Daily Archives: February 7, 2010

If You Truly Want to Achieve Supply Chain Innovation …

Stop relying on spreadsheets!

I thoroughly enjoyed this recent article over on SupplyChainBrain on how Intel Takes The Top Spot in the Supply Chain Innovation Awards. The article pointed out that Intel enhanced product availability by scrapping its reliance on spreadsheets and embracing technology that creates a real time, available-to-promise (ATP) environment.

As a business management tool, Spreadsheets Suck, straight and simple. Considering that up to 90% of spreadsheets contain non-trivial errors and that they are barely adequate at the task they were designed for (which was day-to-day ledger-keeping, and nothing more), it should be pretty obvious that they are not an operations management tool. And while it used to be the case that you didn’t have any other option as a small or mid-sized business because the traditional, installed, behind-the-firewall enterprise software packages were ridiculously expensive and beyond your grasp, that’s no longer the case. In many areas of technology, you can now take your pick of multiple SaaS options that cost, at most, a few hundred per user per month. And that’s for the really good stuff. If you can get by on the more-than-good-enough 80% solution, you can probably find a solution for $20 to $50 per user per month.

After ditching their spreadsheets and implementing real tools, within three years Intel:

  • increased the percentage of change orders confirmed in one day from 21% to over 70%
  • increased Committed Dock Date from under 25% to over 96%
  • reduced manufacturing cycle times by 62%
  • decreased raw material, Work-In-Progress, and finished goods inventory by 33%
  • improved Weighted Mean Absolute Percent Error by over 20%

Isn’t it time you stopped relying on spreadsheets to drive your business?

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There’s No Such Thing as Good Spreadsheets

If you’re still using spreadsheets to run any aspect of your sourcing, procurement, or supply management operations, then you’re working at the edge of a steep cliff over a deep ocean waiting for the earthquake to come. I bring this up yet again because I recently stumbled upon an article over on the Harvard Business Review blogs on why good spreadsheets make bad strategies, which, by the way, they do.

It was a great blog post. We live in a world obsessed with science, preoccupied with predictability and control, and enraptured with quantitative analysis. Economic forecasters crank out precision predictions of economic growth with their massive econometric models. CEOs give to-the-penny guidance to capital markets on next quarter’s predicted earnings. We live by adages like: “Show me the numbers” and truisms such as “If you can’t measure it, it doesn’t count.”

What has this obsession gotten us? The economists have gotten it consistently wrong. And, moreover, the same economists who totally missed the recession turned back to the same quantitative, scientific models to predict how the economy would recover [after 2008], only to be mainly wrong again. CEOs keep on giving quarterly guidance based on their sophisticated financial planning systems and keep on being wrong — and then get slammed not for bad performance but for their failure to predict performance exactly as they promised mere months earlier. (Hence my distaste for Wall Street and my recent praise for private equity.)

Now, while CEOs and their CFOs would love to be able to extrapolate last month’s sales quantity and predict next quarter’s sales, but sometimes they find out that those sales weren’t as solid a base for growth as they might have thought — especially if some of the customer relationships underpinning them weren’t as strong as they might have imagined.

The fundamental shortcoming is that all of these scientific methods depended entirely on quantities to produce the answers they were meant to generate. They were all blissfully ignorant of qualities.

What people keep forgetting is that, in business, numbers are meaningless out of context. 1M in revenue this year means nothing if you don’t maintain whatever quality earned you that revenue this year. If you got the business because you had a better product, and you’re in an industry where products improve quarterly, and you don’t continue to invest in improvements, you can’t project 1M next year. Loyalty only accounts for so much in many categories, like technology and electronics.

So, as a forecasting tool, spreadsheets are even more useless than you tend to think they are. And they’re even worse as a business tracking tool if you’re engaged in global trade, because they don’t automatically update when the regulations and tax rates change. And paying the right amount can get you fined, and even jailed if it was determined that you did not make any efforts to insure proper payments and filings (if you’re an officer of the company).

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