Whether supply chain leaders are trying to find the optimal supplier network, where to find inventory, or how new product launches will affect customer demand patterns, they need more than a simple review of historical data. “What if …?” To create components in various key performance indicators (KPIs), plans and data input. A structured approach to asking is required.
To build the ability to model and analyze different outcomes, organizations can turn to situation planning. Scenario planning and analysis is the process of examining and evaluating potential future events or situations and predicting various feasible outcomes or possible outcomes. Today’s modeling and situation analysis combines artificial intelligence, analytics and data visualization, while leveraging cognitive computing capabilities to process data into output.
In addition to reviewing the role of situation planning in the supply chain, this article includes cross-industry data to show the tangible benefits that this practice can help organizations achieve.
How supply chain organizations use landscape modeling and analysis
Well done, situation modeling and analysis help supply chain planners to assess assumptions, identify risks, and evaluate options in terms of factors such as cost drivers, supplier relationships, market disruptions, and operational difficulties. Simply put, monitoring different situations helps supply chain planners make more informed decisions. Some organizations have used landscape planning, modeling, and analysis for decades, but supply chain disruptions in 2020 and beyond have made it more important than ever to imagine and plan for different potential futures.
To integrate situation modeling and analysis in supply chain planning, the supply chain functions should be as follows:
- Take advantage of the organization’s available analytical skills to establish and advise supply chain planning simulations.
- Choose a scalable simulation tool that meets the needs of the supply chain.
- Install step-by-step data selection and simulation models for standardized use.
- Exercise informed judgment and common sense when there is serious uncertainty.
- Track the indicators that a particular situation is likely to arise.
- Apply consistent standards for landscape output factoring when making decisions.
The ultimate objectives of these efforts are to mimic the impact of decisions before they are established, to anticipate operational challenges (e.g. capacity limits), to develop new strategies to address impacts in advance, and to evaluate options for which historical data are not available. Technology doesn’t work at all – man is playing an important role in judging situation analysis in its entire context.
Planning and analysis of the situation leads to better results for the supply chain
APQC research has found that most organizations are trying to integrate some of the situation modeling and analysis into planning activities, but relatively few (12 percent) have achieved this to a very large extent (Figure 1). More than 40 percent of surveyed organizations have little or no capacity at all.
Scenario planning capabilities make a big difference in the performance of the main supply chain process. For example, when customers regularly expect lightning-fast ordering and shipping, organizations with shorter customer order cycle times will have a competitive advantage over those with slower ones. APQC has found that organizations that can model and analyze significant or very large amounts of conditions have shorter customer order cycle times faster than organizations that model and analyze conditions to a lesser or greater extent (five days versus 11 days).
Scenario modeling and analysis helps institutes to divert a list of highly manufactured goods that use scinorio modeling to a greater or lesser extent (9.6 vs. 8.2 turns). While 2020 has taught organizations the risk of having too little inventory, sitting on the shelf and having too much inventory has its own dangers. Organizations that use a lot of situation modeling and analysis not only move more inventory, but also get paid faster through faster cash-to-cash cycle times (49 days versus 60 days for those who only use situation modeling and analysis).
Scenario modeling and analysis provide in-depth insights into the business
Although no one can predict the future accurately, organizations get many benefits from planning, preparation, and relationship building when the situation is modeled and analyzed well. For example, one of the advantages of simulating multiple situations and optimizing the model is that it allows supply chain leaders to evaluate tradeoffs in factors such as cost, fulfillment performance, and service. Organizations that emulate and optimize models to evaluate these tradeoffs critically or on a large scale outperform those that do not, including:
- Fast customer order cycle times (11 days vs. 6),
- Turns out the list of high-end items (9.6 vs. 7.7), and
- Short cash-to-cash cycle times (53.5 days vs. 63 days).
For effective situation modeling and analysis the organization needs to understand its suppliers, under what circumstances the organization may need alternative suppliers and who those alternative suppliers may be. It is also important to understand how fast alternative suppliers can get and what their potential is. This does not mean that the organization must have an alternative space for each supplier. With limited time and resources, leading organizations focus on finding alternative suppliers for content that contributes more sales contributions, as well as those that are more likely to be hampered (whether they are patented or available from limited resources). By identifying the most risky content, purchasing teams can focus a large portion of their resources on developing strong business continuity plans for these suppliers.
In a business environment marked by frequent disruptions, organizations that have plans, knowledge, and processes to migrate more quickly to alternative plans are more likely to gain significant competitive advantage. Organizations that develop the ability to model and analyze different situations – and test those situations through “war games” – are more likely to have these plans Before Disruptions affect the business, meaning they will lose more or less time while other people struggle to recover. No matter what the future holds, these organizations will continue to serve customers faster, get faster cash flow, and build relationships that pay off in the event of a disruption.