Scenario planning as a tool to turn risks into opportunities

Companies are looking for ways to make their supply chains resistant to disruptions, but those disruptions also present opportunities. During Webinar Wednesday, Ruud Verstegen of John Galt, a specialist in supply chain planning software, explains how scenario planning can help cash in on those opportunities. ‘Developments are moving too fast to base your decisions on guesswork.’

By Marcel te Lindert

Sometimes, disruption can have a positive impact on business. An unexpected recommendation of your product by an influencer like David Beckham can lead to a spike in demand overnight. ‘And even a disruption with an initially negative impact can end up being positive. The trick is to turn disruptions into opportunities, and capitalise on them,’ argues Ruud Verstegen, sales executive EMEA at software supplier John Galt. He points to a quote by the crashed Formula 1 driver Ayrton Senna. ‘He once said that you cannot overtake 15 cars when the sun is shining, but you can when it is raining. Max Verstappen might have made the same statement. Many drivers see rain as a risk, but that rain also offers opportunities.’

But as a company, how do you make a difference by turning risks into opportunities? With scenario planning, is Verstegen’s answer. ‘Scenario planning first of all helps you speed up your decision-making processes. If it takes hours or days to find the answer to an issue, chances are that competitors will outpace you. Slow and inefficient decision-making prevents you from moving fast,’ explains Verstegen. ‘In addition, scenario planning allows you to stop guessing. Sometimes your gut feeling or intuition tells you to take action, but developments are moving too fast for you to base your decisions on guesswork. Scenario planning gives you data-driven insights.’

Street atlases versus Google Maps

To clarify what scenario planning means, Verstegen makes the comparison with Google Maps. Before we had that tool, we relied on rapidly aging road maps and street atlases to find our way from A to B. Some improvement came with the emergence of the first online route planners, which ensured we always had up-to-date map material. ‘With Google Maps today, we are presented with three scenarios. A large number of data points, such as traffic jams, road closures or border controls, are taken into account when calculating the different routes. We can choose whether to go for the fastest or the most sustainable scenario.’

The online route planner of earlier times generated the same route with the same driving time at any time of day, whether it was Sunday or Tuesday morning. The three routes shown by Google Maps take uncertainties into account and show the most likely driving time. ‘That’s also what you want as a business. You have to take into account volatility, uncertainty and complexity in the supply chain to avoid being surprised. With artificial intelligence, it becomes easier to analyse large amounts of data, discover patterns in it and then translate them into actionable insights. With internal data, but also external data from suppliers and customers. And also, for instance, data from crawlers scouring social media to check whether your product is mentioned.’

Supply chain weaknesses

Verstegen stresses that scenario planning is an evolution. It often starts with running what-if scenarios. What is the impact on my operations if a supplier has a problem in its factory and cannot deliver? What are the options to meet demand if it suddenly increases by 50 per cent due to a recommendation from David Beckham? ‘But you can also use scenario planning as a stress test to discover what the weaknesses in your supply chain are. And what are the best measures to strengthen those weaknesses. Then you are not reactive, but proactive in strengthening the resilience of your suppy chain.’

The screen displays the example of a roadmap, which shows which strategies scenario planning can be used for. Do you want to minimise the impact of trade tariffs? Or do you want to analyse the impact of moving production to another region? ‘Such a scenario plan shows you what you can achieve within a certain time frame. Some actions you can implement fairly quickly, while others require more time and more investment.’

Three scenarios simultaneously

The webinar also features several real-life examples. The first practical example focusses on a disruption in the supplier network. What if the purchase price of a raw material suddenly increases? Or if a component is no longer available due to a production line failure? ‘It is important not only to analyse the impact on costs and lead times, but also on service levels towards your own customers,’ says Verstegen. ‘One possibility is to look for three alternative suppliers, run a scenario for each and compare the results. But that takes oceans of time. It is much better if you have a tool that allows you to evaluate those three scenarios at the same time.’

A second practical example concerns the relocation of a factory from China to Vietnam. On the face of it, that may be a cost-saving option, but what is the impact on lead times and service levels? And what does it mean for your suppliers? Should they move with you or do you have to look for new suppliers in Vietnam? ‘With traditional what-if scenarios, it can take weeks or months before you have the answer. And when you have the answer, the assumptions on which it is based are already outdated. With advanced tools, you can run all those scenarios within minutes, identifying opportunities and risks,’ says Verstegen. ‘The system does not make decisions, but it does calculate all the options and provides insight into the outcomes.’

Higher price or not?

And what if David Beckham recommends your product? ‘You might have to work overtime or more shifts to meet demand. That generates extra turnover, but also extra costs,’ explains Verstegen. ‘But increasing demand might also give you room to increase the price of the product. For that, it is important to understand price elasticity. Then again, it is useful to know what competitors’ prices are. With the help of machine learning and other tools, scenario planning allows you to analyse whether it indeed makes sense to increase the price or whether it is better to take the higher costs for granted.’

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