Variation and Averages
About this lesson
Your operations manager presents two suppliers for an upcoming contract decision. Supplier A delivers in an average of ten days. Supplier B also delivers in an average of ten days. On the basis of average delivery time, the two are indistinguishable. The procurement team, looking at a tied score, leans toward whichever has the lower price. But before they sign, you ask one further question: how variable is each supplier's delivery time? Supplier A, it turns out, ranges from eight to twelve days. Supplier B ranges from three to twenty-five. They are not the same supplier at all, even though they share an average. This scenario is not a trick. The two suppliers genuinely have the same average delivery time. The difference is invisible to anyone looking only at means. Yet the operational implications are entirely different. Supplier A's tight range allows for confident downstream planning: production schedules can be locked in, customer commitments can be made, safety stock can be minimized. Supplier B's wide range introduces uncertainty into every downstream process: production schedules need buyers, customer commitments must be hedged, safety stock must be padded against the possibility that a delivery might take three weeks rather than ten days. The total cost of working with Supplier B may be far higher than its lower headline price would suggest. The lesson generalizes far beyond procurement. In nearly every business context where you care about a metric quality, response time, employee performance, customer satisfaction, financial returns the average alone tells you only half the story. The other half is variation, and ignoring it is one of the most expensive habits in management.
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