Much of the stress of 21st-century corporate life is generated by the decision-making process. Warehousing certainly is no exception. We have ample opportunity to witness the pain, as well as a significant amount of wasted time.

Analysis of probabilities

Some business activities, such as insurance, are based on a mathematical analysis of probabilities. Underwriters make a science of calculating risk. Commodity traders engage in hedging to control the risks of unexpected movements in price.

In their article, "Stop Making Plans, Start Making Decisions," Michael C. Mankins and Richard Steele noted that strategic planning isn't about making decisions. Rather, it is about documenting choices that already have been made. Only 11 percent of executives were highly satisfied that strategic planning is worth the effort. Unless strategic planning drives decision-making, it may have only marginal value.

Nassim Nicholas Taleb's book, "Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life," is about luck. Taleb, a hedge fund operator, is not the first person to develop theories of chance. Many of our most ancient religious traditions celebrate the influence of good fortune for every supplicant. Identified in the folklore of our own culture are good and bad omens, such as black cats on the dark side and rainbows or four leaf clovers on the bright side.

During the mid-17th century, Blaise Pascal and Pierre de Fermat developed calculations to be used for demonstrating the probabilities for chance events. Three centuries later, John von Neumann wrote a book in which he described a new mathematical product, game theory. Many leaders prefer to rely on instinct rather than analysis in their decision-making process. For example, Jack Welch, retired CEO of General Electric, described his leadership style as "straight from the gut."

The process of corporate decisions

Decision-making continues to be both the most important, and the riskiest, job for executives. Many decision-makers display a bias toward alternatives that perpetuate the status quo.

There is a natural bias toward safety. When making computer investments was dangerous, we heard that "nobody ever got fired for buying IBM." Since purchase of an unknown brand is risky, many of the smaller computer manufacturers did not survive the buyer's preference for a safe decision.

Authors Paul Rogers and Marcia W. Blenko described ways to improve the decision-making process in an organization. They pointed out that a good decision, executed quickly, beats a brilliant decision, implemented slowly. They described a process that starts with making recommendations and continues through receiving input to reaching an agreement on a decision, and concluding with performance.

In a decision-driven organization, managers recognize some decisions matter more than others. The ultimate goal is action, so speed and adaptability are crucial. Practicing is more important than preaching.

Adaptability in warehousing

The warehousing business has undergone considerable changes during the past several decades, and not every competitor has been able to adapt successfully.

During the mid-1900s, manufacturers commonly had dozens of warehouse locations in order to provide fast service for customers in cities where their products were sold. In the grocery business, food brokers were instrumental in making decisions about warehousing. With improved communications, and the development of logistics as a professional activity, manufacturers discovered that sufficient delivery service could be provided from a much smaller number of warehouse locations.

Adaptability is not about chance. It is based on being a good observer with a willingness to change. In the warehousing industry, those operators who cannot adapt to changing conditions are unlikely to survive.

Furthermore, it is generally accepted that the pace of change today is faster than ever before. Advances in technology have provided us with tools no one contemplated a few decades ago. Warehousing executives today must adapt to robotics, e-commerce and talent scarcity.

Useless analysis

We once worked as subcontractors in determining the location for a distribution center to serve the Pacific Coast. The prime contractor retained a modeling expert and spent a substantial amount of time with simulations that compared the advantages of alternate locations for the new facility. The client complained that too much time was spent in the process.

As the project neared completion, the chief executive of the client company announced that the distribution center must be in Las Vegas. The reasons for this decision were personal. All of the effort in analyzing options need never have taken place, since the mathematics were overruled by the personal desires of the boss.

While this was an extreme case of wasting time with decision analysis, it was not the only one I have seen.

Execution

Success in warehousing, as well as in most other corporate functions, is based more on quality of execution than on making exactly the right decision. One of the lessons learned by use of the case study teaching method at business schools is that there is no "school solution." There may be several solutions to the case problem. With effective execution, any one of them might be successful.

Therefore, when you analyze the decision-making process, the most important question to ask is "Was the decision executed well?" In warehousing, successful execution is measured by the percentage of perfect orders that are delivered to customers. The tools, procedures, housekeeping and precise inventory control all are important. However, they are insignificant when compared to the ultimate result, the delivery of perfect orders.

When execution fails, we may encounter irrelevant excuses. If you hire a man to dig a straight ditch, and he digs one that is crooked, no amount of information about the quality of the shovel he used has any significance.

When business school professors insist there is no school solution, they really are saying that execution of the decision is far more important than choosing a decision. The student is graded on his justification for the decision, and his description of how it will be implemented.

Setting the example

Successful implementation often depends on the example set by the leader. People will perform what is measured. In other words, they will do what you inspect, not necessarily what you expect. The process begins with picking the right people for the job. Effective leaders tend to attract talented followers. When rewards are linked to performance, the team's outcome improves.

Execution depends on personal commitment. Good leaders create energy, while bad leaders drain it. The quality of leadership depends on the ability to inspire. Because the leader cannot do and should not try to do everything, good leadership also requires effective delegation. The ineffective delegator will micromanage and spend far too many hours on the job; or, in the opposite extreme, abandon the people to whom the work was assigned.

The people process is more important than either the operations process or strategy, yet all are linked together. The people process starts with matching the right person with the right job. It includes the process of mentoring development, as well as terminating or reassigning people whose performance level is not acceptable.

Linking strategy with operations

Strategic planning is effective only when it makes sense, and relates closely to existing operations. In creating a plan, these critical questions must be addressed:

• What changes exist among existing customers?
• What changes can be anticipated in our market?
• Who are our most significant competitors, and how are they changing?
• Which are the critical issues we face?
• What changes will influence our profitability?

The general environment is the same for every competitor. Only the most successful will be able to detect change and react to it. For example, the last quarter-century has seen a conversion of logistics service companies from union operators to primarily nonunion. Most often, those who saw the change coming successfully adapted. Many of those who could not adapt are no longer in business.

Some managers look at their business from the inside out. They concentrate so hard on the internal problems that they lose focus on the changing needs of their customers. The most successful warehousing firms spend a lot of time sharing ideas with customers and identifying what services they might offer in the future.

For example, one warehousing service company entered the staffing business, offering temporary workers not only to his own customers, but to anyone in the community who needed the service.

It is easy, but dangerous, to ignore competitive activity. Some staffing services are now direct competitors of public and contract warehouses. Those who offer materials handling on a piecework basis provide a competitive alternate to the traditional warehouse operator. At the same time, many people in both staffing and public warehousing fail to recognize this change that could cause them to bid against each other.

Globalization of logistics is another significant point of change. However, unlike the outsourcing of manufacturing, globalization tends to favor the company that is playing on its own turf. When there are significant culture gaps, the hometown player has a clear advantage.

Summing up

While gamblers, mathematicians, commodity traders and insurance underwriters must study the risks in every decision, business managers will do better by placing their emphasis on developing sound strategy, followed by effective execution. The best warehousing successes are not the firms that were lucky: rather, those in which managers provided leadership that resulted in superb operating performance.