As you can probably guess, this is the last step in reaching Stage Five for your Supply Chain Planning System of Record (SCP SOR).
Why can’t we predict everything?
Predictive analytics are one way to forward think. Quantitative analysis has really become popular and there is no lack of data. Data scientists are the new generation of supply chain planners. However, the assumptions and variables can be wrong… leaving you with a lot of data, but zero visibility. How do you manage the risk?
Supply chain is a risky business!
Risk management is being seen as a strategic imperative in supply chain. Events like natural disasters, world economic issues, regulatory changes, demand volatility all wreak havoc on your supply chain. With shorter lead-times and fierce competition, a missed delivery can result in losing customers and missing financial projections. A generic pharmaceutical company I worked with told us that when they miss a delivery to Walmart for a SKU they can loose the sales for the entire product line.
On the other hand, I have worked with a company that within a few hours after learning about the Japan earthquake and tsunami of 2011, were able to determine the impact of supplier late deliveries and very quickly find alternate sources of supply. How was this done?
They already had a risk management strategy in place using what if scenarios. When they modeled the impact of the tsunami, they created multiple versions of the data with different variables and assumptions. The scenarios were compared and quickly the best course of action was agreed upon. A recent Forbes article said ‘the more paths travelled the greater the likelihood of coming up with the best answer’. That is really what risk management is about. In a study completed by Accenture, they found that more than 75% of the 1,000 plus executives they interviewed consider operations risk management to be very important in addressing supply chain risk issues. They also learned that various industries have their own approach. The levers that they value for trade off decisions were different.
How does risk management relate to a SCP SOR?
What if analysis, scenarios, simulations, modeling, business tradeoffs, risk analysis… If you haven’t heard these terms then it is time to start becoming a forward thinker!
Gartner speaks of the ability for your SCP SOR to run multiple what-ifs on the planning model to assess alternative trade-offs at different levels of granularity and different time horizons.
The pressures companies face today have made this a mission critical requirement. At my former company we were performing what if analysis, dropping in large forecasts for hundreds of products into a scenario and after a few seconds, analyzing the impact on our supply plan, our new purchase requirements netted against our orders, our capacity, our inventory levels and of course I was always asked ”What is the increment sales $?” We answered that question also. We were literally able to change any record in a virtual copy of the data and have the system calculate the impact within seconds. No one, not your customer or your CEO is willing to wait hours for an answer, nor should they. There are SCP SOR’s that do this very well and not all are created equal.
Forward thinking in sales and operations planning and other processes
Scenarios are of value with any supply chain process such as inventory planning, supply management, demand planning, order fulfillment, or capacity planning. What surprises me most is the lack of forward thinking with sales and operations planning. Many organizations I have met with still use business intelligence or data warehouses to gather data for sales and operations planning. The S&OP meeting is a review of PowerPoint slides telling everyone what they just did and NOT what they are going to do.
The most strategic use of scenarios is to support the process of sales and operations planning. Evaluating trade off decisions and selecting the right course of action in a collaborative discussion with Sales, Marketing, Finance and Operations is a guarantee for success.
There is never an end in supply chain. There will always be another five steps to achieve. Thanks for reading this practitioners view focused on The Right Talent — SCP SOR Building Blocks — Connecting the Dots — Collaborative Management — and Forward Thinking.
Looking for more information about Supply Chain Planning System of Record? Check out the rest of the series!