“What If” Supply Chain Planning for an Uncertain Future

Stephen DeAngelis

July 15, 2020

We know the pandemic will eventually end and the economy recover. What we don’t know is exactly how the economy will emerge or what the future will look like. This conundrum leaves decision-makers in a quandary. How do plan for an uncertain future? “The coronavirus has tossed supply chains around the world into chaos,” writes Jen A. Miller.[1] To bolster her case, she cites the Institute for Supply Management, which reports “nearly 75% of U.S. firms are reporting disruption and supply chain shocks.” She also cites, Eric Wilson (@ewilson1776), director of thought leadership at the Institute of Business Forecasting & Planning, who reports, “[Forty-four percent of companies] right now do not have a plan for this.” Fortunately, Miller concludes, “This doesn’t mean all is lost when it comes to planning. Transparency and data can help companies withstand turmoil caused by the coronavirus.” She stresses planning rather than forecasting because, as Peter Bolstorff, executive vice president of the Association for Supply Chain Management, told her, “There’s no way to forecast this.” The companies best positioned to succeed in the months ahead, Bolstorff said, “used artificial intelligence simulations to see how this could look if things go badly.”

Planning in time of uncertainty

I hope you noticed that Bolstorff referred to “simulations” rather than a single simulation. When the future is uncertain, companies need to plan for an array of eventualities. Howard Roddie (@HowardRoddie), a Professional Services consultant at QAD DynaSys, observes, “We can’t plan unless we know our goals and have a strategy to reach them. Disruptions are inevitable, but we need to identify them, then plan to deal with them.”[2] Good planners don’t just extrapolate the present into the future. They engage themselves in alternative futures exercises. They identify the assumptions upon which decisions are being made and question each one of them for their validity. And they ask a lot of “what if” questions. Back in January, Roddie presciently wrote, “Who knows what will happen in the tactical horizon — 80 days from now? If we don’t plan ‘what if?’ scenarios we will fail. Planning is all about seizing our opportunities whilst minimizing risk. The only way to survive is to succeed.”

I’m a big believer in “what if” scenario planning. As President and CEO of a cognitive computing firm, I’ve witnessed first-hand the value of running “what if” simulations during the pandemic to help plan for the future. Roddie notes, “Tactical planning works best when using a low number of scenarios, but with many factors. If we can do the extremes, our plans will most likely survive anything in between.” Even before the pandemic struck, experts were touting the value of “what if” planning. A decade ago Boston Consulting Group (BCG) analysts Luc de Brabandere and Alan Iny asserted, “The ‘what if?’ school of thinking clearly has a place in the business world.”[3]

De Brabandere and Iny noted that the benefits of scenario analysis include “enhanced strategic creativity, greater preparedness, and superior risk awareness.” Analysts from River Logic assert scenario planning is a powerful tool that needs to be used more. “In order to keep their company ahead of the competition and weather any economic storms,” they write, “executives must constantly ask themselves hypothetical questions. They might ask, ‘What should we do if the price of energy begins to skyrocket?’; ‘What should we do if legislation decides to pass a regulation that will make production more difficult?’; or ‘What if we run a promotional program?’”[4] They add, “For the first time in history, prescribing the best paths forward based on data-backed analytics — what we call prescriptive analytics — is within reach. A process known as scenario analysis allows organizations to determine outcomes from various inputs. For example, an organization can consider a range of economic, geopolitical, and technological issues, and create plans on how they might evolve into the future.” This is exactly what the Enterra Global Insights and Optimization System™ was created to do.

Cognitive technologies and supply chain planning

Jonathan Wright (@jjwright101), Global Head, Cognitive Process Re-engineering at IBM, writes, “No one can predict the future. But we can be much smarter and strengthen the global supply chain by leveraging the power of AI and other emerging technologies that can help companies maintain business continuity amid disruption and uncertainty.”[5] He continues, “Using AI, organizations can turn unstructured real-time data into insights that help predict disruptions and vulnerabilities, providing near-term visibility.” Just as importantly, cognitive technologies can help predict demand and promotion opportunities, even during crises like the pandemic. Wright concludes, “With AI, supply chain professionals can optimize orders based on factors like inventory reallocation and prioritization. This allows teams to react faster and shave off hundreds of person hours previously spent collecting data so that they can focus on that higher value work.”

Lora Cecere (@lcecere), founder of Supply Chain Insights, observes, “Organizations tend to be political — not data-driven — and continually question the validity of the answers coming from the technologies. In many cases, the organization is right to question the answer. (Ironic since the company spent millions of dollars on the technology.)”[6] Why does Cecere assert companies are right when they question insights provided by technology? She explains, “While many companies deployed the technology, the optimizers are not tested to ensure that the engines are yielding better answers. As a result, the questions become circular.” At Enterra Solutions®, we rigorously test recommendations against actual outcomes to ensure insights are valid. Without such testing, planners cannot foster the trust they need to implement valuable insights. Cecere concludes, “Optimization engines are the backbone of supply chain planning. The engines require testing, the availability of clean data (planning master data is an ongoing issue) and goal clarity. For success, an optimization engine must have a clear objective function.” I agree. Often, departmental planning functions are disconnected from one another and may have conflicting goals. In order to deconflict goals, companies need to create an objective function that balances these goals. Developing an objective function ensures corporate alignment in order to optimize operations and maximize profits. An objective function scores an outcome’s utility so the best outcome can be chosen.

Concluding thoughts

“These are trying times for supply chain planners,” writes Gloria Quintanilla (@chirppoint), a senior marketing specialist at AIMMS. “The effects of COVID-19 are unlike anything we have seen in recent decades.”[7] She reports a survey completed by AIMMS found “about half of professionals believe their planning process is effective enough.” She concludes, “These organizations may be better prepared to cope with today’s disruption and growing uncertainty. For the other half, weathering the storm of the coronavirus pandemic and preparing for the next disruption may not be as easy.” Cognitive technology can help improve planning in a number of ways — not the least of which is the ability to run “what if” scenarios. Cecere notes, “Planning is about the prevention of ‘surprise’ and aligning the organization to improve outcomes.” What-if scenarios can help prevent surprise in the difficult planning process.

Footnotes
[1] Jen A. Miller, “Planning should replace forecasting as coronavirus uncertainty clouds outlook,” Supply Chain Dive, 31 March 2020.
[2] Howard Roddie, “What is Scenario ‘What if?’ Planning?” QAD DynaSys Blog, 14 January 2020.
[3] Luc de Brabandere and Alan Iny, “Rethinking Scenarios,” bcg.perspectives>, 12 October 2010.
[4] Staff, “Scenario Analysis: A Powerful Analytics Force,” River Logic, 23 October 2019.
[5] Jonathan Wright, “COVID-19: Future of supply chain planning,” Economic Times CIO, 19 April 2020.
[6] Lora Cecere, “Help Supply Chain Planners Be More Successful In These Uncertain Times,” Supply Chain Shaman, 9 March 2020.
[7] Gloria Quintanilla, “Most Supply Chain Professionals Believe their Planning Process is Only Somewhat Effective,” AIMMS Blog, 21 April 2020.