The “Moneyball’ approach has had a massive impact on professional sports, and its 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.
“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 just about baseball. It’s about using data to get the best possible return on your investments and achieve an incredible outcome.
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 in the sport is the stats. Batting averages, ERAs, on-base percentages, 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!
So what are the 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-paced, traditional supply-demand market there may have once been a case for it. But, as we all know, that environment has changed dramatically. Demand drivers are changing, constraints are changing and new ones are arriving with break-neck speed. Today’s supply chain is much more complicated, and planners need to be on the ball and ready to respond quickly.
Lesson 1: Ditch Gut Feel – It’s the old way of picking a baseball team and planning your supply chain
Back in the day, baseball teams paid big bucks to get star players, power pitchers, and home run sluggers. From “Moneyball”, baseball (and other sports) learned that they could use stats to make much better decisions about player choices. Likewise, supply chain planners have always relied on traditional methodologies such as MRP, but those just don’t cut 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 efficiencies in the supply chain, it’s time to take a lesson from “Moneyball” and start using science. Previously, this wouldn’t have been an option – the theory may have existed in a mathematician’s office, but it’s only recently that the technology has been made available in a way that is accessible for business.
Lesson 2: Think Holistically – it’s not just about individual players…or discrete 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. It didn’t matter whether they had a funny looking pitch, a bad knee or were getting older. If a player could consistently get on base, score runs and play defense – help WIN games – that was all that mattered. It’s the same for supply chain planning. You need to take a step back and look at the big picture.
Here’s 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 modeling 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, 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 fulfillment (forecast and/or custom orders) at the lowest cost, while respecting your defined business rules, constraints and costs.
“Moneyballing” is about thinking about the process and looking at things differently. It’s about finding new efficiencies and optimizing returns. Approaching the game holistically and applying science instead of gut-feel and historical bias is an absolute necessity for supply chain planning today.
Are you ready to change the game? Get in touch and we’ll show you how to Moneyball your supply chain.
PS. I really recommend watching the movie – it’s guaranteed good viewing, and not just for baseball fans.