How to use Root Cause Analysis in Supply Chain Management

Most consumers realize that the products they purchase are the result of a global chain of suppliers and logistics. And while a global supply chain brings benefits in terms of lower production costs, the complexity associated with today’s supply chain spawns increased risk and uncertainty. Risk on its own doesn’t cause problems, but it increases the likelihood that problems will occur. And, because today’s world is more complex than it was in years past, the problems we see today may well be things we’ve not seen before; that makes it more important than ever for a company to learn as much as it can from problems. While we can’t undo the past, we can certainly better prepare for an uncertain future. Root cause analysis applied to supply chain problems is a powerful and effective tool that will help us do exactly that.

Root cause analysis is a structured way of addressing problems. The goal of performing a root cause analysis is to be able to clearly explain the problem to the level of detail required and to identify a list of corrective or preventive actions that prevent the problem from happening again in the future.

For instance, let’s say your company manufactures bicycles. In February 2020 just as the world was recognizing the global impact of COVID19, you found yourself (like most others) wondering what the pandemic might mean to your company. But by March, you would have realized that your problem wasn’t going to be a lack of sales, but instead a global explosion in demand. This was caused by stay-at-home orders along with the need to find safe, healthy ways of getting out of the house with the family. Your shops quickly sold out and were placing orders to replenish inventory. Terrific! So you place additional orders with your manufacturing partner… only to find out that they can’t deliver for months. How could this happen? And how can you keep it from happening again in the future?

A root cause analysis has five steps:
● Step 1 – Gather and manage evidence: The quality of a root cause analysis is dependent upon the quality of evidence. We need to make sure we are dealing with facts. Evidence helps us determine fact from fiction. So this step comes first.

● Step 2 – Write the problem statement: Next, we need to clearly define what the problem is, when it happened, where it happened, and what the impact is. Writing a complete problem statement puts all this information together in one place and it makes it clear both to the team investigating as well as readers of the report exactly what is being analyzed.

● Step 3 – Analyze the causes: We prefer to use conditional logic to deconstruct why/how the problem happened. Causes are represented using a logic diagram. The diagram helps us organize the various inputs and helps us see how they led up to the problem.

● Step 4 – Generate solutions: Solutions work by controlling causes. When those causes are based on evidence and logic, there is a high probability of success and we aren’t just looking for a single “root cause.” Risk is best controlled through diversification of solution efforts.

● Step 5 – Produce the final report: We need to share what we’ve learned with others who also can benefit from the analysis.

So how would this work in our bicycle inventory problem? For evidence, we’d start with getting information from the manufacturing partner, but we wouldn’t stop there. We could look internally as well to our demand projections, risk assumptions, and perhaps our contracts. The bottom line is we need as much reliable evidence as possible.

When we write a problem statement, we start out with what we call the ‘focal point’ – this is the focus of the investigation. In this case, our focal point would be something such as “Lost sales opportunities.” Next, we would document when the problem occurred, where it occurred, and what the impact was. In documenting impact, we want to consider both qualitative impact (such as disappointed customers) and quantitative impact (such as the value of the lost sales opportunities).

The analysis step starts out with the Focal Point and works backwards to identify the causes. “Lost sales opportunities” has two causes that act together. The first is “available supply is less than existing demand” and the second is “customers won’t wait.” Put these two together, and the result is lost sales opportunities. Both have to be true. By branching in this way, we can now proceed to examine the causes of each branch. We will be able to explore why we can’t meet demand as well as why our customers (many of them anyway) won’t wait for us to catch up.

As each branch is further decomposed, we can really start to understand how these causes worked together to cause the undesirable outcome. Question marks indicate where the branches would continue, but this gives you an idea of how a logic diagram helps to organize the information gathered.

Once we are satisfied we understand the causes, we can then identify solutions. Some causes might be out of our control. For instance, we can’t force the manufacturer to add additional capacity just in case we have another pandemic! But it’s valuable to know clearly what you can control versus what you can’t. By identifying the areas of brittleness in the supply chain, even a small company can make decisions to help reduce their risk and increase flexibility in the face of uncertainty.

The last step is to document everything we’ve learned into a report. This allows us to share with others who may also benefit from the investigation results. And it’s a way to communicate with the future so that the lessons we’ve learned aren’t forgotten.

A simple, consistent root cause analysis process helps untangle any complex problem that has a significant negative impact or risk. This is particularly true with supply chain problems because their stories are made up of so many different geographically diverse players and materials. Root cause analysis allows us to map these converging storylines so that we can clearly see the weak links. Only then can we effectively fix them.

About the Author:

Brian Hughes is a co-founder of Sologic, LLC and currently serves in the role of Sr. Vice President overseeing content creation, sales, and marketing. Working with clients to develop and implement enterprise-wide RCA programs, Brian also has led significant root cause incident investigations, including explosions, loss of primary containment, consumer product contamination, failures of critical components/systems, supply chain process problems, and inventory optimization
problems.

Brian’s articles are published in multiple industry periodicals as well as online, including Quality Digest, Professional Safety, and Occupational Health and Safety. He also has presented at various industry conferences, including ASQ, ASSP, HPRCT, NSC, APICS, and multiple client events. Brian holds a BA in Finance from Western Washington University (USA).