Planning supply chains in times of uncertainty – how should one deal with delays and disruptions?

These past few months have been like a never-ending rollercoaster ride for supply chain managers. Almost every week brought new information on disruptions that had already begun last year with the COVID-19 pandemic, but have clearly accelerated in the soon-to-be-ending 2021. From the container ship Ever Given blocked in the Suez Canal, to soaring freight costs, supply delays, semiconductor shortages and, more recently, blackouts and announced reductions in the supply of basic raw materials from China, all of this makes procurement, production and logistics planning increasingly challenging.

Planning supply chains in times of uncertainty – how should one deal with delays and disruptions?
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How, under these circumstances, can we approach the budget forecasts for next year so that they can be treated as a real management tool and so that we do not waste unnecessary time drawing up plans which, in just a few months’ time, may become a fiction?

One of the main challenges faced by companies that have not yet implemented enterprise-wide IBP (Integrated Business Planning) solutions is so-called silo management. It causes individual departments within a company to continually search for optimisation only within their own function, KPIs and targets, instead of joining forces and looking for optimal solutions for the entire company. Sooner or later, this will lead to internal conflicts, both at the planning stage and in the day-to-day management of operations.

The production department, seeking to optimise production resources, achieve maximum line utilisation, reduce downtime and eliminate waste, often expects the sales department to provide an accurate (and preferably long-term) forecast of future volumes. The sales department, mindful of past limitations on the availability of certain products, in turn demands that production reliably determine future capacity. To ensure the availability of raw materials and supplies for next year, the purchasing department would also like to know the production and sales plans in order to contract their supply. Given the disruptions in global supply chains and extensive transport delays, the logistics department struggles to reliably determine loading and delivery dates. Ordering ‘just in case’, on the other hand, means the risk of storage space shortages and increasing costs of working capital tied up in stock, especially when unsold goods accumulate due to excessive planning. In this situation, does it still make any sense to create budgets for 2022 at the end of 2021?

Rolling forecasts or scenario option

One of the first things companies can do to improve the planning process is to change its time horizon. It may be worth considering whether expecting all parties involved in planning to plan every period from January to December for the next 12 months with the same reliability at the end of this year will really bring real added value to the company. An alternative to fixed planning periods (when we budget the following year at the end of the previous one) may be the introduction of rolling forecasts with a horizon of e.g. 18 months, in which the detail and accuracy of planning is the highest for e.g. the next 2 quarters. Subsequent plan periods provide a slightly more general indication of the likely direction of development, for example at the level of individual product groups rather than individual indices.

This approach makes supply chain planning a continuous process, and subsequent updates of the plan (at least monthly rather than quarterly in the current disruptive environment) make it possible to take into account not only changes within the company as such, but also in the external environment much more quickly than in the annual budget. This is both on the demand side (e.g. changes in customer behaviour, competitors’ actions, etc.) and on the supply side (e.g. availability of raw materials and materials, shorter or longer delivery times, etc.).

A second initiative worth considering is the introduction of scenario planning, taking into account alternative options for the development of sales, production and stocks, instead of just one version of the budget valid for the entire following year. This allows the current business plan to be adapted to a scenario that becomes increasingly likely over a progressive time horizon.

Analysis of demand data is key

But for the scenarios generated in this process to become more credible, the resources involved in creating them should not be limited to the company’s own; instead, there should be an ongoing dialogue with key suppliers and customers. This is so that future forecasts and plans are not just an extrapolation of historical data, but also take into account as many signals as possible from the external environment and the impact of these signals on production plans and sales forecasts.

Given that there is little evidence to suggest that supply chain disruptions are likely to be significantly reduced over the horizon of the next several months at least, in times of uncertainty, the companies that can respond in the most agile, flexible and resilient way to ever-increasing volatility will increasingly be the winners. But in this context, ‘responding’ means much more than ‘reacting’ to disruptions when surprising events have already occurred, but above all – using the tools available to anticipate future changes so that we are not caught off guard by volatility, but are able to prepare for it.

This includes solutions that enable demand sensing by aggregating and analysing information from multiple sources, such as current sales through the integration of data from POS terminals, consumer behaviour on social media, weather forecasts, economic data, search engine trends, etc.

Rapid response to demand signals from multiple sources makes it possible not only to reduce forecast error and the deviation of actual production and sales volumes from the previous plan, but also to better allocate stocks of individual products by placing them as close as possible to the forecast demand locations. Thanks to the state-of-the-art IT tools available on the market to support planning processes, the aggregation and analysis of demand signals can take place in a largely automated manner. This facilitates a more optimal use of the planning resources available in the company.

Visibility helps predict delivery times

One of the important variables affecting planning processes and stock levels of raw materials, materials and finished goods is lead times, or delivery times. With increasing supply chain disruptions and freight delays, supply chain visibility tools can be useful in predicting delivery times more reliably. By integrating information from various sources (e.g. road transport telematics systems, automatic ship identification systems, etc.) they enable real-time or near real-time tracking of both individual shipments and means of transport for all modes (road, rail, air and sea) and throughout the supply chain, as well as continuously updated estimated time of arrival (ETA). Employing similar tools not only at the level of a given country or a single business unit, but within regional or even global management centres of the Control Tower type, enables comprehensive management of entire supply chains, and not only their selected, point links.

The most advanced planning approach, Integrated Business Planning (IBP), combines elements of sales and operations planning (S&OP) with financial planning to create individual scenarios with an associated full profit and loss (P&L) simulation. As a result, supply chain planning processes go well beyond conventional operating functions, but become an integral part of the strategic management of the entire enterprise.

Przemysław Piętak develops and manages Supply Chain Advisory projects related to supply chain strategy, network design, operational assessment and facility concept for industrial, retail and logistics clients. With his years of experience working for some of the world’s largest 3PLs, he has a good understanding of the contract logistics business development and solution design process and is able to support clients who are looking for a new 3PL partner or want to evaluate their current partner’s operational and commercial performance. Przemysław has been involved in the supply chain and logistics industry for nearly 20 years. He has worked for manufacturers (Grupa Żywiec/Heineken), consulting companies (Roland Berger/Logisys) and logistics companies (CEVA Logistics/HUB Logistics). In his previous assignments he worked with clients from Poland, the Czech Republic, Slovakia, Hungary, Romania, the Netherlands, the UK and other regions. He graduated from the Warsaw School of Economics in Poland.

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