Breaking the service paradox

service paradox

Going on a family holiday entails a whole host of decisions. Some are made early on in the process, such as the period of time, destination and means of transport, and others much later, such as when and where to stop to eat, to refuel and to go to the toilet. There is a clear reason why you make the latter decision late on in the process: bladders are notoriously unpredictable! Scheduling comfort breaks in advance is asking for trouble in the form of wet pants or – to avoid that risk – a compulsory stop at every service station along the way, so it’s not to be recommended. What seems so obvious in everyday life, however, often goes horribly wrong for businesses.

By Alex Tjalsma

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’.

The decision matrix

Decisions can be placed in a matrix, with the early or late availability of reliable information along the vertical axis and the early or late moment of decision along the horizontal axis. This decision matrix shows that there are two variants of the planning mismatch: the first in which decisions are made too early (while the information is still unreliable), and the second in which decisions are made too late (when the available information is not utilized, thus causing unnecessary delays in decision-making). … … …

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