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Planning for Uncertainty in the Supply Chain

May 10, 2022

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The late President and five-star general Dwight D. Eisenhower once stated, “In preparing for battle I have always found that plans are useless, but planning is indispensable.” Dave Bergeson, Vice President of client relations at the Association Management Center, explains why Eisenhower felt as he did. He writes, “The German field marshal, known as Moltke the Elder, believed in developing a series of options for battle instead of a single plan, saying ‘No plan of operations extends with certainty beyond the first encounter with the enemy’s main strength.’ Today, ‘no plan survives contact with the enemy’ is the popular reconfiguration of this concept.”[1] In other words, despite our best efforts to predict how the future will unfold, things constantly change. It’s as true for supply chain planning as it is for battle planning. Joe Bellini, Executive Vice President of Product Management & Marketing at One Network, observes, “In supply chain management, we do our best to develop executable plans. But, as we all know, the real world delivers enough variation in demand, supply, and lead times that execution will typically differ from the plan.”[2]

 

The Reality of a VUCA World

 

According to innovation expert Sunnie Giles (@sunnie_giles), “VUCA is a concept that originated with students at the U.S. Army War College to describe the volatility, uncertainty, complexity, and ambiguity of the world after the Cold War.”[3] It didn’t take long for supply chain professionals to adopt the acronym as their own. Giles notes, “Unpredictable events happening outside an organization can be negative or positive, but either present greater VUCA, which makes it more difficult for leaders to make decisions.” We’re all pretty familiar with the kinds of volatility current afoot around the globe. Lora Cecere (@lcecere), Founder of Supply Chain Insights, writes:

 

The disruption in Ukraine adds a new layer of variability and complexity to an already complicated world with many levels of disruption. COVID, inflation, climate change, and the Ukraine war are each a layer of complexity with many compounding effects. … This month marks the beginning of the third year of global supply chain leaders battling the effects of the COVID pandemic. The Normalcy Index calculated weekly by the Economist projects that North America is 67% of the way back to normalcy from COVID, but globally, it is lower at 50% with many flare-ups. … Inflation is at a level not seen for fifty years. … Shortages and price hikes will abound. … Then there are the overarching issues of climate change. One of the most significant impacts is in the semiconductor industry. Taiwan manufacturers 60% of global semiconductors. Semiconductor manufacturing consumes 10% of the island’s water supply. Currently, there are ongoing issues from both a drought and energy resilience. Production is uncertain with few contingencies. In the United States, fire activity increased in February and March 2022 — fire is not just a California issue. Year-to-date, the number of United States fires and acres burned is nearly double the 10-year average, with more than 90% of the acres burned coming from the Southern states. Most of the West, Plains, and Texas remain in drought, with abnormally dry conditions across Florida and in portions of the Carolinas. … Climate change issues will grow to compound the issues.”[4]

 

All of these VUCA conditions are playing havoc on supply chain planning. Bellini explains, “Plans are created so that they can be executed with real world variation, by structuring them with high levels of planned inventories, premium freight, expediting, and lead times, as well as staffing their execution with armies of planners, schedulers, and dispatchers. However, this method is too expensive, leads to poor customer service levels, and just isn’t working anymore in today’s market.” Cecere is just as blunt in her assessment. She writes, “By definition, planning solutions are not adaptive. In most companies, planning solutions were implemented as a technology project versus a new way of doing business. As a result, few companies are aligned on what makes a good plan, and even fewer test to see if the solution output drives better outcomes.”

 

Improving Supply Chain Planning

 

Juha Martikainen, a Principal over Integrated Supply and Demand Planning at Chainalytics, notes, “Relying on historical data in demand forecasting is doomed to fail. Most companies that engage in demand planning and forecasting rely on historical data as a base for their statistical forecasts. But that is no longer possible because the pandemic has turned everything upside down. The values of the recent past no longer have any relevance.”[5] To overcome this conundrum, Cecere recommends accepting the fact that “there is no new normal.” She adds, “Solutions need to focus on ‘what-if modeling’ and scenario simulation based on variability factors. Discrete event simulation is an underused technique that I am excited to see included in some of the newer digital twin solutions.” Martikainen agrees. He observes, “To tackle the lack of accurate statistical baseline forecasting is the use of scenarios. Many companies are now turning to the ‘what-if’ approach. You try to model the uncertainties. What happens if the demand for a certain product completely disappears? What happens if a certain raw material is not available? How should you react to that?”

