Moneyball your Supply Chain

May 22 2014

(aka: What has baseball got to do with planning?)
by Christer Liden* 

Moneyball is one of those “true story” baseball movies, and a great one at that. But it’s not about baseball – it’s about data – and about using data in the right way to get an incredible outcome. The “Moneyball’ philosophy has had a massive impact on professional sports, and the principles will be game-changing for business as well, and in particular will have a profound impact on how you manage and plan your supply chain.

The central character of Moneyball, Billy Beane (played by Brad Pitt), was the General Manager of Oakland Athletics. The team was broke, couldn’t afford the expensive players, and dropping down the ladder. Anyone familiar with baseball will know that part of the passion are the stats. Batting averages, Pitching averages, who gets to first base ….the list is exhaustive. Billy Beane used statistical mathematics to take his budget team to an all-time record breaking 20 back-to-back wins in the US baseball league, taking out major teams like the Red Sox and Yankees along the way. The story is told in the Moneyball best-selling book and movie.

Moneyball offers big lesson for supply chain businesses. Like Baseball, Supply Chain planning has relied for too long on traditional methodology, gut-feel, and trust on experience. There were perfectly good reasons for this, and in a more stable, slower, traditional supply demand market there may have once been a case for it. But….as we all know, the environment is changing dramatically – demand drivers are changing, constraints are changing and new ones arriving, the supply chain is much more complicated and planners require much faster response times.

Lesson 1: Ditch Gut Feel  – (The old way of picking a baseball team or planning your supply chain)

Back in the day, baseball teams paid big bucks to get players who were stars, or could hit a home run, or had a great style. From “Moneyball”,  baseball (and other sports) learnt that they could use stats to make much better decisions about player choices. Likewise supply chain planners have always relied on traditional methodology such as MRP and it’s just not cutting it any longer. Companies generally end up complementing MRP with complex and convoluted spreadsheets to try to deliver the desired result. At the end of the day the planning process ends up being less scientific and more filled with poor information, poor-integration, limited scenario options and decisions based on gut feel, bias and old school experience.

MRP was good for picking the ‘low hanging fruit’ but in order to keep driving cost further out of the supply chain, it’s time to take a lesson from Moneyball and start using science. Previously, this wouldn’t have been an option, because while the theory may have existed in a mathematician’s office, it’s only recently that technology has been developed in a way that is accessible for business.


Lesson 2: Think Holistically (Don’t just think about individual players on the team or functions in the business)

The trap that baseball teams often fell into was focusing on individual players – for example costly star players. In Moneyball, Billy Beane ignores this, choosing players based purely on their ability to contribute to the team’s overall success. It didn’t matter whether they had a funny looking pitch, or their biggest skill was only getting to first base – if it helped the team win – that was the key. Likewise for business – you need to take a step back. In a really simple example, maybe there is a great price on a raw material -instead of instantly deciding to run a promotion – consider the business as a whole. What is the cost of staffing, manufacturing, storage and distribution capacity – will it really be a profitable decision to buy up big? For one instance you may be able to work it out, but businesses have thousands of such considerations – how do you make the most profitable decisions all the time?

The solution for supply chain planning is to use mathematical modelling and optimization to deliver the most profitable plan. The concept is to build a supply chain model from supply through to end demand and then make sure that all business rules, business constraints and costs are correctly defined. Once this is in place, the demand (from sales-orders and forecast) can be applied the most profitable plan for the business can be calculated based on the defined business rules, constraints and costs.

Moneyball is about looking at things differently, seeing them holistically and applying science instead of gut-feel and intuition. This is an absolute necessity for supply chain planning today.

It’s time to change the game.

PS. We really recommend watching the Moneyball movie – it’s guaranteed good viewing. Here’s the entertaining short trailer

*This is a guest blog by Christer Liden, recognised expert in executing Integrated Business Planning to ensure businesses maximise overall profit. To find out more give him a call on +61 416 086 423.

We write about Infor technology, ERP & Cloud news plus host the occasional Webinar.

Get it delivered to your inbox

subscribe
X

Subscribe

Subscribe to ComActivity Newsletter – Infor technology, ERP & Cloud news plus host the occasional Webinar.


Add us to your LinkedIn feed

@ Copyright 2024. All rights reserved.