Optimization Frenzy and the Power of Mission

“What gets measured gets managed.”

This truism is very popular among supply chain practitioners and for good reason, because you understand the power of process, targets and data. Without some higher ideal governing decisions, however, this measurement/management dynamo risks self-destruction, or at least confusion, because of something I call ‘optimization frenzy’.

Driving Yourself Crazy

Optimization assumes an objective function can be clearly stated and that algorithms specifying relationships between inputs and outcomes can be defined. It works mathematically and absolutely helps with many standard tasks in supply chain including logistics routing, load building, inventory control, production planning and more.

To work in real life, optimization must freeze the plan at least momentarily while execution happens. A delivery truck, for instance, can be guided by dynamic re-routing optimization tools, but at the limit, its algorithms must respect the quantum of work associated with each package drop. In theory absolute perfection exists; in practice it’s a matter of doing the work.

Optimization frenzy happens when the quest to make the ideal trade-off decision gets so granular and interdependent that the incremental value of being one iota better is worth less than the mental effort of solving for perfection. Stated another way, perfect is the enemy of good.

I have experienced this feeling many times and find the only way out is to, as Nike says, Just Do It.

Just Do What?

Macro-level operational conundrums arising out of optimization frenzies gone wild include the miserable state of US commercial air travel, the perpetual downward spiral of classic format department stores, and even the problem of worker benefits in a gig . Each involves individual actors doing what they think is best at the moment of decision, only to find that the aggregate outcome is bad.

It underpins what is happening to United Airlines, Sears and Uber right now and it threatens not only near-term performance but long-term existence. In economics, the concept of a ‘fallacy of composition’ arises similarly from cumulative individually optimized choices resulting in a negative outcome for the whole, which then circles back and bites the original decision maker. Tragedy of the commons, free-rider problems and the paradox of thrift are three widely known versions of how this works.

Objective setting in the real world therefore needs a more durable, elastic guiding principle than minimizing costs. Mission is essential to finding this principle.

Mission Matters

Three company examples show how to use a healthy mix of measurement/management and mission to achieve results:

Amazon: As one of the most data-rich businesses in world history, Amazon could be expected to live by the sword of hard metrics. On one level this is absolutely true, including in its application of customer review data to drive merchandising decisions and network modeling analytics to shape fulfillment center investment plans.

On another level however, Amazon has a mission to offer earth’s largest selection. This means it is extraordinarily open to experimentation, incredibly agile for its size, and famously able to shrug off investor concern about current profitability.

Supply chain at Amazon is about solving giant operational problems over long time horizons while still executing at the micro-level millions of times each day.

Unilever: As the top-ranked company among Gartner’s Supply Chain Top 25, Unilever is clearly doing something right. It is aggressive about metrics-heavy disciplines like S&OP and complexity management, which no doubt contribute to a surging share price.

At the level of mission however, Unilever stands apart. CEO Paul Polman has been clear and consistent about the intent to grow revenue, while decoupling environmental costs and creating a positive social impact. This forces supply chain leaders to constantly think big while working small.

Ecolab: Led by a CEO (Doug Baker) with an extraordinary appreciation of supply chain, Ecolab chases metrics on safety, service and savings. Its supply chain has contributed 180 basis points to gross margins since 2014, so numbers clearly matter.

Ecolab’s mission though is all about water efficiency. This helps prioritize work around process change while galvanizing people on an issue of global importance.

All three companies use optimization as a tool. None allows it to drown out mission. Clarity is the cure for optimization frenzy.