We know better than to try to force fit strategies yet time and again we find businesses planning and managing their processes with a ‘one size fits all’ approach. Hospital services, insurance underwriting, pharmaceutical production, consumer electronics assembly, integrated supply chain services all struggle with finding the right balance of specialization and common process. At the extremes there is the chaos of infinite flexibility where every order, customer, patient is an exception to the other extreme where the ‘cats and dogs’ are blocking traffic on the highway.
Simply sorting process demand (orders, service requests, projects, patients) by volume or frequency isn’t good enough.
Adding the dimension of demand variation is an improvement, but optimizing inventory, process performance, supply chain doesn’t end with a 2×2 graph of Volume vs. Coefficient of Variation. But before we tackle total cost, margin analysis, supply chain policies let’s go over the fundamentals.
Gather up representative data for orders, arrivals, requests – whatever you have that represents demand on your process, business, factory, enterprise. In HR this might be recruiting requests, in product development an inventory of active projects, in a factory grab customer orders. [ABC Analysis: how to]
Sort the product or services from high to low, left to right. The highest volume activities want to be streamlined, maybe even have dedicated processes and resources. Call these A items the ‘highway’. The lowest volume of orders or frequency of service items, the C items may need to be handled on a case-by-case basis. If you don’t then you’ll have a ‘mixed model’ process where the A’s and C’s get in each others way.
Products and service have a lifecycle; usually new products volume increases and the initial demand is spotty but stabilizes as the product matures. Then new products compete and demand declines and becomes irregular for the first generation.
5. Then calculate some simple descriptive statistics and interpret
Since 1.45 is within +/- 1.89, we can say that the data is marginally normal.
Process Model Selection
- Margin Contribution & Cost to Serve may be more insightful than just looking at demand quantities or sales dollars.
- Products and services may have different demand, inventory, customer replenishment, supplier replenishment, sourcing and total landed cost, and other policies.
- Managing these policies in a dynamic business can be a challenge; so look toward optimization automation to stay ahead having the right strategies for the right products instead of one size fits none.