There are so many reasons to adopt and embrace Integrated Business Planning (IBP). Having all functions and all levels working towards common goals, sharing information, and supporting each other, as well as avoiding stalemates, unknown obstacles, and organization-wide waste. To achieve true IBP, processes must be integrated, KPIs must be consistent with one another, and the lines of communication must be wide open from top to bottom and back again. With these ideas in mind, it is only logical that your supply chain planning tools are just as integrated.
IBP ensures that you are not achieving positive results in one area of your business only to sabotage departments downstream (or upstream). If you allow your product design engineers to design products without input from market research, manufacturing engineers, and plant managers, you can imagine how much-wasted effort is likely to ensue. Similarly, leaving plant managers, who are driven by streamlined manufacturing processes and minimal changeovers, to produce what they want will result in very little product variety and very much missed demand. The bottom line is that it takes input from all reaches of an organization to come up with a strategy to maximize overall success. Even the measure of success is no longer the isolated, single-threaded notion of profit; today, companies are moving toward an integrated, triple bottom line: profits, yes, but also people and planet.
Because running a business means juggling many competing resources and motivations, integrated supply chain planning tools using optimization methods are critical to balancing those trade-offs. Not only do these tools provide system-wide solutions for your current state, but they provide the additional, invaluable ability to examine changes safely and quickly – proactively and reactively. This kind of “what-if” analysis allows planners to see the impact across the entire organization of a myriad of changes without committing to implementation.
What-if scenarios can be categorized in three ways:
Imminent Disruptions: Most plans are derived from the assumption of stable conditions. This means that the business today will be similar to business tomorrow and that there are no game-changing events. This is a reasonable assumption in the near term. However, even within these so-called stable conditions, the underlying parameters of a plan could easily change. For example, a big government contract could go to a customer on the east coast, but it could also go to a customer on the west coast, thereby changing the supply plan. Or a salesperson could come into their office with the possibility of a big spot order in the next month. Or a crucial bottleneck asset might break down, requiring a lengthy shut down for maintenance. Another example is inventory build for a strike contingency. A good planner will prepare for these possible scenarios by evaluating them with key people (for percent likelihood) and running what-if calculations within the planning tool they use. These quantified impacts can then be presented to management for decision-making.
Challenges to the Status-quo: The second type of scenario deals with challenging the status quo. For example, a firm might have always made a product at a certain facility. Other facilities might be able to make this product but require certification from the customer or could require engineering changes. Just because these facilities have never made this product, it does not mean that they cannot or should not make it. A good planner would sometimes evaluate these as what-ifs to get their head around the possible impact of such a change. The scenarios described above are useful to the extent that they help quantify the impact of a change in tangible uncertainty. The value of the changes will vary, depending on the specific situation, but either way, the exercise provides insight that will help management make better decisions.
Black Swan Events: A fundamentally different type of what-if analysis has the potential of being a game-changer. Here we evaluate conditions that cannot be described as business as usual. The causes for such change could be environmental, natural, regulatory, or geopolitical. While most good planners run scenarios of the type described in the two sections above, a great planner would also consider doing what-ifs on these black swan events. Business decision-makers rely heavily on this type of analysis for their strategic decisions. As such, they can be a good source of ideas on where these types of scenarios should be evaluated. This big-picture type of scenario can impact both the demand and the supply side of the equation. For example, if a hurricane hits the eastern seaboard of the US, some supply is interrupted, but so is demand. This is different from the first two types of scenarios described earlier in the paper as they deal with only demand or supply. It is critical for the planner to understand all the potential impacts for the scenarios such as raw material availability, operational status, and/or customer impact.
In summary, taking the time to perform what-if analyses on a regular basis with real and speculative events, gives planners tremendous insight into what parts of the supply chain are most sensitive to changes. As a result, as things inevitably do come up, planners will have a sense of what is a big deal and what is not. And when a crisis happens, they’ll feel confident in their ability to respond in a thoughtful and appropriate manner, squelching the urge to panic.
In my upcoming webinar, How to Use What-if Scenarios to Create a Dynamic IBP Paradigm, I will discuss different techniques to use in enhancing your what-if scenarios, with a live demonstration on how to use Arkieva to perform what-if analysis. Hope to see you there!