Leading and Real Time Indicators
We’ve all heard of the canary in the coal mine. Those small birds were once used as sacrifice to let miners know if underground air quality was too dangerous for humans. The phrase is a euphemism for a leading indicator of a negative event.
Are you familiar with the turkey vultures over gas pipelines? My friend and colleague Paul Rulkens (Netherlands) shared this lesson with me:
“How do you detect leaks in gas pipelines, which are hundreds of miles long? Some decades ago, a group of perceptive oil engineers noticed something interesting: Gas leaks were always accompanied by groups of turkey vultures circling above. What they found was that ethyl mercaptan, the smelly stuff added to natural gas, resembled odors coming from decaying bodies, thus attracting vultures. The engineers had the presence of mind to recognize a key piece of data and put this into action. In the oil industry, vulture-watching has become common practice to find gas leaks in pipelines.”
Turkey vultures convey important information. This indicator is neither leading nor lagging, but instead real time. It lags the initial leak but remains visible until the leak is repaired.
Your manufacturing business is awash in data, some of it signal and some of it noise. It’s up to you to determine which is which and to reduce the noise acting as the fascinating shiny object to your organization. Even signal only has value if you pay attention to it and know what it means for your situation.
Another colleague shared the story of a local coffee cart (think “roach coach” vehicle) who located to the parking lot of a nearby Dunkin Donuts during a power outage. He knew that coffee lovers would be heading there soon; he intended to ensure they still got their coffee that morning and that he sold all of his. He had quickly interpreted an unexpected signal to benefit his business.
As we look at the opportunities provided by Industry 4.0 technologies, and there are many, it is worth taking some time to consider what information we already have. If only we recognize it as such. It’s easy to add to the noise instead of focusing on signal.
Mines now have more advanced measurements of air quality while gas pipelines have better means of identifying leaks. But without those interim signals, men and money would have been lost needlessly. As you consider modern means of capturing and analyzing data and converting it to valuable information, what might already be available to provide leading or real time indications of important changes?
The canaries were a “let Mikey try it” testing process. The vultures signal resulted from recognizing the relationship between two unlikely variables. The coffee cart owner was opportunistic, not having planned for that eventuality but reacting quickly and wisely regardless. He had a thorough awareness of the market.
The leading and real-time indicators once valuable to you may no longer be reliable. I encourage you to ask yourself, “what is easy and obvious that could signal near term market direction and opportunity for us?”
Perhaps office and commercial real estate professionals are looking at what was a year ago referred to as “rush hour” traffic to tell them the direction of their markets. Economic indicators are less reliable than previously and the work from home world of the majority of businesses is not yet well understood. If traffic picks up, more people are going to the office; if it doesn’t employees are continuing to work from home. In some communities, use of public transportation is another potential signal. The same information can be of value to the home improvement businesses that have benefited from WFH growth, only reversed. More traffic is a negative indicator.
A canary as it were. Or perhaps a family of turkey vultures. Or perhaps a flock of birds heading north.