Breaking the service paradox

It is not hard to become better yet more expensive, or to offer lower prices but also lower quality. Things only become difficult when you face the challenge of becoming better and cheaper at the same time. As a result, many companies have been grappling with this seemingly insurmountable situation known as the ‘service paradox’ for years. More recently, however, a small but growing number of companies have managed to break this paradox, and their secret is surprisingly straightforward. They simply refuse to accept their dependence on chronically unreliable forecasts and plans any longer. Instead, by eliminating unnecessary variation and uncertainty and by bringing forward riskless decisions, they have been able to delay risky decisions in order to successfully escape the ‘planning mismatch’.

Essential alignment

In order to break the service paradox, alignment is essential – both internally and throughout the supply chain. After all, in order to become both better and cheaper, everyone everywhere must always do the right thing and make the right decisions – not in their own local interests, but for the good of the whole. That means taking an integral chain-based approach to supplying what the end customer wants, when they want it and without waste: demand-driven alignment.

Of course, the million-dollar question is how to achieve demand-driven alignment. Needless to say, carefully formulated targets and key performance indicators (KPIs) play an important role in that. Effective targets and KPIs stimulate the desired behaviour and right decisions, and discourage undesired behaviour and wrong decisions. In practice, however, this is not quite so easy. After all, it is not uncommon for targets and KPIs to be beyond your scope of influence, especially externally. Luckily, there is another factor that you can influence, namely the ‘moment of decision’. That is the precise point in time that you make a particular choice. This can be ‘early’, i.e. a long time before the decision must take effect, or ‘late’, e.g. at the last minute. Preferably, the moment of decision should be early if the information is reliable at an early stage, and late if it doesn’t become reliable until later. This is not always the case in practice, however, which creates a ‘planning mismatch’.