Thinking in scenarios makes organizations resilient

If the past few years have taught us anything, it’s that organizations are vulnerable. This year, once again, we see that supply and demand are often not in balance, leading to significant impacts on service and deliveries to customers, as well as the strain on production capacity and working capital. Consequently, many organizations nowadays think in terms of scenarios. By mapping out these scenarios, organizations aim to become increasingly resilient and adaptable. 

Organizations are now more and more aware of their vulnerability. In 2020-2022, production facilities shut down, uncertainties arose within the supply chain, and demand and supply sometimes dried up. Even after the pandemic, unforeseen disruptions and fluctuations in supply and demand have remained commonplace. We can say that this has become the 'new normal,' requiring organizations to structurally adapt. 

Adapting to the 'new normal'

Traditionally, organizations have been geared toward an equilibrium where efficiency thinking prevailed. When chains become unbalanced, it's challenging to restore balance. Thus, one of the biggest questions for organizations is: how do we regain equilibrium, and how do we ensure we don't become unbalanced in the future? Therefore, creating resilience and adaptability is a significant trend in organizations. 

Organizations can become resilient in various ways. Five pillars are crucial for the resilience of your supply chain: 

• Redundancy: Efficient management of buffers such as capacity and inventory. 
• Collaboration: Cross-functional collaboration within and outside the organization. 
• Flexibility: Creating multiple options in products, customers, and suppliers. 
• Visibility: Increasing insight through transparency in the chain. 
• Agility: Ability to quickly respond to changes. 

An important means of addressing these pillars is by creating scenarios with different choices and options. What is the impact if there's a disruption? What options do we have, and how can we prepare? For instance, what do we do if demand decreases or if capacity lags? While these discussions have always occurred, there's now a significant push to integrate them concretely into business operations to anticipate changes promptly. Particularly, Sales and Operations Planning (S&OP) or Integrated Business Planning (IBP) processes are excellent for integrating scenario planning. 

The financial aspects of scenarios

An important development is the increasing focus on the financial aspect of scenarios in the supply chain. Many organizations base their planning on volumes, but that's insufficient for proper Sales and Operations Planning. There's now a necessity to truly delve into this aspect. 

However, organizations must be cautious not to seek a 'quick fix.' Some organizations believe they can solve everything by bringing things back in-house or seeking alternative suppliers. Scenario thinking requires a deeper and broader perspective, considering the five characteristics of resilience holistically. A simple 'quick fix' won't suffice. 

Finding the balance between cost efficiency and flexibility

It's not necessarily true that organizations that are extremely flexible always win. It's about finding the balance between cost efficiency and flexibility. If you're entirely cost-efficient, you're often quite vulnerable. Conversely, if you're extremely flexible, you're often too expensive. Where does the new right balance lie for your organization? That's the question organizations need to ponder if they want to be resilient. 

To assist organizations in their quest for a resilient and adaptable organization, conducting a resilience quick scan can be helpful. The Resilience Quickscan quickly assesses how resilient your supply chain is and what you can do to enhance resilience in five crucial areas: Redundancy, Collaboration, Flexibility, Transparency, and Agility. 

Digitalization is an enabler for resilience

In addition to developing a vision and setting up processes around resilience and scenario thinking, it's also about how IT can support us in this regard. Calculating and analyzing scenarios has become increasingly easier. 

Many organizations now realize the need to act faster, requiring greater computing power and modern tools to shape and implement these new processes. And this trend is only accelerating, especially with current technology developments like AI. However, it's essential to invest sufficient time and effort in the exploratory phase: what is relevant to your organization, fits within the IT landscape, and truly adds value to your organization's resilience. 

Would you like to read more about supply chain resilience? Read this article about Supply Chain resilience - where you should start