Thinking of business problems as flow probblems | Using quantitative thinking for enhanced operational & organizational performance.

 

A short note on flow

Flow is a concept that is everywhere even if we don’t explicitly acknowledge it. The fundamental reason why we engage in problem-solving is that we part from the assumption that something is stuck, not flowing, or operating in a way it shouldn’t be. The concept I’m calling the “science of flow” is, in simple words, the formal examination of why things don’t go as planned, don’t work, or don’t cooperate with our purposes. It’s a notion that’s been present throughout human history and applies universally. However, it wasn’t until the Industrial Revolution that some curious individuals began to study its inner workings and develop methods to improve the smooth movement of components, individuals, and operations within organizations. Understanding flow is crucial today because as our systems and organizations become more complex and face greater uncertainty they are required to adapt and grow. Additionally, when flow is achieved:

…service is consistent and reliable,

…revenue is maximized and protected,

…inventories are minimized,

…unnecessary or ancillary expenses are minimized and

…cash flow follows the rate of product flow to market demand.

And guess what, all of this becomes a recipe for MAXIMIZING RETURN ON INVESTMENT.

George W. Plossi, one of the creators of MRP planning systems, summarized this nicely in what he called the first law of manufacturing:

“All benefits are directly related to the speed of flow of materials and information.”

However, the approach followed by organizations is typically very different. Isolated performance metrics like cost or revenue are at the center of nearly every improvement effort. The assumption is that it is cost that improves cash velocity, which improves net profits, which improves return on investment. This way of thinking is risky as it neglects to address fundamental aspects concerning the interaction among system elements crucial for bolstering business resilience. Consequently, this increases vulnerability to disruptions and decreases the likelihood of survival. What is behind the improvement of cost itself, of cash velocity, of net profits, and of return on investment is the IMPROVEMENT OF FLOW. This can also be interpreted as management accounting. Cost accounting, on the other hand, was created to ensure transparent reporting for shareholders and tax authorities but NOT to be a decision driver.

Acknowledgment: During the process of creating content for this blog, I had the fortunate opportunity to attend a presentation hosted by the Demand Driven Institute (DDI), where they discussed some of the ideas I’ve just shared. For further information about their work, I recommend visiting their website: https://www.demanddriveninstitute.com/. The specific keynote I attended was: “The Adaptive Enterprise” during the Simio Sync Annual Conference on March 6-7, 2024.

 

This blog

The primary idea of this blog is to discuss analytical approaches and techniques that look at performance improvement within the enterprise by addressing flow problems. An exponential growth in the amount of data has placed great attention on those approaches that “let the data speak for itself”. While these approaches are hugely helpful and are currently driving many great advances in decision-making, they do not address all the issues embedded in today’s complex systems. This is why it is fundamental to also talk about alternatives that take a more holistic and long-term view of problem-solving. These are “decision-centric” approaches and their focus is on tackling specific decision problems by exploring the converging elements that lead to a decision. Techniques in this domain draw mostly from industrial engineering, operations research, systems theory, risk theory, decision theory, probability, statistics, and stochastic processes disciplines.

 

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About this blog’s author: Aineth is an Industrial Engineer (Ph.D., M.Eng., B.S.). She leverages expertise from multiple fields to improve business operations. Her key areas of application are Logistics, Supply Chains, and Service Systems. Her expertise spans over ten years in technology consulting using techniques such as DES Simulation, Mixed Integer Programming, Multiple Decision Making, Data Envelopment Analysis, and Risk Measurement and Monitoring. Her research has involved understanding the caveats of incorporating sustainability criteria in the design of productive and infrastructure systems. Proud of her Hispanic heritage, she enjoys breaking myths about her home country, Mexico, and about the Hispanic culture.