Identifying the root cause of supply chain risk

Most consumers realize that the products they purchase are the results of a worldwide chain of suppliers and logistics. And while a worldwide supply chain brings benefits in terms of lower production costs, the complexity related to today’s supply chain spawns increased risk and uncertainty. Risk on its own doesn’t cause problems, but it increases the likelihood that problems will occur. And, because today’s world is more complex than it had been in years past, the issues we see today could be things we’ve not seen before; that creates it more important than ever for a corporation to find out the maximum amount because it can from problems. While we can’t undo the past, we will certainly better steel oneself against an uncertain future. Root cause analysis applied to provide chain problems may be a powerful and effective tool which will help us do exactly that.

Root cause analysis may be a structured way of addressing problems. The goal of performing a root cause analysis is to be ready to clearly explain the matter to the extent of detail required and to spot an inventory of corrective or preventive actions that prevent the matter from happening again within the future.

For instance, let’s say your company manufactures bicycles. In February 2020 even as the planet was recognizing the worldwide impact of COVID19, you found yourself (like most others) wondering what the pandemic might mean to your company. But by March, you’d have realized that your problem wasn’t getting to be a scarcity of sales, but instead a worldwide explosion in demand. This was caused by stay-at-home orders alongside the necessity to seek out safe, healthy ways of getting out of the house with the family. Your products are quickly sold out and were placing orders to replenish inventory. Terrific! So you place additional orders together with your manufacturing partner… only to seek out that they can’t deliver for months. How could this happen? and the way are you able to keep it from happening again within the future?

A root cause analysis has five steps:

● Step 1 – Gather and manage evidence: the standard of a root cause analysis depends upon the standard of evidence. We’d like to form sure we are handling facts. Evidence helps us determine fact from fiction. So this step comes first.

● Step 2 – Write the matter statement: Next, we’d like to obviously define what the matter is, when it happened, where it happened, and what the impact is. Writing an entire problem statement puts all this information together in one place and it makes it clear both to the team investigating also as readers of the report exactly what’s being analyzed.

● Step 3 – Analyze the causes: We like better to use conditional logic to deconstruct why/how the matter happened. Causes are represented employing a logical diagram. The diagram helps us organize the varied inputs and helps us see how they led up to the matter.

● Step 4 – Generate solutions: Solutions that work by controlling causes. When those causes are supported evidence and logic, there’s a high probability of success and that we aren’t just trying to find one “root cause.” Risk is best controlled through diversification of solution efforts.

● Step 5 – Produce the ultimate report: we’d like to share what we’ve learned with others who can also enjoy the analysis.

So how would this add our bicycle inventory problem? For evidence, we would like to start with getting information from the manufacturing partner, but we wouldn’t stop there. We could look internally also to our demand projections, risk assumptions, and maybe our contracts. Rock bottom line is we’d like the maximum amount reliable evidence as possible.

When we write a drag statement, we start out with what we call the ‘focal point’ – this is often the main target of the investigation. During this case, our focus would be something like “Lost sales opportunities.” Next, we might document when the matter occurred, where it occurred, and what the impact was. In documenting impact, we would like to think about both qualitative impact (such as disappointed customers) and quantitative impact (such because the value of the lost sales opportunities).

The analysis step starts out with the focus and works backwards to spot the causes. “Lost sales opportunities” has two causes that act together. The primary is “available supply is a smaller amount than existing demand” and therefore the second is “customers won’t wait.” Put these two together, and therefore the result’s lost sales opportunities. Both need to be true. By branching during this way, we will now proceed to look at the causes of every branch. We’ll be ready to explore why we can’t meet demand also as why our customers (many of them anyway) won’t await us to catch up.

As each branch is further decomposed, we will really start to know how these causes worked together to cause the undesirable outcome. Question marks indicate where the branches would continue, but this provides you a thought of how a logical diagram helps to arrange the knowledge gathered.

Once we are satisfied we understand the causes, we will then identify solutions. Some causes could be out of our control. As an example, we can’t force the manufacturer to feature additional capacity just just in case we’ve another pandemic! But it’s valuable to understand clearly what you’ll control versus what you can’t. By identifying the areas of brittleness within the supply chain, even a little company can make decisions to assist reduce their risk and increase flexibility within the face of uncertainty.

The last step is to document everything we’ve learned into a report. This enables us to share with others who can also enjoy the investigation results. And it’s how to speak with the longer term in order that the teachings we’ve learned aren’t forgotten.

A simple, consistent root cause analysis process helps untangle any complex problem that features a significant negative impact or risk. This is often particularly true with supply chain problems because their stories are made from numerous different geographically diverse players and materials. Root cause analysis allows us to map these converging storylines in order that we will clearly see the weak links. Only then can we effectively fix them.

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