Extreme scenario analysis for coronacrisis

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Extreme scenario analysis for coronacrisis

With the coronacrisis now seemingly getting firm ground in Europe, we are in dire need of extreme scenarios for the supply chain. We have been seeing very unconventional supply chain effects unfolding over the past weeks:

  • Apple faces great difficulty with ramping up the Foxconn manufacturing plant in Zhengzhou due to an insufficient number of dormitories to quarantine incoming migrant workers
  • Liner shipping companies have been cancelling huge numbers of sailings from China, both due to demand drops but also due to access limitations on crew
  • Road transport in China is scarce due to quarantine and travel restrictions across the country

The art of scenario thinking has been mastered by Royal Dutch Shell over the past 60 years. Unlike the thinking of many, scenarios are typically not possible realizations of the future for which to prepare. The purpose of scenarios is to help managers stretch their thinking. Stretching your thinking helps you prepare for less extreme developments than pictured in the scenarios.

Can we think of some components of scenarios that could stretch our thinking of this Coronacrisis? It would be good to share some of your thoughts on this, as scenario thinking benefits from co-creation, i.e. letting multiple ideas flower at the same time.

Some initial ideas from my side to spark the mind:

1. European border closures

Over the past two years we have seen many scenarios pass for the hard Brexit. We would see large queues at borders between the UK and the continent, products could be stopped from crossing the borders and people movement could come to a halt. The only advantage we had at that time is that companies had time to prepare. They did so by massively building up inventories. Suppose we would see Brexit-like border restrictions at every internal European border? It may hence many sense to build up some stock ahead of time.

2. Much slower rampup in China

While on the epidemic side the Chinese seem to gradually get the situation under control, at the same time it may very well be that the rampup is much, much slower than anticipated. Companies that I talk to have all been estimating that by April supply volumes should be up to normal. Now that Korea, as an important supplier of critical high value parts to many Chinese plants, is facing rapid growth in the number of infections, this could slow down the rampup drastically. Suppose it will not take six weeks, but rather six months until supply starts to ramp up? This implies inventories will really fall dry and sales will plummet due to lack of products. Do you have sufficient cash to overcome this? The Netherlands government has already enabled affected companies to allow employees to receive partial unemployment benefits. Not sure if other countries have followed suit.

3. Absence of containers for exporting your products to Asia

Even if you are not sourcing from China at all, and even your demand in China is not affected, a lack of containers my stop you from exporting. Container shortages have already been reported, in particular reefers. Suppose a general shortage of export containers would appear? Do you have sufficient storage space to store your products? Is there sufficient cash to finance this?

These are just a few scenarios. I am sure anyone could think of more. It would be good for any company to sit together with leadership and supply chain expert to think of such extreme scenarios as an aid to improve preparedness. If we cannot hope for the best, at least we have to prepare for the worst.

Jan C. Fransoo is a professor of Operations Management and Logistics and Dean of Research at Kuehne Logistics University in Hamburg, Germany. Has published over 130 papers in academic journals and books on topics ranging from production planning and supply chain management to inventory management and transportation optimization.

Photo: Dipartimento Protezione Civile from Italia/ Wikimedia Commons

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