July 15, 2024

Robert J. Bowman, SupplyChainBrain

The best way that industrial supply chains can prepare for an uncertain future is to imagine the most extreme outcomes playing out — in opposite directions.

That, at least, is the premise behind extreme scenario planning, a concept devised by Accenture.

Developed in conjunction with Oxford Economics, the model lays out scenarios in five subject areas: climate concessions, global trade flows, access to resources, technology adoption, and the industrial workforce.

For each category, Accenture envisions both “progressive and regressive” extremes occurring by the year 2040. In global trade, for example, it acknowledges the possibility of both a liberal, unified market with few restrictions, and decoupled markets hindered by increasing protectionism. Companies can then examine the potential impacts of both scenarios.

“If you’re prepared for extremes, then you’re prepared for anything in between,” explains Matthias Wahrendorff, industrial research lead at Accenture. And who’s to say that the worst (or best) won’t happen? “Frankly speaking,” he says, some of those [outcomes] are becoming realistic nowadays.”

Accenture chose 2040 as a target year because it extends beyond the five- to seven-year economic cycles experienced by industrial goods producers. “That’s when all products are more or less in the plans, and production schedules are defined,” Wahrendorff says. “We wanted to go much more ahead, and have a long-term view on the industrial equipment industry.”

Accenture and Oxford Economics began by identifying approximately 60 factors directly affecting the industry, then narrowed them down to 25 which were then grouped under the five main headings, says Brian May, Accenture’s North America Industrial Lead.

In the process, “we learned that many companies have not been preparing for the unthinkable,” Wahrendorff says. By considering opposite scenarios, they can acquire the flexibility to scale operations in line with actual events.

At some point, of course, planners must commit to a particular outcome, in terms of setting production and inventory levels. But Wahrendorff says they’ll be in better shape to do that if they’ve already assessed the biggest risks in their business model.

“If there’s planning done at each of those extremes, it doesn’t mean the investment picture will be applied to either one,” May says. “As you plan around those, you may land somewhere in the middle.”

One could reasonably predict that industrial supply chains will face crises in all five of the main areas of change, as defined by Accenture, over the coming 16 years. Global trade is already being disrupted by protectionism and geopolitical tensions. Climate change is causing more frequent natural disasters and temperature extremes. Resources are becoming more expensive and harder to acquire, with disposability a growing concern. Companies are beset by decisions over the adoption of technology, especially artificial intelligence. And skilled labor is in short supply in many parts of the supply chain. Maybe planners’ vision of 2040 doesn’t look quite so extreme after all.

According to Accenture, the model is designed to equip business leaders with the ability to undertake several key initiatives:

• Identify immediate actions to be taken, which can also shore up resilience in the long run;
• Strengthen the “competitive business model,” by assessing the effectiveness of current operating practices;
• Assess the business’s IT architecture in a time of “compressed digital transformation” and the emergence of generative artificial intelligence, and
• Enable contingency planning, to respond to extreme developments that emerge in “workshop” sessions.

No amount of scenario planning, of course, can account for every eventuality. The arrival of the COVID-19 pandemic, to name just one crisis of recent years, proved that there will always be “wild cards” that threaten to upend industries and supply chains, May says. In addition to devising and preparing for long-term scenarios, he says, planners must remain flexible to respond to the inevitable surprise, whatever form it takes.

Even the model itself isn’t set in cement. May acknowledges the possibility of adjustments in response to actual events occurring within the five main drivers of change. But Accenture remains committed to the basic concept: To be ready for the future, businesses need to think in terms of extremes.
Source: https://www.supplychainbrain.com/articles/40019-preparing-for-the-future-with-extreme-scenario-planning