Using an early warning system can alert companies to minor problems, before they become larger problems, according to a recent article in the Harvard Business Review.
The author offers advice on how to begin this type of program. (Excerpt below.)
Create an integrated and centralized data-storage system.
Establishing a data lake with exhaustive, detailed, and reliable information from across the entire value stream is ideal, but far from straightforward. Data sources may have different formats and standards, and there may be issues related to governance and accessibility.
For these reasons and more, companies may find it useful to start with a smaller set of data that is relevant, of high quality, and can be regularly updated. Such data is usually available in core operating systems such as enterprise resource planning (ERP), quality management systems (QMS), and manufacturing execution systems (MES).
Apply artificial intelligence (AI) to convert data into actionable alarms.
The point of collecting data is to set off an alarm, while separating the signal from the noise. One way to do so is to use AI to detect anomalies.
It’s important that such alarms are specific, along the lines of “There is a high risk that supplier X will face shortages of part Y.” Otherwise, companies will waste time hunting the problem. The aerospace manufacturer’s EWS featured 12 different alarms, with a false-positive rate of less than 15%.
Rewrite and activate the risk-management playbook.
Once the alarm rings, there needs to be clear and well-understood response processes.
Many existing playbooks use a traffic-light system, with “red” noting suppliers with the highest risk. Essentially, this is a form of classification. That is useful but insufficient, leaving organizations vulnerable to issues that can escalate from minor disruptions to major challenges.
An EWS, by contrast, prompts action. It sets out a standard way to identify where the alarm is coming from, what is to be done, by whom, and in what order. By embedding the EWS in work instructions and by providing formal training, leading organizations ensure that frontline supply chain, procurement, and quality teams have the authority, and the capabilities, to act.
Once the nature of the alarm is known, mitigating the risk is next. Actions could include working with a supplier to find a new source for raw materials; relaxing engineering constraints to improve part manufacturability; redesigning the product; or finding a new supplier.
