Dealing with uncertainty: what to do?

Afbeelding

The impact of the Corona pandemic on supply chain and logistics is unchartered territory. A recent study indicates that 44% of companies have no idea how to tackle the current crisis and the worst part is still to come. I don’t have the solution but hope to inspire you how to make a start based on my findings in recent field research.

Sales and marketing plans out of the window

Sales numbers from yesterday will not be the same for tomorrow. We need to think differently to move away from this uncontrolled chaotic situation towards a more controlled situation. Planners should not strive for accurate forecasts. Their goal is to support business with data science helping them to make faster decisions by giving them new insights on risks and opportunities. The tips below might inspire you.

Tip #1: Importance of relevant data

Now is the time to be data rich. Observe week by week what customers are buying (is it Corona related, or not?). Add macro factors like regions where the outbreak is increasing or declining, include macro-economic numbers and interpret latest news based on regional governmental decisions. This requires a new approach to sense, collect, analyze and present data to the business. Look at the risks but also at the opportunities in specific regions. Think multi-dimensional. Look for information higher up in the information chain.

Research also suggests planning on a more aggregated level, like category level (not on item level) and make many different scenarios based on (bigger) data. It is crucial to understand your customer and how they are changing behavior or not, and why. Adding competitor data is important as well.

Data is now mission critical so initiate your data sanitary services: clean data, strip data, combine data, use advanced analytics to move from an uncontrollable chaotic to a controllable situation helping you to shape your demand curves again.

Tip #2: Look for early patterns

Planning in extreme uncertainty means that typical cause-effect relationships do not hold. Cause-effect is typically used in S&OP meetings or spreadsheet scenario planning, driven by business rules and previous experience.

When you use smarter data (see Tip#1) you will find early trends, patterns higher up in the chain that can help you to define scenarios for unique customer clusters per product category (e.g. highly, medium and low Corona dependent). The earlier you sense these patterns (e.g. sensing tipping points/category), and find new correlations, the faster your team can react to minimize supply chain risks. But focus on customers behavior and market data, not on your internal transactional data only.

You might also want to simplify your product portfolio making it easier for the team in this stressful period. Find patterns to rationalize the product line based on the new standard. Now is the time to do it.

Tip #3: Advanced Scenario Planning

Scenario planning is all about dealing with uncertainty. Most companies will indicate that scenario planning is already embedded in their decision-making process. However, in practice it is often limited to changing parameter values in spreadsheets and checking the impact of a change.

Spreadsheet calculation is not the recommended way to deal with the current crisis nor to find the early pattern signals. Using more sophisticated (combination of) tooling can bring much more additional value by embedding a multi-dimensional mindset. It enables decision makers to evaluate scenarios quickly and decide in a data driven way by making use of the benefits of these sophisticated tools:

  • Easily calculate and compare hundreds of scenarios
  • Demand changes fast so you need faster calculations and faster insights
  • Work with real time & diverse sets of data
  • Enable multi-user collaboration
  • Optimize/prescribe decisions: what are the recommended actions to take?
  • Quantify risks and assumptions
  • Signal trends, patterns
  • Implement new AI/ML techniques able to work with almost no historic data
  • Think multi-dimensional, what will be the impact of several combined changes?
  • Empower strong visualization options, including dashboarding

 

Use scenario planning in the broadest context. If you spot a trend that governments in certain regions are restricting exports and protecting their strategic assets (e.g. raw materials or ingredients), you might want to include a variety of local sourcing options in the scenarios. What about the impact of the COVID-19 outbreak on labor availability, productivity and mobility? You need to take all these elements into account, so it is time to upgrade your analytical capabilities, make your decision-making process lean and invest in advanced analytical tooling to guide you through the crisis and potential recession.

Tip #4: Spot the opportunities

In the context of scenario planning it is too one-sided to only mention negative scenarios, e.g. sales decline as consequence of the Corona crisis. Scenario planning should also show the opportunities of business innovation, e.g. new product development. Or opportunistic growth strategy versus a cautious strategy. In fact, it is restricted only to your own creativity.  How can you stimulate demand in other sectors? Are there companies you could potentially partner with to stimulate growth? What does it mean for you when regions become Corona free? What products will they buy? What happens if a competitor cannot supply certain regions because of regulations or lock downs? What about cross border transport restrictions?

Further develop your SC Analytics capabilities

The Districon team (US, Europe & Asia) are experts in scenario planning and can help your team to further develop their skills in collecting the right data, to signal early trends and to present the new findings in a structured and fast way to the business.

A new world is evolving with new opportunities for collaborations. Districon wants to contribute by adding our combined experience of both SC & Logistics and advanced analytics. Developing SC Analytics capabilities is our strength.