In her post, Driving Value from Supply Chain Planning, Lora Cecere provides great supply chain analysis and benchmarking for her supply chain to admire. The supply chain operating model adjustments and metrics she is suggesting however, are not based on new thinking:

👉 Outside in thinking: in strategy over 50 years old

👉 Outside in demand segmented supply chains: over 20 years old

👉 Business Balanced score card (vertical strategy integration): 40 years old

👉 Aligned strategy execution (strategy management): 20 years old

👉Aligned cross functional incentives: similar to the balanced score card

👉Integrated (horizontal) supply chain planning (S&OP): about 40 years old

👉 Forecast Value Add (FVA): Over a decade old. I have written a commentary in Foresight on how to move beyond FVA towards continuous human-machine learning.

Combine those great foundational supply chain theories, call it outside-in, execute them and you get market driven, low latency, perfectly run supply chains. Why have we not been able to do that? The models and technology are there.

There is a little problem involved: the human.

Humans can do wonderful things. They are curious, creative, innovative, understand strategic context, display and can read emotions, develop deep relations, love to learn, do research and make useful models.

They are also biased, make unreasonable decisions, follow the herd (groupthink), are evolutionary wired to self-preserve, only about 30% of them naturally collaborate. And indeed, a decent percentage of executives shows psychopath behaviour.

I know, try to run a business with the the latter group!

Lora defines a supply chain as; “a complex non-linear system driven by market forces.”

Maybe we should add to that; “led by often irrational humans”

Therefore, non-negotiable theories we have to add to the foundational supply chain thinking is behavioural economics and the management of human biases and irrational decision making. Furthermore, it is impossible to keep the ever faster progress of AI out of the equation of new supply chain models.

Maximising human potential

Lora talks about understanding industry potential. I think we need to talk about human potential. I agree with her we are stuck, and we have been for a while. To make progress in supply chain operating models, we need to add new thinking to the foundational theories highlighted above and others. Operating models cover many aspects of running a business, including organizational design, roles & responsibilities, KPIs, incentives, culture, human mindset & behaviours, processes, technology, the list goes on.

“Ultimately, a company’s value is just the sum of the decisions it makes and executes.” Blenko and others, 2010

A key aspect of new operating models will be to minimise human weaknesses, like irrational decision making, whilst exploiting strengths like the ability to learn, adapt, recreate a vision and understand strategic context. We must help humans make more rational, less biased decisions at all levels (so they stay aligned with common goals in a balanced scorecard). We want to make those decisions faster with a higher quality.

At a strategic decision level, Roger Moser’s Decision Intelligence navigator helps executive decision makers choose the right decision models, manage dissent and bias for strategic decisions. At planning and operational level, Lorien Pratt’s Causal Decision Diagram (CDD) provides a framework to design and align data to decision to outcome processes. These processes can be digitised, automated, scaled, or augmenting with a human in the loop for operational decision making, with automated execution where needed and a continuous learning loop back to the human.

Add to that HUMACHINE thinking from supply chain professor Nada Sanders. We must start thinking human-machine symbiotic, there is no alternative. AI can help detect human bias, autocorrect it or provide feedback to the human so they can continuously learn from their own mistakes and irrational decisions, improving their weaknesses. GenAI can help enhance human strengths like curiosity, visioning, creativity, strategy creation. We’ve only start to scratch the surface.

The future supply chain operating model will exploit human strengths and minimise human weaknesses. It will be supported by the strengths of the machine (AI), but will be human & decision centric.

Let’s cherish the great supply chain foundational models we’ve build over the last 50 years, but let’s start adding some modern thinking to it.

Without new thinking, we won’t get unstuck.