 

At Enterra Solutions®, we developed the Enterra Global Insights and Decision Superiority System™ to help companies understand the numerous variables that can affect their planning. The System uses the latest data and runs numerous scenarios to help companies make better decisions. Cecere observes, “While many advocate the need to plan more frequently using conventional approaches, I argue this is not enough. This only makes organizations more reactive. I believe that companies need to build and test new architectures that are designed to use market data.” She suggests six steps companies can take to adapt their planning systems to a VUCA world. Those steps are:

 

• Actively Design Flows Market-to-Market. Cecere reports, “Only 9% of companies actively design their supply networks using technologies that can model the market variability levels today. As a result, most companies lack a feasible plan. Unfortunately, over 93% of companies use Excel Spreadsheets to develop their plans. We will never be successful modeling variability in an Excel spreadsheet.”

 

• Build a Unified Data Model. Cecere explains, “Organizations have multiple planning systems —sometimes different in regions and divisions — across teams. A unified data model allows the transference of a plan across different models, groups, and systems. The concept is that a unified data model — either graph, ontological representation, or a NoSQL approach allows for a cloud-based representation of trade-offs for modeling.”

 

• Agree on Orchestration Levers. “To manage variability across the organization requires clarity on what makes a good plan and the alignment on constraints,” Cecere writes. “Then to balance and align, companies need to control the orchestration levers while recognizing the trade-offs of the Unified Data Model.”

 

• Test and Learn on Market Data. Cecere explains, “The relative importance of market data changes over time. As a result, companies need to build models for both the channel and supply that can ingest multiple signals and rationalize the model based on the market parameters.”

 

• Build a Planning Master Data Layer. Cecere asserts, “Market data needs to drive the models. As a result, there is a need for a planning master data layer to constantly update model parameters like cost, lead times, and conversion rates.”

 

• Align to a Balanced Scorecard. Cecere concludes, “Companies need to be aligned to a common set of metrics in a balanced scorecard to mitigate risk. Functional metrics introduce risk and throw the supply chain out of balance.”

 

Concluding Thoughts

 

Bob Debicki, Senior Director of CPG & Retail at Anaplan, and Amit Paul, Senior Principal Consultant at ITC Infotech India Ltd, insist, “The only way to beat today’s volatility and unpredictability are to bring speed and agility through connected, real-time systems. … By converging data organizations can build the three pillars of intelligent planning central to resilience: deep visibility into the supply chain that helps develop an interactive view of risk, the ability to simulate scenarios, and the ability to respond through connected planning. … A complete shift in perspective is necessary, from history-based forecasting to lead indicator-based decision-making through a connected and collaborative system. The future of agile supply chain systems has been cast. The faster organizations embrace intelligent planning, the more they will be able to face extreme disruptions with ease.”[6] I agree with Cecere that variability will be the only constant in our future. As a result, planning systems must adapt to deal with that uncertainty.

 

Footnotes
[1] Dave Bergeson, “Strategic Planning: Moltke the Elder, Dwight Eisenhower, Winston Churchill, and Just a Little Mike Tyson,” AMC Thought Leadership.
[2] Joe Bellini, “Supply Chain Planning for Uncertain Times,” The Network Effect, 25 March 2022.
[3] Sunnie Giles, “How VUCA Is Reshaping The Business Environment, And What It Means For Innovation,” Forbes, 9 May 2018.
[4] Lora Cecere, “When Variability Is Our Only Constant,” Supply Chain Shaman, 21 March 2022.
[5] Supply Chain Magazine, “Prepare for Unforeseeable Uncertainties With Supply Chain Planning,” Chainalytics Blog, 4 August 2021.
[6] Bob Debicki and Amit Paul, “Responding to Supply Chain Uncertainty with Intelligent Planning,” Data Science Central, 29 August 2021.

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