By Adeel Najmi
Businesses around the world are closely monitoring market trends and economic indicators, watching to see if consumers are feeling confident again — and if demand is beginning to rebound.
While the reemergence of demand is certainly welcome, it's also fraught with risk. Raw materials and transportation prices will likely increase, and companies will have to ramp up production with a reduced workforce, constrained capacity and lower inventory levels they established during the downturn. A recent study by AMR Research revealed that 44 percent of executives believe their greatest risk in 2010 will be managing the economic recovery, while only 23 percent are concerned about the effects of a continued recession ("Better Times Right around the Bend? Executives Downgrade Supply Chain Risks." AMR Research, September 28, 2009).
As we prepare for the reemergence of demand, it's critical to recognize that "business as usual" is a thing of the past. Our world has dramatically changed in the past two years. Companies must learn to approach the marketplace differently, poised to react to any future demand shifts with agility and responsiveness. Businesses must actively prepare to reenergize their supply chains to meet upward demand trends while mitigating exposure to financial risks in a market characterized by unpredictability. To effectively manage these risks, every business needs to take a hard look at its approach to the marketplace and come away with changes in mindset appropriate for today's radically changed world.
Replace "Planning for Execution" with "Planning for Discovery"
One of the most significant shifts involves rethinking the purpose of planning and forecasting activities. Businesses of all types should move away from the idea that the goal is to achieve the most reliable execution plan possible and instead recognize that real value and agility result from "planning for discovery."
If the last two years have taught us anything, it's that even the best forecast is still only a forecast. The question executives should ask is not, "Will our forecast be wrong?" but instead "When will we first know the forecast is wrong and how will we correct our course?" In today's volatile markets, plans can no longer be thrown over the wall periodically to be executed in an open-loop, single-direction manner — feedback and correction must become part of the process.
In response, many businesses have created plan-do-check-act (PDCA) cycles that continuously monitor supply chain performance and make adjustments as needed. Before the economic downturn, most of these organizations were investing significantly in the "plan" and "do" phases: creating elaborate supply chain plans based on historic demand levels and executing them. But as demand uncertainty increased, these plans rapidly lost relevance and companies were left scrambling to re-plan and re-execute.
In the new business world, the final stages of the PDCA cycle — "check" and "act" — have become as important as the initial planning and execution phases. Instead of being rigid and difficult to change, today's plans must be flexible enough to accommodate the constantly changing parameters under which supply chains are operating.
By Adeel Najmi