How supply chain planning benefits from resilient planning
Introduction
In a world of continuous disruption and rising uncertainty, resilience is the answer. In the old days of Demand & Supply planning, multiyear plans were made and revised only occasionally. The original plans stayed intact for the span of the planning horizon without many updates.
There are only a few companies that rely on that type of planning nowadays. The environment in which companies operate has become much more agile, disruptive, and unpredictable. Change is constant, companies need to adjust frequently to respond to events. And the impact of the events is much larger in this interconnected world. Pandemics, wars, geopolitics, scarcity, increasing energy prices – the world is in a constant flux.
Companies struggle with this new reality. The current way of planning is fragile, inward-looking, based on old technology, and carried out by an experienced but highly conservative workforce. In a very unstable, disruptive, and unpredictable world, the way companies plan needs to become resilient. The final goal might be to become antifragile, that you gain from disorder, get stronger, but that is a bridge too far for most companies. Next stop should be achieving resilience, the ability to bounce back quickly after events and being able to continue your operations.
Picture: Sword of Damocles – The Phoenix – The Hydra
What is resilient planning
Resilience is not new. Look at Nature, Nature is resilient by default. Resilient planning is also not new. In many areas, resilient planning has been used for decades, like:
- Urban/ city planning.
- Infrastructure (electricity, roads, water supply).
- Disaster management (climate change, pandemics, terror attacks, biosecurity).
Resilient planning in supply chain is relatively new, the awareness that resilience is much needed in supply chain planning flourished in the wake of COVID-19. Supply chains endure more and more shocks, unexpected events, and the severity and impact seem to grow larger over time. By becoming resilient, companies can recover more quickly and bounce back.
So, what is resilience? The definitions below give a clear indication.
- Ability to withstand or recover quickly from difficult conditions.
- Capacity of a system, enterprise, or a person to maintain its core purpose and integrity in the face of dramatically changed circumstances.
In other words: if something severe happens, the company recovers quickly and can perform its core functions.
How can resilient planning be beneficial for supply chain planning
Current planning processes and supporting tooling are very vulnerable. Vulnerable in many ways: rigid and long processes, inflexible planning tools, black boxes (how the outcome is calculated is unknown), low forecast accuracy, high dependency on a small group of suppliers, and long lead times. This vulnerability means that plans take a long time to produce an outcome. By the time the outcome is available, the world around us has moved on, and the plan became outdated. This stance is too reactive, not proactive.
Resilient planning can only be implemented if we start to do things differently. In our current world, changes (events) occur at a much faster pace and with higher impact than before. Plans need to be agile, to be able to respond and adjust quickly. A compelling need to reduce vulnerability. But how? Looking at the planning process, think of reducing the concentration of suppliers, buyers, warehouses, increase substitutability of raw materials and semi-finished goods, increase the visibility of the supply chain, increase stock levels and reduce dependencies. Looking at the supporting planning platforms, invest in state-of-the-art technology that allows for the required flexibility and transparency.
Before COVID-19, Supply Chains were built to deliver Just in Time (JIT). Everything was tuned and optimized for this JIT approach. With one or only a few suppliers/ manufacturers, stock levels were minimized, and lead times predictable. That has changed. The dependency on one supplier/manufacturer has been proven very vulnerable. Minimized stock levels do not allow us to cover for unexpected events. The reduced optionality to substitute raw materials and semi-finished goods created a dependency that, in hindsight, increased the vulnerability and decreased the flexibility.
And in a world of constant change, plans need to be very agile and transparent. The old (legacy) planning systems are coded in the previous century based on what is now considered old technology. The new breed of planning platforms makes use of new technologies and concepts and are based on best practices in planning (for example the use of scenarios). Planning, scenario creation, and reporting done with a few clicks support a resilient way of planning.
The old ways of working and supporting planning platforms are not resilient enough to support the current unstable, unpredictable planning environment. The need to become more resilient to survive as a company is evident…but how?
Picture: Mithridatism
Where to start/ how to implement
To be resilient as an organization, you need two things:
- Minimize exposure to shocks.
- Improve financial and operational capacity.
Both are important, the first to reduce the impact of shocks and the second, if you encounter a shock, be able to bounce back quickly.
Let’s start with the first one, the exposure to shocks. There are a couple of things you can implement to make sure the effect of shocks is minimized. For example, the diversification of your supplier network. Instead of one or just a few suppliers, have a combination of suppliers with enough capacity to switch between them if something happens. Another option on the supplier’s side could be to provide training and/or documentation to improve the quality of their output. Or insource production from the supplier to your own production facility.
