- More frequent communication among the enterprise’s stakeholders to identify potential issues early on. This allows for the integration of response plans and allows for a faster reaction throughout the supply chain. Rapid-response teams can be assigned to specific cross-functional processes or resources to expedite this process.
- Enhanced operating reports, which provide input but also dramatically enhance monitoring and communication (e.g., purchase order delivery status, PO placement status, inventory balances, capacity/load balancing). Comprehensive reports can also provide engineering/technical status (e.g., drawing release status, engineering change order status, test status) and benefit both supplier and customer organizations, as well as cash position.
- Financial status summaries (e.g., receivables, payables, working capital and overall company financial health), used with operational data, provide high-level information to facilitate better decision-making and risk mitigation.
Demand Risk Management
The dynamic economic environment has increased the difficulty in achieving reliable demand forecasts. Reviewing historical sales or seasonal demands does not offer guidance. To deal with this type of uncertainty, companies can turn to scenario-based forecasting.
In scenario-based forecasting, managers define alternative scenarios and identify a range of possible outcomes. Companies develop various forecasts and plans based on these scenarios, which will enable them to act quickly by pulling the alternative that best matches the circumstances they are experiencing.
Scenario-based planning better positions an organization to react to fluctuations in demand and may at times compensate for inflexibility in operations. Some of the key steps of the scenario-based planning process include:
- Determine focus of the evaluation and the key factors/events affecting the focal area;
- Identify the driving forces behind the key factors (credit, competitiveness, cost structure, infrastructure capabilities, environmental trends, etc.);
- Rank critical uncertainties and begin to develop different outcome scenarios;
- Identify early indicators (observable variables, factors or events that suggest a particular scenario is unfolding) of a probable outcome;
- Integrate the results of the particular scenario developed that is currently evolving into the planning cycle.
Companies can establish scenario-based process play books to respond to uncertain environments that enable them to effectively react to varying external pressures and challenges. A great level of flexibility is obtained by tailoring the approach to the specific needs of the company and involving a cross-functional team as in the S&OP process.
No one can accurately predict when the economy will turn around. But what is certain is that when the dust settles, there will be winners and losers, and those companies that can effectively manage demand and supply chain risk will be in a better position. Breaking down silos, with a keen focus on enterprise planning and managing supply risk, will be critical.
About the Authors: Gustavo Gaeta is a principal and Stavros Stefanis is a managing director in KPMG LLP’s Business Performance Services practice, both based in Chicago. The views and opinions are those of the author and do not necessarily represent the views and opinions of KPMG LLP. All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity.