When to Make Use of Continuous Scenario Planning in a Disruptive WorldJul 28, 2020
From the merger your company’s been planning for years, to the flood that wipes out your data center on a Tuesday night, to a pervasive public health crisis like Covid-19, there are countless situations that can upend your business by upending your supply chain operations. Whether you’re considering building new facilities, the impact of an acquisition, the best way to handle supplier changes, or how any type of unexpected disruption will affect your operations, supply chain scenario planning is a valuable exercise. But when is the right time to employ modeling software?
The Role of Continuous Scenario Planning
Companies of all sizes and stripes engage in vital processes that support short- to near-term supply chain and logistics planning, even if they don’t all use sophisticated technologies to support these processes. This practice incorporates a certain amount of flexibility in a fast-changing environment. However, your ability to respond rapidly and efficiently to significant changes or disruptions, whether anticipated or not, can vary drastically based on the speed and effectiveness of your ‘what if’ scenario planning capabilities and commitment.
Regardless of the planning horizon (short through long term), successful analyses of multiple, complex scenarios, along with multiple, potential responses, often hinge on the use of supply chain network and logistics modeling solutions. Let’s look at the variables at play that can help you determine the best way to proceed.
Principal Scenario Attributes
The range of scenarios to consider as part of the planning process will vary based on four primary attributes:
- Time Horizon: How long it will take to complete the scenario from start to finish. This will typically be measured in months or years.
- Size/Scale: How the change will impact operational supply chain metrics, such as the effect on shipment volume or frequency, or the number of SKUs in inventory.
- Scope/Complexity: How far-reaching the change will be in terms of new geographies or manufacturing capacity, or the number of suppliers involved.
- Expectation Level: How certain or uncertain the change is, and whether it’s anticipated. This impacts whether there’s time to plan for the change.
The Value of Modeling Software Increases with Extremes
Essentially, the case for a modeling technology solution becomes lesser or greater at the extremes of each attribute. For example, a scenario that includes a short-term horizon, is small in size/scale, simple in terms of scope/complexity, and is completely expected, may not require sophisticated technology at all.
On the other hand, something that’s longer term, large in size/scale, significant in scope/complexity, and extremely difficult to anticipate may require highly sophisticated modeling capabilities to succeed.
Examples to Consider
1. Acquisitions: If one U.S. retailer acquires another U.S. retailer with a similar product line, we’d expect to see this: A long time horizon, large size/scale impact as stores are consolidated but low scope/complexity because they have shared product lines, suppliers, and customers. The expectation level would be completely anticipated. Result: Moderate need for modeling software.
2. New Business Models: Many retailers have faced the need to establish an e-commerce presence and move to an omnichannel framework. The horizon for this type of project could be near-term, while the size and scale may not be a massive change at first in terms of shipment volumes. However, the scope/complexity would be large as customers get used to shopping online for these products and would likely request same-day or next-day delivery, which takes time to set up. The expectation level for this type of scenario would be completely anticipated in most cases. Result: Moderate to strong need for modeling software.
3. Supply Disruptions: U.S.-based manufacturers often rely on suppliers around the world for various components required in production. A host of unanticipated changes can occur with these partnerships, such as political coups, bankruptcies, or as seen recently, the impact of a pandemic. The time horizon for finding acceptable new suppliers can be long, but the size/scale may not be large if the replacement company offers the same components. The scope/complexity would be large if you’re dealing with establishing exports from a new country, particularly if there are tariffs to consider. Result: Strong need for modeling software.
4. Network Projections: Many companies have five-year plans established that lay out when and where new DCs will happen according to growth projections. This would mean a comfortable time horizon and high expectation but size/scale and scope/complexity could be significant, particularly if the mix of inventory changes or if the facilities will be located in other countries. If adding a DC is the result of a merger or acquisition, that could affect the variables as well. Result: Strong need for modeling software.
Time Will Tell
When considering time horizons for supply chain/logistics planning purposes, the range of options is generally measured as shown below:
Short-term: days to weeks, operational planning
Medium-term: weeks to months, tactical planning
Long-term: months to years, strategic planning
While critical decision-making can often be part of the short-term planning process, the tools and capabilities used to support short-term decision-making are generally more operational or transactional in nature. These often aren’t designed to support more comprehensive scenario planning. They may include decisions such as sourcing a specific purchase order, inbound appointment scheduling, or delivery route planning. And although these decisions may be considered important to many, they generally occur within a shorter time horizon and narrower planning domain.
With regards to tactical planning, a common use case within the world of retail and consumer goods companies relates to the issue of seasonality. Developing an approach to satisfy substantial increases in forecasted sales over multiple weeks/months requires a comprehensive scenario planning capability to address demand and supply variability, sourcing options, and alternate fulfillment strategies.
4SIGHT Can Help
If you decide to evaluate and implement supply chain modeling technology, we’re ready to help you at any stage of your project. Our supply chain experts are experienced in identifying the aspects of your supply chain which need to be incorporated in your what-if planning. This will enable you to understand how raw materials, suppliers, DCs, demand changes, the transportation network, and all your costs and constraints can be factored into the project.
Learn more about transportation modeling and how to approach complex what-if scenarios. You can also delve into supply chain optimization considerations and the role of technology in our blog titled “The Importance of a Demand-Driven Value Network.”
Contact us to learn more.