has to be something that emphasizes flow now and in the future.
With this flow and systems perspective there are at least two additional corollaries to Plossl’s Law that are worth mentioning at this point:
Something is productive if and only if it leads to better promotion and protection of system flow.
Something is deemed efficient if and only if it leads to better promotion and protection of system flow.
To fundamentally understand how to emphasize flow now and in the future, we must first understand the biggest determinant in the management of flow: the effective management of variability. In Figure 1-7 we see an expanded form of the equation previously introduced. Variability is defined as the summation of the differences between our plan and what actually happens. As variability rises in an environment, flow is directly impeded. Conversely, as variability decreases, flow improves.
FIGURE 1-7 Connecting variability to the flow equation
The impact of variability must be better understood at the systemic rather than the discrete detailed process level. The war on variability that has waged for decades has most often been focused at a discrete process level with little focus or identified impact to the total system; Deming would not be pleased. Variability at a local level in and of itself does not necessarily impede system flow. What impedes system flow is the accumulation and amplification of variability across a system. Accumulation and amplification happens due to the nature of the system, the manner in which the discrete areas and environment interact (or fail to interact) with each other. Remember the three characteristics of complex systems: nonlinearity, extreme sensitivity to small initiating events, and a disproportion between cause and effect. Smith and Smith proposed the Law of System Variability.
The more that variability is passed between discrete areas, steps or processes in a system, the less productive that system will be; the more areas, steps or processes and connections between them, the more erosive the effect to system productivity.13
Quite simply, Figure 1-7 says that when things don’t go according to plan, flow is directly impacted. Is this really surprising? Methods like Six Sigma, lean and Theory of Constraints have recognized the need to control variability for decades. Unfortunately, many of those methods point to or get focused on limited components or subsystems of an organization or supply chain. Most of them attempt to compensate for variability after a plan has been developed and implemented (a plan that is typically built utilizing a design that assumes everything will go according to plan—an extremely poor assumption).
The Rise of VUCA
The world is a much different place today than it was 50 years ago, when the conventional operational rules and systems were developed. Figure 1-8 is a list of some dramatic changes in supply chain–related circumstances that have occurred since 1965.
FIGURE 1-8 Supply chain circumstances in 1965 versus today
The circumstances under which Orlicky and his cadre developed the rules behind MRP and surrounding techniques have dramatically changed. Customer tolerance times have shrunk dramatically, driven by low informational and transactional friction largely due to the Internet. Customers can now easily find what they want at a price they are willing to pay for it and get it in a short period of time.
Ironically, much of this complexity is largely self-induced in the face of these shorter customer tolerance times. Most companies have made strategic decisions that have directly made it much harder for them to effectively do business. Product variety has risen dramatically. Supply chains have extended around the world driven by low cost sourcing. Product complexity has risen. Outsourcing is more prevalent. Product life and development cycles have reduced.
This has served to create a huge disconnect between customer expectations and the reality of what it takes to fulfill those expectations reliably and consistently. This will not get better any time soon. The proliferation of quicker delivery methods such as drones will simply serve to widen the disparity between customer tolerance time and the procurement, manufacturing, and distribution cycle times. Many supply chains are ill prepared for this storm intensifying.
Add to this an increased amount of regulatory requirements for consumer safety and environmental protection and there are simply more complex planning and supply scenarios than ever before. The complexity comes from multiple directions: ownership, the market, engineering, and sales and the supply base. Ultimately, this complexity manifests itself with a high degree of volatility, uncertainty, and ambiguity. It is making it much more difficult to generate realistic plans and maintain the expectation that things will go according to plan, especially when those plans are based on GAAP-derived drivers.
The key to protecting and promoting flow at the system level is to understand and manage variability at the system level. What then is the key to managing variability? In order to answer that question we will need to expose another key component of the flow equation, the component that eludes most companies in today’s complex and volatile supply chain environments.
There is an important factor in managing variability that must be recognized; without it, the quest to reduce or manage variability at the systemic level is a quixotic one at best. This missing element is labeled as “Visibility” in Figure 1-9.
FIGURE 1-9 Adding visibility to the equation
Visibility is defined simply as access to relevant information for decision making.14 This provides an extremely important caveat to Plossl’s Law. A company cannot just indiscriminately move data and materials quickly through a system and expect to be successful. Today organizations are frequently drowning in oceans of data with little relevant information and large stocks of irrelevant materials (too much of the wrong stuff) and not enough relevant materials (too little of the right stuff). Furthermore, sophisticated real time analytics of bigger and bigger databases will not solve the problem but instead will create a deeper, wider, and stormier ocean of data and materials unless we understand how to better sift through that ocean to determine what is truly relevant for decision making now and in the future.
Note that this formula now starts not with flow but with what makes information relevant. If we don’t fundamentally grasp how to generate and use relevant information, then we cannot hope to manage variability and consequently facilitate flow. Moreover, if we are actively blocked from generating or using relevant information by systems, then even if people (adaptive agents) understood there was a problem, they would be essentially powerless to do much about it.
What makes the flow of information, materials, and services relevant is its relationship to the required output or market expectation of the system now and in the future, not what was accomplished (or not accomplished) in the past. To be relevant, the information, materials, and services must synchronize the assets of a business to what the market really wants now and in the future; no more, no less.
