COVID-19: How event-based planning outperforms steady state planning during shocks

Unprecedented demand shocks of a differing nature

Who would have thought that, as we entered 2020, toilet roll would become the most sought-after product in the world? Or that so many people would be working and schooling from home?  Or even that our travel plans were about to be cancelled?  This new reality has created immediate and hard-hitting demand shocks for global supply chains.  Never before has planning been so under the spotlight. 

Certain types of demand have been largely destroyed (such as 2020 spring clothing collections), whilst others have exploded in the short term (toilet paper and home-working supplies). This has garnered news headlines, yet the impact of shifts in distribution channels has been under-reported, even though they are just as significant. Volume levels have not necessarily changed, but have shifted to other distribution channels. For example, lunches have moved from restaurants to the grocery channel as people work from home.  Even the consumer demand boom for toilet paper was not entirely driven by stockpiling; there has been a shift from commercial to consumer channels as people are now using the bathroom at home,as opposed to the office.  

Rigid and highly concentrated supply chains have struggled the most to adapt to the demand shifts caused by Covid-19, but even the most flexible networks have been unable to respond where planning processes are slow or rigid.  Indeed, many problems with ‘steady state’ planning systems have been exposed by the pandemic, but this has really just magnified the problems that planners face from smaller shocks every day, such as price changes, competitor promotions or supplier shortages.  Even before Covid-19, consistent surveys show that 50% of companies were not happy with their S&OP processes. 

Enter the new era of ‘event-based planning’.

Planning for the uncertainty of reopening

Demand (and supply) shocks have rattled global trade.  Whilst this has been devastating, the swift and definitive nature of it has meant that businesses have been able to quickly assess the impact on demand patterns.  The demand during reopening is going to be much less certain for a number of reasons. For example, different regions are experiencing increases in mobility at different rates and consumer confidence will return to different sectors at different times.  We may quite quickly become comfortable with buying a packaged sandwich, but we may not want to go to a restaurant.  Likewise, we might quickly return to local holidays while avoiding international travel for some time.  

This is going to be hard to predict and planning systems will need to continually sense, adjust, and recalibrate. 

Scenarios are the bedrock during uncertainty 

With such uncertainty, most businesses should have multiple scenarios planned. There may be comfort in having ‘the plan’ but in reality, during an unpredictable return to a ‘new normal’ we need to be able to respond to a multitude of situations. To do this, we need multiple scenarios in our planning systems and agility in our supply chain networks to match the range of necessary responses. 

The fundamental building blocks of plans must change from a sum of ‘steady state’ product and / or customer forecasts to an event-based, scenario-driven plan.  The plan needs to be based on events and scenarios that can be updated and activated or deactivated real-time.  The simple construct is as follows:   

  1. Events are things that could happen, such as a businesses reopening in June or a supplier going bankrupt.
  2. Scenarios are a combination of such events (such as reopening businesses in June with no supplier bankruptcies or reopening in June with multiple supplier bankruptcies).
  3. The plan is a base plan, overlaid with a set of selected scenarios.

While this seems so simple and necessary, the reality is that the majority of today’s planning processes and systems do not inherently support this approach. 

The lessons for planning from Covid-19

What the global pandemic has shed light on is that global supply chain systems are in real need of a rethink. So, what needs to change to prepare businesses for the next crisis?

1. Event- based planning

We need real-time, event-based scenario planning to respond to changing situations as demand and supply side shocks become increasingly frequent. Consider the pandemic a “stress test” of your planning systems. What hasn’t worked well in this situation is not working well with smaller day to day challenges.  

2. Networks 

Over the past decade, many organisations have focused on making supply chains as lean as possible, supplying goods around the world rapidly and cost effectively. But the pandemic has exposed a number of cracks in global supply chains, and organisations that have previously focused on developing the lowest possible cost supply chain could well be those who have struggled the most over the last few months. Just like a flood is a good reminder as to why we pay for insurance, Covid-19 is a good reminder as to why we need agility. Long-term lessons for global supply chains may include an increase in local sourcing, which even though more expensive, will deliver shorter planning replenishment times and more resilience.

