Supply chains need 'smart sense'

Paul Snell is managing editor at Supply Management
1 May 2013

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1 May 2013 | Paul Snell in Grapevine, Texas

Companies must gain a better understanding of their customers and be careful not to misinterpret information.

Speaking at the Institute for Supply Management annual conference, Stanford University professor Hau Lee said that while many businesses take a ‘sense and response’ approach – where a company analyses information and then acts on it – they need to be smarter in the way they do it. “If you ‘sense’ without thinking exactly what the information meant, or understand what is behind the signals, you could interpret them wrongly. So I think we need to do ‘smart sensing’,” he told delegates.

He added the key is not to fall into the trap of thinking you know your customer as “the world changes and you could be wrong”. Another factor is to beware of distorting information you receive. He gave the example of patterns that followed an earthquake in California, for example, when sales of Spam went up dramatically after the event. If you just acted on this data, without the background knowledge that people were purchasing the tinned meat in case of emergency, you would end up with lots of leftover stock, he said.

Lee – noted for his research into the ‘bullwhip effect’ in supply chains – added it was important to collaborate with the supply chain to get better information. He gave the example of a retailer who failed to stock enough mosquito bite ointment one particular summer. While the retailer said they could not have anticipated the greater demand, the supplier of ointment would have been able to because it understood the trends. “In the supply chain there are multiple pockets of innovative power, you leverage every one of them to build a fast response,” he said.

And he warned it is no longer sufficient for companies to just be agile. “Hyper-agility is the rule of the game. Agility is not enough. If you want to be ahead of the competition, ahead of everyone else, you need hyper-agility.”

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