In most companies Demand Planners load the base plan for the most likely scenario into the demand planning tool, which in turn triggers the supply plan. The downside with this approach is that only the most likely plan is considered. The future is uncertain and there are other scenarios that need to be considered.
These scenario plans are our “plan B’s”. And depending on what happens in the future, we might find ourselves very glad to have these at our disposal.
The scenario plan can be considered an additional option to help supply chain understand where potential risks are and prepare accordingly.
Why Do We Need Scenario Plans?
Why do we need scenario plans? Because there is no fixed plan for the future – even if you have contracts signed with end customers. Plans can change to cope with roll out schedule, configuration modification, or budget adjustments on customer side etc. Unless firmed orders are released by end customers, there is always uncertainty surrounding demand and supply plans.
The scenario plan is a good way to supplement the base plan and provide the agility required to react when changes arise.
And because of these uncertainties, we cannot rely solely on the base plan loaded in the planning tool. Instead, we must have as much business insight as possible. Uncertainty can be mitigated by scenario plans which provide more insight into the situation, which is especially helpful in the early stages when contracts are still under negotiation, and when your customers don’t have a clear idea of their own demand. The scenario plan is a good way to supplement the base plan and provide the agility required to react when changes arise.
What Kind Of Scenarios Can We Have?
1. Advance or delay scenario, which refers to uncertainty about timing. Demand might come earlier or later while the total remains the same and stable. This occurs when orders are covered by the contract, but the rollout schedule is not fixed.
2. Upside or downside scenario, which refers to uncertainty regarding volume. That means the demand might be higher or lower. This requires greater insight to help us make informed judgement about what the demand volume will be. This could happen when you have a contract where the price is fixed but the volume isn’t. This scenario also happens during contract negotiations where a lot of uncertainties remain.
3. Product mix change scenario, which refers to uncertainty of configuration. It means that in our base plan we have item A planned but there is risk that item A might be replaced by item B. This could happen during the negotiation phase for a new contract where the end customer has not yet decided which item they want. This could also happen between phase-in and phase-out periods. If a company is planning to introduce a new phase-in product which is still in early development, they might face a scenario where it hasn’t been decided internally when to introduce the product to the customer, or the customer hasn’t decided whether to accept the new product or keep buying the existing one.
How Do Scenario Plans Support The Supply Chain?
With scenario inputs, the supply chain can understand where the risks are and be prepared for mitigation plans as early as possible.
1 – The scenario plan is more useful if it can provide a longer-term view, i.e., beyond 6 month windows. This allows supply chain to decide if capacity plans needs to be adjusted or not.
2 – The scenario plan will be very helpful to supply chain because the flexibility in reacting to changes supports smooth delivery to customers
3 – The scenario plan will also support supply chain in identifying which contracts are “safe” and which might have potential risks to the company.
The Challenges You’ll Face With Scenario Planning
To sum up, scenario plans are very helpful not only for demand planning, but also for supply planning. But for sure there are challenges when it comes to creating a quality scenario plan:
1 – Firstly, the customer team should be well-trained and fully understand what a scenario plan is and how it works. Unless the customer transparently provides all known risks, it is difficult for the planning team to judge the uncertainties correctly by. In the worst case scenario, a lack of information from the customer team can result in completely inaccurate assumptions being incorporated into the plans.
2 – Secondly, it is important that the demand planning team analyze and summarize scenario information and deliver it to supply chain properly. Since every market has its own risks which might be offset on a global level, only a global view is necessary to pass on to supply chain.
3 – Thirdly, getting supply chain to buy into scenario plans is also critical and challenging.
With more dynamic markets and more fierce competition, it is crucial that demand and supply planning teams have as much business insight as possible and as early as possible. In addition to the base plan (the plan loaded into the planning tool) the scenario plan could be considered as an additional option to help supply chain understand where potential risks are and prepare accordingly.