In the previous blog article we discussed dynamic scenario planning driven by disruption and digitization and where do supply chain scenarios come from. Scenarios must fall into step with the existing planning process and are subject to the same checks and approvals as a baseline plan. A scenario is a true parallel plan that exists separate from and concurrent with the baseline.
The lifecycle of a scenario has four stages:
- The initiation phase that focuses on data collection and validation
- The planning phase determines the event impact and a preferred course of action
- The scenario analysis and comparison phase
In practice, supply chain practitioners manage several stages concurrently. During a single planning cycle, the scenario considered the “best” may change several times as new data comes to light. Some scenarios may never be seriously considered due to excessive risk or incomplete data.
This phase builds a parallel plan which usually inherits all values, risks, assumptions, and process status from a baseline plan or another scenario. The biggest challenge in any scenario planning exercise is access to accurate data. This is especially true for unforeseen events where it may take some time to source and validate the appropriate data. Often this process is iterative as updates are received.
This phase updates the demand and supply plans incorporating any new data. This may generate a scenario-specific set of exceptions and required plan approvals. All plans must be subject to the same planning process or workflow. Early scenario management techniques, often based on Business Intelligence technologies, make the mistake of copying Plan-A to Plan-B, changing some values, and performing a Delta. A planner cannot equally compare “Plan-A” to “Plan-B” if only one plan has been subject to an approval and exception management process. Each plan has its own set of assumptions and risks.
The most important role of scenario management is analysis and comparison. Stakeholders must agree on the list of metrics that will be used to compare scenarios. They should also agree on the relative weighting given to each metric. The comparison metrics should be cross-functional including financial KPIs such as profitability and revenue, as well as regular supply chain metrics such as inventory, service level, and resource utilization. Of course, no plans come risk-free, so comparing the risk profiles of each scenario gives a qualitative data influence on each candidate plan. Beauty being in the eye of the beholder, the “best plan” is subjective to the bias of the stakeholders. Therefore the collaborative scenario analysis process must facilitate an auditable record of the decision-making process.
The final step is to “Publish” the result. This establishes the new baseline plan and represents the activities that will be executed, providing of course another compelling event doesn’t take precedence. Scenario analysis is a continuous process.
Minefields and Pitfalls
Scenario analysis is a powerful tool that can help to guide a company through disruption, giving management information it can use to make the best possible decisions for the company. It can, however, consume resources and time.
“Scenarios should be used only when there is, or soon will be, a genuine fork (or forks) in the road ahead.”
Here are several pearls of wisdom from our experts.
- Planners should be clear on the purpose of a scenario. What is the event and do we have access to the corresponding data points?
- A single disruptive event may dictate several courses of corrective action and therefore multiple scenarios.
- Scenario simulation and analysis is highly analytical. It requires competence in data literacy and risk management.
- Collaborative qualitative insight is crucial to determining the scenario risk. Share and invite collaboration on each scenario to harness the collective knowledge of the stakeholders.
- Not every scenario can be validated. Sometimes the data just is not available when you need it. In this case, it is more effective to record a Risk against the current plan rather than execute a scenario. The Risk creates a placeholder for mitigation or a later scenario.
- Scenario planning should be used for all levels of planning including operational decision making. This is different from traditional techniques that focus on strategy and tactical planning.
The frequency, concurrency, and scale of disruption in global supply chains will most likely continue post-pandemic due to natural, geopolitical, economic events. Preparation for the unknown provides at best a contingency and at worst a shock-absorber. In some cases, proper scenario planning negates an existential threat.
Dynamic scenario planning is a prerequisite for supply chain agility.