Welcome to supply chain planning 2023: Lights, camera, action!
⏱️ 5-minute read
Entering the year 2023, the global economy continues to stumble in the backdrop of the energy crisis among others. The current global energy crisis started post the COVID-19 pandemic in 2021 with a rebound in consumer demand. The geopolitical tension between Russia and Ukraine accelerated it with a global impact on shortages and increased prices in oil, gas, and electricity. The pain of the energy crisis is felt across all industries. The first wave especially hits energy-intensive businesses such as aviation, shipping, chemical, fertilizer, and aluminum industries. In the second wave, the soaring cost of energy is passed onto industries such as food and beverage, rubber and plastic. It’s a matter of time before end consumers feel the impact, ranging from the massive shutdown of France’s national treasure, the bakers, to common medicine shortages such as antibiotics and painkillers across Europe.
As a response to cushion businesses against the shock, we believe there’s a lot that can be done.
Energy crisis as an opportunity
On one hand, the energy crisis puts the financial performance of businesses to the test, particularly for industries that rely heavily on energy. However, on a longer-term horizon, businesses can also see it as an opportunity to transform to more independent and sustainable operations. Rethinking your supply chains and the ability to deploy the transformation is more relevant than ever, especially when it comes to improving sustainability. Accelerate the transformation!
Decarbonization and renewable energy
The shift towards decarbonization and renewable energy is a key driver of this change. In Germany, for example, the energy transition has been a prominent topic since the Fukushima nuclear disaster in 2011 and the subsequent decision to phase out nuclear power plants by 2022 has been on the agenda. Initially, this decision was driven by concerns about public safety and environmental risks. Later on, the shift was further accelerated by the geopolitical crisis since early 2021.
Sources have stated that the current energy crisis is the “first truly global energy crisis” that differs from any others before in its “larger, longer and broader scale”.
Instead of firefighting in times of a crisis that won’t end anytime soon, maybe businesses need to ask themselves the right question upon planning “How to act after we get hit?” As that famous saying goes,
“Everyone has a plan until they get punched in the face.” ― Mike Tyson.
Too often, businesses have those beautiful and flawless plans without foreseeing bumps along the way. In times of volatility and complexity, it requires a strategic and long-term approach to keep your businesses resilient and sustainable.
As a leading company in the field of planning, we do not claim to be energy experts. Nonetheless, much can be done in supply chain planning to soften or even mitigate the current crisis and get ready for the future. Below we are highlighting two options to get you years ahead:
Supply chain network design
The energy crisis is putting pressure on supply, regarding both availability and the cost of goods. Material and energy availability is not a given anymore with transportation and distribution costs massively impacting financial performance. Global supply chains, which often single source from other continents, have shown their vulnerability.
Time-to-recover (TTR) and time-to-survive (TTS) analysis can help you determine weak links in your supply chain that cause large business impact on operational level. On a tactical level, continuous evaluation of sourcing and inventory strategies using scenario-based planning are measurements to consider as well. From a strategic perspective, re-assess whether your supply chain is fit-for-purpose.
Developing a resilient and sustainable supply chain is the obvious way to continued business success. But how to make such a future-proof supply chain reality? Our approach is summarized in 4 steps:
The above-mentioned 4-step approach towards future capability takes no longer than 4 months, after which the implementation of the future-proof supply chain can start.
In the shorter term, thinking in scenarios will guide to better decision-making, hence utilizing the available resources and optimizing the usage of capacity.
Integrated business planning (IBP)
Integrated business planning (IBP) is a process that leverages scenario modelling as its backbone. Despite many companies having implemented sales and operations planning (S&OP), only a few have fully matured into an IBP process.
In today’s uncertain business environment, it’s imperative to have contingency plans in place for different potential outcomes. Balancing supply and demand is a significant challenge for many companies, as pressure on financial performance and unreliable supply chains put a strain on their operations.
To overcome these challenges and take your S&OP process to the next level, you should consider three key aspects of IBP:
- Monetizing different scenarios to determine their potential impact on your business
- Integrating the scenarios into your IBP process for a comprehensive view
- Improving transparency and reducing latency using proper tools & data
Transitioning to IBP is a journey that requires support from all levels of your organization and perseverance. Driving your business in a truly integrated manner, will lead to improved decision-making and business performance.
Comprehending the impact of the current energy crisis on supply chain design and taking proactive measures with integrated business planning to mitigate risks and seize opportunities can lead not only to survival, but allows your business to thrive in the transition towards a more sustainable future.
Want to learn more about supply chain network design? Contact our expert Joost van Doren or sign up for our free webinar on March 30! Explore our website or reach out to our expert Pascal van den Boogaard for more insights regarding IBP!
Remember to keep an eye on this page where we will address further supply chain challenges you will be facing this year.