In the old days of material handling systems design (circa year 2007), the input you needed to develop a plan was based on past levels of material handling activity, a five-year business plan and an understanding of how future requirements may vary.
So, if you understood the yearly receiving, storing, picking, packing and shipping level activity of a distribution center (DC), you were able to gain a feel for how the business was going to change over the next five years and what level of sensitivity analysis you needed to perform. In short, you were ready to begin the design of the material handling system.
Unfortunately, this has all changed. If, in fact, this is how you are designing material handling systems today, then you have a very good chance of performance failure by the time you get the system implemented. It is not that the principles of material handling systems design have changed, but rather that business has changed. The “New Norm” of business is not like the “Old Norm” of business. The Great Recession of 2008-2010 has changed the game.
The “New Norm” of business is characterized by continuous change and uncertainty. Today, organizations cannot rely on the past as a good predictor of the future. We live in a business climate of risk, instability and rapid change, and these circumstances are not going to disappear after the impacts of the Great Recession lessen. Risk, instability and rapid change are here to stay, and they challenge the validity of all of our planning processes. Moreover, they challenge the validity of relying upon planning and market forecasts.
Strategic, contingency and financial planning all assume a relatively stable and predictable world that no longer exists. Today companies must develop an innovative layer of adaptability on top of their capacity for strategic, contingency and financial planning.
Adapt to Today’s Realities
Why do companies need to evolve and become more adaptive? There are several strong drivers that I refer to as the “Eight Factors of Adaptiveness.”
Uncertainty: Risk is encountered daily in today’s business climate. Unpredictability and doubt result from natural disasters, political tensions and economic concerns.
Volatility: Instability is also a constant threat. Sharp and irregular fluctuations occur as a result of mergers and acquisitions, marketplace turmoil, commodity costs, competitive innovation and similar occurrences.
Rapid Change: The rate of change in today’s business climate is amazing. Free trade and globalization take this rapid rate to warp speed, and no five-year (or even one-year) planning cycle is relevant.
Culture: In many companies, the factors of uncertainty, volatility and rapid change have resulted in a culture of caution and restraint. This is the opposite of the type of culture necessary for an adaptive company to thrive. Organizations must quickly respond to today’s business climate and accept that there will be mistakes. And instead of dwelling on these mistakes, learn from them and quickly move on.
Scope: In today’s marketplace, it is not about one company versus their competition, but rather about one company’s supply chain versus the competition’s supply chain. Therefore, adaptiveness should not just exist inside the company, but across the entire supply chain.
Time Frame: Yogi Berra once said, “It is tough making predictions, especially about the future.” Like many things Yogi said, they appear to be nonsense, but upon further reflection, they hold some real pearls of wisdom. In fact, I think Yogi is giving us some real guidance here on the tools required to build adaptiveness into our material handling systems. More on this below.
Responsiveness: In order to adapt, “listen” to what is happening in the marketplace and quickly act to refine, rework, redefine and/or reinvent its business processes and practices in response. Today, it is better to respond quickly with an 80% answer than it is to respond slowly with a 99% answer.
Financial Sync: Today’s financial decision-making must be in sync with the “New Norm.” Before 2008, CFOs focused their attention on recording what has taken place before. But now, business leaders need to be out front adjusting for today’s realities and allocating resources accordingly.
Tools for Adaptiveness
I did a bit of foreshadowing above (hint, “time frame”). The tools that a company must embrace to become adaptive are based on time frames, but not in the way that you might traditionally think. The time frames are:
Scenario Thinking – Long-Term: The process of thinking about and anticipating the unknown future, not by predicting the future, but by examining possible future developments that could have an impact in order to identify paths forward that would work well independently of what the future holds. Think of this in terms of a group of knowledgeable folks getting together to consider the implications of future scenarios instead of just being passive victims of change. Essentially, this process helps organizations prepare for what would have been future surprises. For example, one scenario might be, “What would we do if the price of oil increased by 30%, 60% or 90%?”
Predictive Modeling – Mid- Term: The process of using a statistical model to predict future results, including utilizing regression analysis to predict how dependent variables will respond to various independent variables. For example, it would be very useful from a DC staffing/slotting planning perspective to understand how certain customer categories will respond to certain Internet offers or advertising campaigns.
Rolling Forecasts – Mid-Term: Annual budgets are inadequate to deal with the pace of business today. In fact, most organizations are realizing that the annual budget is obsolete the day it is approved. Rolling forecasts allow for monthly updates of the next 12-month forecast based on the best information available each month. This means that resource decisions are made much closer to the time of the actual need (real event-based planning) of the resources, and with far superior accurate information availability.
Business Intelligence – Short-Term: This involves turning real-time data into actionable insights that allow for real-time responses. Business Intelligence is also a decision support tool that facilitates a quick response to what is occurring right now. One great example is an adaptive Warehouse Control System (WCS) that provides real-time intelligence in operational efficiency.
Make Adaptiveness Work
for MH Systems
Material handling systems shape all processes of your global supply chain. Going forward, you will need a systems design that stresses flexibility and modularity in order to rapidly respond to shifting business conditions and changing market profiles.
To ensure that you are up to the challenge, continually cycle back through the “Eight Factors of Adaptiveness” during the planning, design, implementation and utilization phases. Then, apply the time-frame based tools to further define your path.
And remember, it is about today and tomorrow—not yesterday. Focus on the business realities of current and future requirements, and not so much on what came before.
James Tompkins is president and CEO of Tompkins Associates (www.tompkinsinc.com), a global supply chain consulting firm headquartered in Raleigh, NC. Tompkins is also a member of MH&L’s Editorial Advisory Board.