Historically, many organizations have thought about their investments in planning to be about reducing uncertainty. You can ask: “What is your goal with this process, people or technology investment?” And you may often get the answer: “Improve sales forecast accuracy.” But it is becoming more apparent to many leaders that in a world with increased demand volatility and more frequent big-impact supply chain disruptions, you cannot really expect to eliminate — or even reduce — uncertainty.
And we are not expecting demand to become more predictable nor stable. According to Gartner’s Future of Supply Chain Survey 2021, 74% of supply chain leaders say their customers will expect the ability to customize/personalize products to their own unique requirements in near real-time and 51% say customers will expect last-minute delivery changes to their geolocation.
Supply chain leaders need to stop promising that the outcome of their planning processes will be about reducing or eliminating uncertainty. Rather, it should be about managing uncertainty. Making this cultural shift requires a few changes:
Give the teams permission to be wrong. Challenge every assumption. Every plan you build is based on a list of assumptions — typically a long one. You must be willing to challenge those assumptions to understand the alternatives of what the future can look like. I once heard from a supply chain planning leader that “We started asking ourselves, ‘What if we are wrong about this assumption? What would that mean?’” By consistently asking these questions you can get closer to ensuring that one of the scenarios you are examining resembles the actual future.
Minimize the use of the panic button. Understand the limits of your decisions. Once you make a decision or align on a plan, identify the circumstances under which that plan remains valid. Most supply chains build buffers into their plans. Safety stock inventory is one of the most obvious ones. However, as soon as demand changes, they react and update supply plans — ignoring the fact that they could have simply used safety stocks to react and maintain stability in their short-term supply plans. Clearly identifying the thresholds within which your current plan remains the best plan can help maintain stability in an unstable situation.
Stop considering hope as a strategy. Align to executable plans. The reality is that both demand and supply are less predictable than ever, the future will be sure to bring new challenges to overcome and you cannot allow your organization to create challenges for your supply chain. Unfortunately, many organizations align on plans that are not executable and are, instead, underpinned by hope. Committing to plans that you cannot execute creates a burden for your organization and almost certainly will need to be replanned, even if demand remains stable and supply undisrupted. Actual performance consistently proves that plans being built fail to translate into execution. Examples of this are sales forecast bias or expecting that your suppliers will deliver all your orders on time-in full. You must use actual performance of metrics to understand if your plans are realistic. If plans rely on a different reality, there should be clear actions that justify the predicted performance improvement.
Beyond leading the cultural shift, organizations that truly recognize the need to manage uncertainty are investing in supply modeling capabilities. The majority of supply chain networks are complex and require a significant number of resources that must come together at the right time to deliver customer requirements. You cannot expect to successfully manage a complex network and account for machine, labor, raw materials, space, transportation and other constraints in spreadsheets. Increased modelling capabilities include mapping a wider range of resources and constraints, identifying risks and ultimately allowing you to build plans based on ranges, rather than single-point forecasts. To support visibility and identification of constraints, risks and opportunities across the entire value chain, mature organizations are also increasing collaboration with suppliers.
So, stop expecting your planning processes to be about reducing uncertainty and refocus the attention to supporting the best possible decisions with the information available at the time the decisions need to be made.
Gartner Supply Chain