Supply Chain Strategy Step 1: Admit You’re Wrong

September 29, 2022

With mountains of data combined with years of experience, organizations from the NFL to the world’s largest retailers and brands make “bet the farm” predictions. Yet, they rarely get them right. That’s because they use the past to predict the future.

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And, the past rarely forecasts disruptions, changes in consumer behavior or Achilles tendon tears. In this session, learn how the Patriots, Warren Buffett and the world’s leading supply chains succeed: they admit they’re wrong from the start.

Key Takeaways

  • 50% of NFL first round draft picks are considered busts
  • 50% forecasting error rate is typical
  • The best Wall Street traders don't try to time the market
  • Leading companies invest in structural flexibility

Leading organizations, from the NFL to Wall Street, have one thing in common—flexibility. The best in their respective businesses know uncertainty is everywhere. The best strategy is to admit forecasts are wrong and embrace variability.

Flexe revised the following transcript for brevity and clarity.

Structural flexibility in the NFL #

The Patriots selected Tom Brady at 199 in the 2000 draft. Despite teams passing on him, he is the winningest quarterback in NFL history, taking home seven Super Bowl rings. Of the QBs taken ahead of him during the same draft, few had any substantial success in the NFL.

Despite millions of dollars sunk into the draft every year, the story isn’t unique. Over 50% of the players selected in the first round are busts. The more an organization invests in a first-round selection, the more they have to lose.

The Patriots demonstrated this with Brady and others. Instead of “bet the farm” predictions, the organization relies on safer, more flexible picks.

Making smaller bets on Wall Street

The same applies to the stock market. Even though experts spend countless hours and funds trying to pick a winner, few have any success trying to time Wall Street.

Since 2020, the price return for the S&P 500 is 18%. However, if investors missed the 10 worst days, they netted 125%. Conversely, they lost 33% by missing the 10 best days this decade.

Those wild variations show how difficult it is to predict how and when to move money. As a result, Warren Buffett, one of the best investors, urges traders to avoid winner-take-all strategies in the market. Instead he suggests making more diversified bets to decrease risk.

Take the same approach to supply chain #

Like NFL scouts or money managers, supply chain professionals rely on forecasts to strategize capacity or inventory allocation. But like those in the NFL or on Wall Street, supply chain professionals rarely get predictions right.

Demand forecasts, the driving force behind supply chain strategies, are routinely wrong. Some sectors have a 50% forecast error rate. Supply chain planners make capacity and network decisions based on incorrect data.

To succeed, invest in structural flexibility

Forecasting is always a challenge, but it's even more so in the age of continual disruptions. Those who’ve succeeded since the onset of Covid learned to ditch the predictions playbook. Instead, they instituted structural flexibility and adopted a more nimble supply chain approach.

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