The Power of Indicators Pt. 1
“Bad companies are destroyed by crisis, Good companies survive them, Great companies are improved by them”.
- Dr. Andrew S. Grove (former CEO of Intel).
Having some time in quarantine has provided me (when I’m not busy helping with entertaining my 5-month-old son) a little extra time to reflect on some things I’ve been reading a lot about: The “science” of management. At Wittaya Aqua we are basically a team of scientists or managers (or both), so I figured I would share some tools I think are very useful to help you establish more certainty in these very uncertain times.
Much of this first section (both inspiration and content) comes from one of my favourite books: High Output Management by Andrew Grove. This is a great book with a lot of applicability to manufacturing (Andrew Grove was the CEO of Intel in the 80’s and 90’s), which applies to every aspect of the aquaculture industry from grow-out to the inputs used to produce animals (ingredients, feed, equipment, etc.).
I think one of the most profound concepts in any business book is the concept of indicators. Two that I find particularly powerful for creating more certainty in your operation: Leading indicators, which are ways of looking into your operation to get a sense of how it is performing and any issues that may be arising in advance. And trend indicators, which show output vs time against an expected, standard, or forecasted level: allowing you to question “why” output is differing from what you expect or anticipate it to be.
This post will focus on trend indicators. The next post will then focus on leading indicators and I’ll be tying the two together and talking a bit more in detail about the power of forecasting next week.
Trend Indicators are a basic comparison of output over time and can also be compared to a benchmark or some other “standard”.
There are dozens of different ways to run trend analyses (I’m happy to share more if that’s of interest), but a very useful tool for quickly and routinely evaluating economic trends is the stagger chart. Basically, the stagger chart comprises two things. 1) A forecast of a future state (number of orders, sales, tonnes of production, etc.) and 2) the actual values for that month. In the case of the stagger chart they appear in the following month, because you can’t know what fully happened in a month until after that month has passed.
In the following hypothetical example let’s look at a farm aiming to produce 10 tonnes of harvest per month (but this could easily be applicable to a feed mill aiming to produce 10 tonnes of feed per month). You can see in row 1 that the forecasts made in March, 2019 for March, April, May and June were all 10 tonnes. The actual harvest (or production) for March was 9.5 (actuals here are denoted by an “*” asterisk). How many months you forecast in advance is completely up to you and very much dependent on your production cycle. What is important is that each month you update this sheet to reflect the actual harvest of last month and to update your forecasts for the next months (in this case we’ve chosen to forecast 4 months in advance).
Why is the stagger chart useful? Well, here we can see two very important realizations. 1) production forecasts are almost always over-estimating the amount of biomass harvested (or the amount of feed orders in the case of our feed mill) and 2) total biomass harvested (or feed produced) is decreasing over time. Now there may be a very good reason for this occurring, or it could be signaling an issue on the farm such as an animal health issue (or a decrease in orders of feed in the case of our feed mill). Both scenarios require further investigation as to “why” they are happening.
Determining why a particular trend may be occurring in your business should be discussed with your immediate team and supervisors and, where necessary, with the assistance of external parties like consultants, veterinarians, service providers, etc.
Was this helpful? Anything else you’d like me to talk about or cover?