Decision Tree Analysis in Supply Chain Management

The decision tree analysis is a form of flowchart initiating from the one main idea and the branches represent the consequences of your decisions. The decision tree visually outlines the potential outcomes, costs, expenses, and consequences of the difficult decisions. It would help you to measure and calculate the expected value of the outcome of every decision. Today, we’ll discuss decision tree analysis in supply chain management; steps on how to implement decision tree in SCM; advantages and disadvantages.

The supply chain processes are complex, difficult, and uncertain; they could result in the form of lower customer satisfaction levels, lower service levels, and higher costs. If the company doesn’t perform demand forecasting, then it leads to understocking, overstocking, and higher inventory costs for carrying the large inventory. As a result, it decreases the customer’s satisfaction and pushes away many new potential customers. If the company doesn’t manage the supply chain disruption, then it results in the form of higher transportation costs, production delays, delivery issues, and poor customer service.

A decision tree is a great tool and measure for analyzing and evaluating the outcome and effectiveness of decision-making during uncertain situations and circumstances. It comprises of leaves, branches, and nodes.

• Nodes represent the decisions that the company should make
• Branches represent the outcome of the decision
• Leaves represent the final outcomes

Implementing Decision Tree Analysis in Supply Chain Management

Let’s discuss the main steps on how to implement decision tree analysis in supply chain management; they’re as follows;

Recognizing the Problem

First of all, you should recognize and identify the problem that you are planning to solve; collect relevant data about the problem and issue at hand, and create a decision tree. The problem could be from any of the supply chain areas like; production, sourcing, supplier relationship, inventory, warehousing management, transportation, logistics, and delivery issues.

Decision Tree

Once you have recognized and identified the problem and collected the most relevant data and information, you need to create and develop a decision tree. The decision tree is the graphical representation of the consequences of the decision and various other probabilities. However, the decision tree comprises nodes and branches; the nodes outline the chances, possibilities, and decisions; the result and outcome of the decision are branches.

Potential Value of Every Decision

Once you have created the decision tree with all the nodes and branches. Next, you should analyze and measure the expected value and potential outcome of every decision. The expected and potential value is the average of all the possible outcomes and consequences of the decisions. You could analyze and measure the value of the outcome based on the probability.

Analyzing Decision Tree

The evaluation and analysis of the decision tree allow you to take the best course of action under the potential circumstances. It comprises analyzing and evaluating the expected value of every decision and making the decision with the highest value.

Implementing Decisions

After choosing the best course of action based on the analysis, you should implement the decision. It comprises taking the necessary initial steps implementing the decisions and evaluating the results.

Advantages of Decision Tree Analysis in Supply Chain

Some of the main benefits and advantages of decision tree analysis in supply chain management; they’re as follows;

Prioritizing Actions

Decision tree helps various supply chain businesses to prioritize their activities and actions and decisions based on the expected value. It becomes much simpler and more convenient for the management to focus on the most important action.

Open Communication

The decision tree promotes and encourages open communication among various departments, units, employees, and stakeholders. It lets them know about the outcome of the potential decision and its value.

Saving Time & Resources

Decision tree saves a lot of time, energy, cost, and resources for management by assisting them to make informed decisions quickly and efficiently.

Recognize Best Action

Decision tree analysis guides businesses and companies to evaluate the expected value of every decision; and choose the best course of action under the existing circumstances.

Decision Framework

The Decision tree analysis provides a well-structured and systematic approach to making the decision, and it helps managers and supervisors to make the decisions.

Managing Uncertainty

The Decision tree analysis would help managers and supervisors deal with uncertainty by providing them with the potential outcomes of the decisions and their probabilities.

Disadvantages of Decision Tree in Supply Chain

Some of the main challenges and disadvantages of decision tree analysis in supply chain management; they’re as follows;

• Uncertainty could result in the form of complicated calculations
• Small data changes would bring massive structural changes
• Biased decision-making due to the biased data collection
• Often give wrong inaccurate results

Conclusion: Decision Tree Analysis in Supply Chain Management |Decision Tree in Supply Chain

After an in-depth study of the Decision tree analysis in supply chain management; we have realized that the Decision tree is a great tool for decision-making. If you are learning about the Decision tree in supply chain; then you should keep in mind the abovementioned implementation steps, advantages, and disadvantages.