Today’s supply chains have become extremely complex, and many businesses are struggling to cope. The good news is that much – if not most – of that complexity has been self-created. And if you can create something yourself, you can also stop creating it.
A world without variation
Just imagine a world where there’s no variation, in which both supply and demand are stable and therefore completely predictable and dependable. In which it is easy to align capacity with demand, and congestion and idle time simply don’t exist. Wouldn’t that be nice?! Thanks to first Henry Ford and later Taiichi Ohno, the automotive industry has come quite close to achieving that; car manufacturing might still be complicated, but (under normal circumstances) it’s no longer complex. The reason: because variation has been removed.
Variation is one of the key sources of complexity. So it could be fair to assume that reducing complexity is merely a matter of rigorously eliminating variation, just as the automotive industry has successfully proved.
Good and bad supply chain variation
Unfortunately, it’s not quite so simple in reality. Unlike in the automotive industry (which has high volume/low mix), other businesses – and especially those in low-volume/high-mix environments – have to take chronic residual variation into account. Besides that, it can be necessary to accept variation in order to keep your customers happy (e.g. seasonal products), and in some cases it can even be beneficial to add variation yourself. Such cases illustrate so-called ‘good’ variation. So besides eliminating ‘bad’ variation, it is as important to recognize, accept and organize ‘good’ variation.
The five pillars
To help organizations understand and deal with good and bad variation, we have developed the Wheel of Five. This tool is based on the laws of supply chain physics and contains five guidelines for effectively managing complexity to achieve the business goals. The five pillars of the Wheel of Five are:
- Eliminate unnecessary variation in supply and demand
- Absorb unpredictable variation using stock and time
- Chase predictable variation with flexibility and effective decision-making
- Avoid overburden by managing the workload and creating overcapacity
- Eliminate waste of capacity, stock and time
Are you curious about how to cope with complexity? read our whitepaper: “The wheel of five - 5 ways to tackle supply chain complexity”.
