In an effort to proactively manage risk, many companies have developed supply-continuity initiatives and plans. However, in doing so, few have factored in demand risk while doing so. The opposite is also true. One very common approach to supply risk mitigation is to establish (or increase) inventory and/or capacity buffers. Doing so comes at a significant cost in tied up capital and creates another risk - that of excess and obsolescence.

Failing to factor demand into these plans further complicates the problem. As everyone knows, demand is not static. Developing a supply-continuity plan that assumes demand is static (the de-facto reality when demand is ignored) is asking for trouble. The reality is that demand is constantly changing.

Today’s systems typically don’t help alleviate this problem. Most planning systems were designed around optimizing a specific area - demand or supply, for example. What’s missing are tools to support an integrated view of current demand and supply simultaneously. And, when it comes to simulating various scenarios, you need the ability to simultaneously simulate variations in both demand and supply to understand the inter-relationships between them and what impact changing multiple variables at once would have.

In the face of constant change, companies need to empower people with the right information and tools to respond quickly and accurately. One key aspect of that is leveraging scenario analysis or simulation tools, but to be effective, these tools need to be able to actually simultaneously accommodate the realities of ever-present changes in all key variables.

This entry was posted on Wednesday, August 22nd, 2007 at 9:51 am and is filed under Best practices, Risk management. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.