Final thoughts

The changing face of demand during the Covid-19 crisis has shed light on how supply chains need to adapt for the future. Agility, real-time planning and digitalization are all needed in tandem to ensure that global supply chains are resilient and can weather any storm. Having the ability to quickly pivot in a crisis and plan for significant mobility changes, will become the make or break for business continuity in the future.

Natural or unnatural: the science of planning for any disruption

From hurricanes and floods, to earthquakes and tsunamis, the world is experiencing a rapidly increasing number of adverse weather events. The Tohaku earthquake, tsunami and Thailand floods in 2011 are a prime example of how an apparently localised event can bring global supply chains, and ultimately the entire organization, to their knees.

But it’s not just natural disasters that supply chains have to contend with – businesses also face a plethora of unnatural disruptive forces, from political uncertainty and new regulations, to evolving technologies and a growing cyber-threat landscape.

Planning can be the silver bullet in responding to natural and unnatural threats. It sounds simple, we all do it, sometimes without even thinking about it. But there are a number of building blocks involved, which many businesses often forget about: integrated technology, common data, shared processes, and cross-team collaboration. These form the foundation on which a successful planning strategy is built.

When organizations get this right and achieve true connectivity across the business, the potential benefits are endless. But we need to move beyond traditional approaches in order to plan more effectively for today’s challenges.

Working on a consensus

The most common planning process in industry today, and the one recommended by many leading experts, is the consensus process. Groups, such as demand, sales and marketing teams are kept siloed and create their own plans before they are unified to create one final, or consensus, plan.

The problem with this approach is that it often leads to diluted accountability for the final result because, by definition, no single role, department or business unit can be held 100% accountable for the final plan. The process is also inefficient: by generating three plans that ultimately input into only one, businesses are effectively disregarding 75% of the output from each business units’ provisional proposals. What’s more, the process is slow to respond because, in order to accurately model the impact of unexpected events, you have to rerun it from start to finish.

Collaborating on planning

More and more businesses are beginning to realise that keeping the organization and its supply chain siloed simply isn’t going to work. Companies need to collaborate across teams and connect every part of the business, from finance and sales, to marketing and the supply chain, because when something changes in one area, it will ripple across the business, and you have to be able to respond at speed.

Collaborative planning helps to solve the problems presented by a consensus strategy by allowing different functions to own different inputs to just one plan. A truly joined up approach.

For example, with a collaborative strategy, one team may input a baseline forecast, followed by a team who input an organic growth uplift, and finally another team who make an input for a promotion. This means that there is only one plan, yet three teams have collaborated to achieve it. As a result, all three teams can be fully accountable for the accuracy of their individual inputs and assumptions because we can individually measure each of their contributions to the plan.

In addition to a 75% reduction in workload and increased response times, a hidden benefit of collaborative planning is that the process is particularly well suited to event-based inputs, which are truly the planning panacea.

Moving beyond traditional budgets: letting events drive the process

Traditionally, when organizations create multiple plans as part of the consensus process, they do so in a budget type format – something that is often remarkably similar to a household budget. But there are many common complaints with entering forecasts (and budgets) in this format. To name a few: there are a lot of input cells to review, there’s sparsity in the plan, granularity is lost, it’s not easy to change or move events and there isn’t a lot of context.

But if we break the plan down into the events that it is built on, rather than entering and analysing hundreds and thousands of cells of information, organizations can just record the key events that generate the output.

In addition to building out a story from the headlines of the overall plan, event-driven planning has additional benefits including workload reduction, the ability to quickly iterate plans just by changing any assumption, increased responsiveness, and the ability to assess scenarios and different options in real-time. In this way, you can create a living plan.

Ultimately, organizations and supply chains that take a collaborative, event driven approach to planning can not only reduce their teams’ workloads, but equally increase the impact of the work they are doing and the efficiency at which it can be done. And that planning has never been more vital to the wider business as unexpected natural and unnatural disasters are thrown at companies from every direction. Planning isn’t about making life harder; it’s about working together to make it easier. Whether businesses decide to exploit the change or avoid it, the key is to be prepared for whatever comes their way.