What Happens in Vegas…Can Be Applied to Supply Chain Planning

Jeff Metersky, Vice President, SIOP Practice Thursday, March 8, 2012  The last time I was in Las Vegas playing blackjack it struck me that while...

Jeff Metersky, Vice President, SIOP Practice
Thursday, March 8, 2012 

The last time I was in Las Vegas playing blackjack it struck me that while the five other players at the table had one of the same goals as I did – to make money – each of us was going about it in a different manner.  As you may know, there are two basic decisions in blackjack:  (1) when to take another card (“hit”) vs. when to play the cards dealt (“stand”), and (2) how much money to bet on each hand. The strategies I saw ranged in sophistication from seemingly random variations of hitting and betting, to placing the same bet and taking the same action on every hand, to using a highly-calculated approach.  Of course I was practicing the latter! Because the cards “used” in one round of blackjack are not reshuffled into the deck before each deal, advanced  blackjack strategies are a perfect example of how you can improve your returns by adapting your plan (how much to bet) and your execution (when to hit, stand, split or double down) given the current status of the deck.  At my blackjack table that day, the players that were static in their actions did not fare as well as those who were adaptive.

It has been documented that a player adopting a static betting strategy with random execution provides the house a 1.5% to 5% advantage, while a player with a dynamic betting style with adaptive play based upon the prediction of cards left to be dealt has a 2% to 4% advantage over the house. The more differentiated the strategy, and the more real time information is used, the greater the likelihood of player success.  The same holds true for supply chain planning.

Firms adopting “one size fits all” strategies will not be as efficient and effective as possible.  Such strategies include:

  • All products being stocked in every DC in the network with the same level of service;
  • Products flowing to customers the same way, irrespective of channel or order size;
  • Waiting for the next planning cycle to adjust our forecasts when we can see demand exceeding plan; and
  • Applying the same demand planning approaches for a high volume mature item and a new product introduction.

Many firms are facing increasing complexity as a result of a growing number of customer channels, mass customization of finished products, and increased pace of new product introductions, among other factors.  To maximize the likelihood of success, it’s time to sit down at the supply chain planning table to create dynamic strategies that acknowledge that one size does not fit all, leverage real-time information, remove latency and the sequential nature of the current decision making processes, and  maintain a total systems approach. If you are looking for ways to improve your odds of success, “hit me” at jmetersky@chainalytics.com.

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