Moneyball your supply chain

(aka: What has baseball got to do with planning?)

“Moneyball”, written by best-selling author, Michael Lewis,  is one of those “true” baseball stories, and a great one at that. But, it’s not really about baseball – it’s about data and using data the right way to get the best possible return on your investments and achieve an incredible outcome. The “Moneyball’ philosophy has had a massive impact on professional sports, and the principles are game-changing for business as well. In particular, it will have a profound impact on how you rethink and manage your supply chain planning.

The central character of “Moneyball”, Billy Beane (played by Brad Pitt in the movie), was the general manager of Oakland Athletics. The team was broke, couldn’t afford star players and was plummeting down the competitive ladder. Anyone familiar with baseball knows that part of the passion is the stats. Batting averages, ERA, on-base percentage, runs scored….the list is extensive. Billy Beane shunned tradition and used statistical mathematics to build a low budget, high-performing team that delivered an amazing record, a trip to the playoffs and, along the way, set the Major League Baseball record for consecutive wins at 20!

“Moneyball” offers big lessons for supply chain planning. Like baseball, supply chain planning has relied far too long on traditional methodologies and biases like gut-feel and past 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 star players, power pitcher, and home run sluggers. 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 working 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 – costly star players. In Moneyball, Billy Beane ignores this, choosing players based purely on their ability to contribute to the team’s overall success. Winnig! It didn’t matter whether they had a funny looking pitch, a bad knee or wer getting older. If a player could consistently get on base, score runs and play defense – help WIN games – that was all that mattered. Likewise for business  – you need to take a step back.

A simple example, suppose 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 every time?

The best option 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 optimization will deliver a plan that either maximizes profit and/or maximizes demand fulfilment (forecast and/or custom orders) at the lowest cost while respecting the defined business rules, constrands and costs.

Moneyball is about  thinking about the process andlooking at things differently; seeing new ways for efficency and optimizing returns. Approaching the end game holistically and  applying science instead of gut-feel and historical bias. 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.

If you want to know more about how you can Moneyball your supply chain, then send us an email and we will be in touch soon.