The Corona crisis disrupted the worlds’ supply chains and left numerous organizations looking for strategies to cope with the situation. It has shown that crises like these do not follow the monthly S&OP cycle, particularly in an environment with vastly increased volatility and uncertainty due to a global pandemic. New information becomes available every minute. In this rapidly changing environment, improving your reaction speed and reducing decision-latency is of major importance. An effective method to improve decision making is using the newly available data to create different scenarios. This allows you to test response strategies to these possible scenarios and gain competitive advantage. However, as supply chains can be highly complex, this is often easier said than done.
Dealing with uncertainties in the supply chain
Supply chains are most often long and complex but sensing and predicting demand patterns and uncertainties downstream is possible. Upstream, however, lead times are higher, lot sizes are larger, and availability and frequency of data is much lower. You need different strategies to deal with uncertainties in this part of the supply chain. Although scenario analysis has proven to be an effective method for dealing with uncertainty in the supply chain, as of today it is not a widely spread capability.
One of the key reasons for the lack of this capability within organizations is the fact that most APS systems are not responsive enough to support these “what if” analyses. They generally lack the capabilities needed for easy modeling of the supply chain and different scenarios. They also miss the necessary visualization- and comparison options needed to do a quick analysis to gain new insights within seconds. By introducing systems that allow the user to quickly formulate scenarios, evaluate them and use visualizations for easy interpretation, you can easily incorporate scenario planning into your organization and vastly reduce decision latency.
How pro-S&OP can help you deal with uncertainty
In pro-S&OP, which stands for proactive sales & operations planning, scenarios and risks can be evaluated through the use of a digital twin of your supply chain. First, it is important to gain a thorough understanding of your supply chain. Gather insights in the different risk factors that can impact the supply chain. By creating a digital twin of the supply chain, you can analyze and quantify the potential impact of different sources of risk and the effectiveness of the response strategies. This type of risk analysis provides organizations with quick access to easily interpretable visualizations of the possible impact of risk factors or opportunities. An example is the impact of transport routes that are released after having been closed due to the pandemic. As these scenarios can be easily adjusted to new data, and thus new sources of risk, pro-S&OP will allow organizations to detect early warnings, reduce their response times and improve their decision-making process in volatile situations.
The Corona crisis has shown us that major supply chain disruptions can be caused by unforeseen events we cannot control. Having the capability to perform scenario analyses can be of significant importance in a situation of crisis that we are currently in. Proactive sales & operations planning will enable your organization to quickly create meaningful insights in the risk your organization is facing, while keeping it simple and thus preventing analysis. This will enable you to better evaluate the rigidity of response strategies, vastly decrease your response times and make better motivated decisions, which is of major importance in a highly volatile environment.
Learn more about scenario based planning or check out our content on S&OP/IBP!