If you have a more diversified portfolio of suppliers, you might want to look at your transportation & logistics as well. More suppliers allow for alternatives to the means of transportation, but also the optimization of your network could improve resilience by improving transportation times and methods.
If you are in full control of your product design, you want to see if a simplification of your product design can be implemented. Anything that can be simplified (design, process) will increase resilience by default. Another option to improve resilience might be to harden the infrastructure of the physical environment. Be prepared for cyberattacks, energy outages, shortages of water or raw materials. Improve security to tighten control in restricted areas.
To improve your financial and operational resilience, you can increase your safety stock settings. Higher stock levels do come with a cost. But it reduces the risk of running out of stock in case of an emergency.
From a financial perspective, make sure Finance creates financial buffers (cash flow, balance sheet) to keep the business running if you encounter shocks. If your finances are too tight, any shock leads to an unwanted financial position, renegotiation of loans (under unfavorable conditions) or huge payments due to increased interest rates. Creating the ability to absorb the first financial shocks yourself will be beneficial in the long run.
Besides the improved internal financial health, you can also support (and even demand) financial health from your suppliers. If you can absorb financial shocks but your suppliers don’t, your supply chain is not resilient.
The way to build resilience in your organization as well as your supply chain is not a default one but needs to be tailored to your needs. The good news is that there are many ways to improve your resilience and that of your suppliers. Starting to investigate where and how to improve today is the best way moving forward to be prepared for what is coming.
How Pigment can support resilient planning
Improved processes in your organization as well as in the supply chain (up & downstream) help you to become more resilient. However, without the right data and planning tools, you still respond in a non-resilient manner. The good news is that the current planning platforms that came to market recently are built on low-code/ no-code technologies, allowing for very user-friendly and flexible tooling. These vendors have looked at the older (legacy) platforms to see what works well and what can be improved to implement a new set of planning best practices. The latest kid on the block that offers an agile planning platform is Pigment. Pigment, originated in France in 2019, was created because the founders saw the shortcomings in the available planning platforms.
Pigment offers a planning platform that supports many use cases like Financial Planning & Analytics (FP&A), Sales & Marketing, HR as well as Supply Chain Planning. As mentioned in this article, supply chain needs to become more resilient in their processes as well as the supporting planning platform. Pigment can support this much needed resilient planning.
Pigment makes crucial functionality needed for modern supply chain planning available as out-of-the-box. Features like scenario planning, automation, workflows, AI and improved collaboration tools all work in support of better, more resilient planning. Designed with easy implementation in mind (demand planning: 1-2 months, supply planning 3-4 months on average), Pigment is easy to learn and use by planners, and emphasises and supports short, responsive feedback loops. Many customers of Pigment replaced their Excel/ Google Sheets supply chain planning, adding immediate value to the planning process. Pigment could also be the replacement of the dinosaur (legacy) planning systems to become much more resilient and less of a black box.
Updates to plans can be made in minutes and communicated across your supply chain to all stakeholders involved. The creation of a new scenario can be done in just a few clicks. Supplier collaboration is built into this planning platform to increase transparency and insights, alongside features like exception management to focus the attention of planners, all designed to support a resilient way of planning.
Pigment has been implemented for many customers, resulting in a huge ROI: this shortened their planning processes from days to hours, increased their forecast accuracy (up to 20%), decreased lost sales due to less out of stocks, improved their supplier collaborations, just to name a few.
Conclusion
To become more resilient is a necessity for companies given the fact that the world faces much more and an increasing amount of uncertainty. A lot of supply chain planning is still way too fragile: any disturbance in the chain causes huge problems for companies, their suppliers and their customers. To be able to deal with these disturbances, supply chains need to become (more) resilient.
To become resilient can be done in several ways, as explained in this blog:
- Minimize exposure to shocks.
- Improve financial and operational capacity.
- Upgrade your planning platform.
The better prepared, the more resilient you become. Being more resilient comes at a cost (higher stock levels, financial buffers), but the pay off when disrupted is huge. A resilient planning process needs to be supported by an agile planning platform. If your state-of-the-art planning process is supported by a legacy system or Excel/ Google Sheets, you lack responsiveness, agility, ease of use. A state-of-the- art planning platform is necessary to support your resilient planning process.
Staying fragile to external shocks is not an option, to survive you need to be resilient. Fortunately, there are many ways to improve the resilience of your supply chain, from a process as well as a technology perspective. And the good news, there is support available to support you in that journey to become better prepared for the certain uncertainty.
