Resilient Planning in Supply Chain

Supply Chain Café by PICS Belgium 28/04/2022
Author: Koen Cobbaert
Moderator: Jan De Kimpe, VP Pics Belgium

Read here the summary of our latest Supply Chain Café.

The global economic environment we operate in includes offshore production, sourcing materials from different locations, and numerous partnerships and suppliers across nations and continents.  This leads to a far more complex supply chain than it used to be a couple of decades ago, and consequently the risk and uncertainty level has increased dramatically.  The consequences are multiple:

• Increasing interactions of global supply chain networks complicate the assessment and quantification of supply chain risk
• Growing complexity in a supply chain adds additional uncertainty to take into account in risk management
• The less the risk is perceived, the less transparent its exposure is

The risks in the supply chain can be split in known and unknown unknowns.  This terminology, which was first coined by Donald Rumsfeld, former Secretary of Defense, highlights the fact that some risks in the supply chain are well known in advance, and can even be modeled in a statistical way.  In that sense we think about :

• Forecast inaccuracy
• Variable line outputs
• Uncertain lead times

On the other hand, there are events – the unknown unknowns – that we are not even aware of that they can happen, and if they happen where we have no clue on what the impact of these events will be.  In that sense we think about :

• Brexit
• The covid-19 pandemic
• The war in Ukraine

Whereas the latter topics and its mitigation fall in the area of business continuity management, the known unknowns are typically the elements that are to be tackled using resilient planning.  Resilient planning is way of looking at planning that goes beyond the purely deterministic approach that is typically being used in the traditional planning systems.  Instead of using at one single value for every supply chain input parameter, we use an complete statistical or empirical distribution to come to best planning decisions.  Hence we do not only obtain a plan that indicates how our system should be planned, but this is complemented with a view on the uncertainty profile on the outputs.  Consequently the planning parameters / conditions can be adjusted to assure that the output complies with our risk appetite.

What we observe however is that when looking at Supply Chain risk, the gravity point in terms of uncertainty is on the unknown unknown side over the last years.  The pandemic and now the war in Ukraine obviously are the reason behind this.

When looking and considering risk and uncertainties, managers may well understand the environment in which they  are operating, but the often lack the tools to visualize and act on the risks observed.  There was a consensus that in this respect there is surely still room for improvement.  The rise of computing power / cloud computing, which make lots of simulations possible, has made it possible to make this type of assessments.  And the audience confirmed that there is a need in the field for this type of solutions.

Next to solutions, the audience also confirmed that supply chain policies can contribute to reduction of supply chain risks.  Mainly single sourcing was highlighted as a potential constraint / barrier in terms of risk management, but also just-in-time policies and the focus on low cost suppliers presents a potential threat.

Presented and written by Koen Cobbaert, Lead Solution Scientist at bluecrux.  Koen has 30 years of experience in Supply Chain Management, both in academia, industry but mainly in consulting.  His focus has always been on the application of analytical techniques in a Supply Chain Planning context.