Supply Chain Design & Planning: Modeling Risk vs Reward
At a panel discussion and webinar on supply chain resiliency, Coupa and The Hackett Group discussed how companies could use a "wargaming" strategy to identify risk better and prepare for potential disruptions in the supply chain.
Basing decisions on scale, speed, and efficiencies worked well when business was stable, but the global pandemic has brought supply chain fragility to the surface. As COVID has now forced companies to deal with supply chain disruption head-on, many are now taking a closer look at risk when conducting network evaluations. We polled participants several times during this session, and their responses provided a fascinating glimpse into how today's organizations are adapting to succeed.
With the right tools and strategy mindset, organizations can mitigate risk while quickly responding to disruption with the most optimal end-to-end decisions.
Modeling risk vs reward in the supply chain
For decades, global supply chains were built on lean inventories and a just-in-time concept to support lower costs and efficiencies. While that strategy works well when things function as they should, it doesn't necessarily meet the needs in times of disruption. The house of cards starts to collapse, and you can see how fragile our supply chain is and where some of those fragilities are located.
When polled, approximately 80% of webinar participants said they were at least taking a closer look at risk and resiliency. Nearly a quarter said they were actively making trade-off decisions between least-cost options and those that may be higher cost by reducing overall risk.
Companies now need new models and toolsets to analyze supply chain risk and resiliency. Wargaming allows for supply chain design decisions to be tested virtually in a risk-free environment before making them in the real world, much like a fighter pilot tests out maneuvers in a flight simulator before taking to the sky.
Forty-four percent of session participants said they are experimenting with wargaming, while 31% said they were making some progress on the supply side with ad hoc analysis. Only 7% said they currently wargame their end-to-end supply chain using a robust toolkit and applications.
To make the most of wargaming, organizations must identify their outputs at the start by measuring supply chain requirements not only in terms of cost and service, but also considering risk in a holistic manner. With the ability to quantify risk and more levers, supply chain professionals can move beyond one-size-fits-all decision-making frameworks that can’t handle curveballs.
Wargaming enables supply chain practitioners and the C-suite to see the end-to-end scenarios and options in a relatively quick and easy way. Coupa Supply Chain Design & Planning customers have identified more than $16 billion in value that they otherwise wouldn’t have achieved. In one example, a customer changed strategies in only a couple of days when everything shifted to digital. The CPG manufacturer learned they could support fulfillment by shipping inventory from individual stores through UPS and FedEx by modeling various fulfillment options with a digital twin.
Tools, talent, and competitive advantage
While many organizations have experience with KPIs, scorecards, and performance reports, they lack next-level capabilities with things like digital twin and scenario modeling.
One successful strategy to overcome this obstacle is to cultivate talent from within a center of excellence. Leading companies will often take new hires with standard supply chain and Excel knowledge then train them on the latest tools to take their quantitative analysis to the next level. This doesn’t require advanced data science or sophisticated IT support and can be run by any power users in the supply chain.
More organizations are also looking at optionality, meaning there is more than one path within any focus area of a supply chain. More than half of participants said optionality is now a focus of their procurement team with supplier diversification programs but not yet addressed within the internal supply chain flows. Twenty percent said optionality is core to their competitive advantage.
Using optionality and modeling, companies can have multiple plans on the table ready to respond when they reach specific trigger points. There is a first-mover advantage for those who can make decisions quickly that can have the upper hand. They know what options they can make and go to plan B at that time. They are positioned for better fill rates, better customer satisfaction, and improved margins.