Supply Chain: Today & Tomorrow
In this final whitepaper in this series, we review just how unclear the path forward is and why supply chain scenario planning is so critical for success and survival. We also outline an approach that can deliver greater supply chain resilience and embed the capability to adapt effectively to the continually changing environment.
- The road to recovery is unclear, with published health and economic metric forecasts exhibiting broad ranges of uncertainty
- Robust scenario planning is an important capability to prepare your business to navigate the upcoming period
- The OODA (Observe, Orient, Decide, Act) model is one such framework to enable effective decision-making to be made more rapidly than the rate the environment changes – staying ahead of the curve
- In general, scenario planning is not a mature, well established capability in Australian industry – many organisations will likely need to invest in people, processes and technology to effectively realise this capability
To navigate this period of uncertainty, embedding effective scenario planning into our operational environments will be key.
In this series, we have discussed the level of uncertainty our immediate future holds, as well as exploring learnings from specific industry experiences over recent months. In this paper, we look to bring these together and present tangible actions that can be taken to navigate the hurdles that will likely arise as we enter the next phase on the road to recovery from COVID-19.
Australia has been fortunate at the time of writing to have largely contained the health risks posed by the virus. However, it is unknown whether this will continue, or whether further outbreaks will occur including possible future waves. Globally, other nations, particularly many of our key trading partners, are experiencing their own unique challenges and navigating different trajectories towards recovery. Generally published forecasts vary between the “V” model, a brief sharp economic decline followed by a rapid recovery over the course of FY21, to the “L” or “W” models where a more sustained period of recession is experienced as economies struggle to navigate the lasting impacts associated with potential resurgent periods of the virus.
To navigate the changing landscape, we recommend businesses reflect on the possible risks of these macro economic and health trends, as well as potential isolated further outbreaks and the impact they may have on suppliers, businesses’ ability to distribute and respective customer demand profiles. For many businesses, this environment has led to a focus on establishing ready access to comprehensive information. Resultingly, we have observed the emergence of ‘control tower’ operational models in many organisations. These structures enable senior leadership to consolidate relevant information from both internal operations and the external environment in order to develop effective action plans. One model that may assist in the decision-making process is OODA. Developed by John Boyd, a US Airforce Colonel, OODA provides a helpful framework to enable effective decisions to be made faster in evolving environments by organising the scenario planning process into four key segments – Observe, Orient, Decide and Act. This model in some ways may be similar to mature integrated business planning processes, where broad information is gathered in order to enable effective decision making.
The OODA model is an iterative process with observations made to assess the efficacy of preceding actions and environmental changes, whilst also guiding future business plans. The following provides more detail on each of the OODA scenario planning horizons.
Act should address immediate concerns relevant for the next four weeks. Key areas to investigate in today’s environment include ensuring protection for your employees and suppliers, and that sufficient PPE is available, for example, to mitigate current risks. Additionally, we recommend investing time and resources into understanding the current exposure of your business; utilize market insights, work with suppliers to understand the tiered risk across their respective supply chains and task S&OP teams to build scenario plans for the month. Also review inventory shortages; identify possible ways to insource components, estimate available logistics capacity and determine what portion of supply can be shifted to another source if disrupted.
Decide will ideally focus on issues relevant over the 4-12 week time horizon. Currently we recommend businesses focus on improving supply stability through assessing risks, researching alternative sourcing options, and supporting smaller suppliers where possible. Likewise, plan for greater resilience by codifying key processes developed during crises and ensure stakeholders address key vulnerabilities in your value chain. Finally collaborate with government and investors to ensure capability to navigate and accelerate out of this crisis period.
Orient takes the focus to issues in the 12-24 week time horizon, which may include redefining the operating model through technology and restructuring the supply base to improve business continuity planning resilience. Depending on the current operational format of your business, this may also serve as an opportunity to strategically reflect on the ongoing suitability of lean, just-in-time operations given the nature of current uncertainty.
Observe will ideally examine issues on the extended 24+ week horizon to enable early scenario planning. We recommend organisations investigate what future events are likely to occur at the local or global level and how these may affect their respective businesses in order to prepare mitigatory plans and the capability to adapt to the new environment.
The capacity to develop effective scenario plans is a capability, broadly speaking, is not yet well established and mature in Australian industry. By way of example, a survey conducted by GRA and the AFGC (Australian Food & Grocery Council) found in the FMCG industry that, whilst 89% of businesses had a formal S&OP process in place, 60% of respondents also indicated that their scenario planning capability was non-existent or insufficient. Developing maturity in the space has long been a goal for many organisations and the necessity bred by today’s environment will likely see this capability more broadly realised.
This may well require businesses to renew focus on their cultural environment and assess how well it may support this change.
We recommend organisations foster an environment of trust and transparency, with clearly articulated rules and responsibilities for team members. It can also be beneficial to establish and communicate transparent trigger points where specific actions are to be taken when certain conditions exist. Likewise, improvements in technology and related processes may be required in order to ensure effective integration of top-down information with bottom-up data. It is recommended that organisations look to minimise instances where scenarios are created in isolated spreadsheets with little coordination across other key stakeholders. Cross organisational alignmentcan equip businesses with the single point of operational and financial truth necessary to accurately develop detailed scenario plans.
Pursuing these actions will enable your business to identify potential issues early, and foster the supply chain resilience that will prove critical in not only navigating the road to recovery, but also to meeting the concerns of boardrooms and shareholders in the post COVID-19 world.
As we reflect on our learnings from the COVID-19 period to date, and the shock felt by our global supply chains, we anticipate the likely outcomes on organisations will be an increased focus on strengthening scenario planning capabilities, as well as efforts to embed greater resilience.
These initiatives will be driven by government policy responses, in order to de-risk Australia’s sovereign capability, as well as playing a more significant role in investor valuations. In addition, corporate governance structures at a board level are likely to expect greater adaptability and contingency planning from their operational teams. As a result, we recommend businesses take tangible steps today to implement some of the recommendations we have outlined in this paper.
Globally, the way forward may remain uncertain, but nonetheless, businesses can take tangible steps today to effectively navigate this unprecedented period and position themselves well for the post COVID-19 world.
2. Watch the live recording of GRA's webinar on COVID-19 and the impact on Australian Supply Chains.
3. Watch a recap of the webinar by GRA's Carter McNabb and Shanaka Jayasinghe.
4. Watch a webinar from our COVID-19 Supply Chain Navigation Webinar Series - on Healthcare and Aged Care Sectors
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