Forecasting seems simple, especially when you have a rough idea of the scenarios that your business may face in the future. However, the increasing uncertainty and disruption in supply and demand make forecasting challenging. Therefore, we need a different approach, which is where Scenario Planning comes in.
McKinsey has observed a sharp increase in the number of organizations applying scenario-based planning approaches to manage uncertainties: ‘In a recent McKinsey survey with CFOs of leading companies, 90 percent of respondents indicated using at least three scenarios to support their planning.’
Scenario Planning is based on qualified assumptions rather than historical data. You need to come up with various ‘what if’ scenarios. This enables you to be one step ahead of coming events and ensure your end-to-end S&OP process is fit for purpose. It is worth mentioning that Scenario Planning is beneficial not only in pinpointing potential risks you need to manage but also opportunities you want to exploit.
Embrace Uncertainty
Here at AGR, we believe the mindset should be to embrace uncertainty instead of being scared of it. In order to do that, you cannot limit your S&OP to adjusting forecast quantities according to historical data. You need multi-dimensional planning capabilities, that look beyond the forecast, at all potential scenarios, for example:
- Price increases, should be considered so that the finance person can have a best-case scenario and worst-case scenario,
- Capacity of the storage location/warehouse, The WH planning team should be able to assume how much stock will be required/expected at the very maximum or minimum, at any given time.
This high level of planning can only take place if all the data and the insights it provides are available – with that data, impacts can be modeled, and scenarios can be planned, with different decision proposals considered depending on each outcome. This is impossible to do in spreadsheets alone. Having a secure system, like our Inventory Optimization solution, that does the work for you is vital. Our software provides you with:
- An accurate view of the business, as it stands now, not an outdated snapshot from the start of the month.
- The relevant data and baseline information to create a status quo forecast – what does the future look like if you do nothing?
- The functionality to be able to model ‘what-if’ events in your forecast: spreadsheets aren’t powerful enough to deliver.
- Calculation efficiency and robustness. Scenario plans are only valuable if your team haven’t spent days on end gathering and manipulating data in spreadsheets to create them.
- Ease of reporting to make the output easy to digest across the wider business. Other functions need to be able to fully understand the plans to buy into the approaches they recommend.
Another key benefit of using a system like ours is automation. Removing all the simple, repetitive, and mundane activities which can instead be handled by technology, frees up your team to apply their specifically human capabilities – judgment, creativity, and innovation – to the issues that truly require them.
If you’re ready to take your scenario planning to a new level, make an appointment with us and we’ll be happy to talk you through our system.
