Intuition is behind most decisions we make. One reason is because it’s easy: When you’re relying on intuition, you can make decisions quickly and without much work. However, intuition alone is not enough to always guarantee good decisions. As much as we all like to say that our gut feeling is always right, our intuition can sometimes lead us astray. Our opinions are based on past information and experiences. Implicitly, we simplify decision-making by sometimes projecting past experiences and information to inapplicable situations. In such cases, our gut feelings can be wrong. Unfortunately, we find that out only after we suffer the consequences of our decisions. In any supply chain operation, there are many moving pieces and decision points, which makes supply chain operations uniquely susceptible to these consequences.
In contrast to our opinions, analytics can consistently provide objective advice. Introducing analytics to your supply chain decision-making has two benefits among many that intuition can’t compete with
1) Analytics can reduce unnecessary business costs due to cognitive biases
Cognitive biases can be one reason, if not the main reason, why our intuition can be wrong. Cognitive biases are mental shortcuts we take to simplify decision-making. Biases speed up the decision-making process but they can also cloud judgement. Analytics, however, can make up for shortcomings that arise from our biased intuition.
For example, status quo bias — defined as a preference for keeping things the same — can hinder process improvement efforts. However, data analysis and visualization can convincingly point to process improvement opportunities. It’s easy to overlook 15 minutes of lost time due to hidden supply chain inefficiencies. But analytics can point out that, 15 minutes lost by 100 warehouse operators in a course of a year can amount to about $130,000 of unnecessary costs. Knowing that hidden inefficiencies costs you $130,000 is a good motivation to invest in process improvement. Such a convincing justification to improve processes can be hard to believe without analytics.
Having an evidence-based decision-making framework at all decision points in your supply chain can reduce costly implications of biased decisions.
2) Analytics can give you confidence in your decisions
When making business decisions by intuition, managers and executives always run the risk of facing potentially unpleasant results. Analytics can confirm or disprove your intuition and give you confidence that you are making the right decision. The power of analytics is such that, even if you make a terrible decision using bad analytical insights, you still get the benefit of doubt because you exercised due-diligence to sense-check your gut feeling.
For example, when deciding whether to acquire a new business facility, you can base the decision on optimisms that sales will increase to justify the new facility, or you can rely on a comprehensive industry analysis that clearly justifies strong indications of sales growth. If the optimism is confirmed by a comprehensive industry analysis, you can confidently undertake the decision to acquire the new facility. With the analysis in hand, the decision-maker has something to point to if sales don’t grow as expected, rendering the need for a new business facility obsolete after the facility has been acquired — it was just unpredictable bad luck. With intuition alone, however, the unfortunate decision maker looks incompetent if sales expectations don’t materialize.
Analytics inform decision-making
It is easy to make decisions on the go. There is a certain level of flexibility and speed that comes with intuitive decision-making. However, your gut feeling can be biased. Analytics can give you confidence and reduce biases in decision-making. Moreover, a data-driven decision-making framework can provide objective insights that can improve business outcomes.
But, analytics has its limits. The full value of data can only be realized if the analytical process is solving a problem that is clearly defined and deeply understood using the correct methods. In the words of Darkhorse Analytics’ Daniel Haight, “Analytics can successfully improve decision-making if you use data to solve the right problem the right way.”