decisions," says White.

One example of employing a tipping-point analysis is in relation to distribution networks, he says. "We have a number of clients that have been growing either organically or acquisitively and who want to determine the best distribution network to support their changing operations," says White. "They would be much more comfortable with this decision if they knew how much wiggle room they had." For example, he says, suppose models gave them the same answer as long as fuel increases did not go above 40 percent, he says. "Knowing the amount of wiggle room in there makes supply chain executives more comfortable with large capital expenditures to support growth."

To view video in its entirety, click here