How Supply Chains can plan for uncertainty
7 Apr 2017
The unexpected happened last year when 52 percent of the UK voted to leave the European Union, a surprise that didn’t just shake the nation but caused a worldwide response. Global reaction poured in and it was clear the results had an instant knock on effect, with stocks falling in Asia and Europe. With major events such as this likely to happen time and time again, supply chains need to expect the unexpected. The question is, how?
There is never going to be a time when we can accurately predict what is going to happen. Even when experts hint at say a recession or an environmental disaster, it seems far easier to ignore warning signs or take the view that ‘our horizon is now, and we’ll worry about tomorrow when it comes’. Unfortunately, the unexpected can happen as we have witnessed, catching supply chains off guard. This is when panic mode sets in.
Prepare for the unexpected To prepare for the unexpected it is vital to understand where the global supply chain in which you operate is most susceptible to uncertainty and then to model potential outcomes associated with various events. Whilst many people did not see Brexit becoming a reality the Brexit vote was clearly signposted when the date of the referendum was announced on Feb 20th 2016, four months in advance of the actual vote. Modelling the impact of the decision to leave the EU would have informed organizations of the risks (or opportunities) involved, which they could have then put plans in place to mitigate (or take advantage of).
Location, location, location For countries like New Zealand or Australia, the locations are a challenge, due to being so geographically isolated from the rest of the developed world. The time it takes to get products to and from each country is a significant issue. These long shipment times expose the supply chain to demand and supply variability. Mapping or modelling the extended supply chain and the decision points in the planning horizon associated with these lead times, can help a management team focus on how far ahead their organisation needs to be looking for events that may cause disruption or bring opportunity.
It’s good to talk Communication and cooperation is also pivotal to avoiding supply chain issues. Organizations need to form real partnerships back and forward in their supply chain. This may seem tricky, as a true visibility of the extended supply chain has not always been a given, especially when different nodes of the supply chain are based in different locations. However, forming relationships across the line will help create trust and better information flow which contribute to the greater insight needed to identify potential disruptive and opportunistic events.
The solution The right processes have to be in place to enable this visibility. Integrated Business Planning (advanced S&OP), a business management process for running the entire organisation, not only provides a 24-36 month rolling horizon, it directly links the corporate strategy and financial plans, and exerts control over the extended supply chain. The process can also be used to identify gaps in business performance far enough ahead for your business to re-optimise in light of changing circumstances, using scenario modelling to deliver the best results.
No matter how efficient your organization is, there will always be unexpected events that without co-operation across the supply chain, will negatively impact your business. Understanding where your supply chain is most susceptible to change, communicating effectively and forming strategic relationships throughout the extended supply chain is essential in identifying areas of risk, opportunity and enabling your organization to plan for these.
Partner, Oliver Wight International
Stuart is based in Sydney, Australia but has spent 20 years working in key change agent roles in major manufacturing organisations around the world. Whilst gaining deep knowledge in a number of industries including metals and FMCG he has developed extensive experience in improving and linking processes across organisations and supply chains to enable the successful deployment of strategy.