SCENARIO PLANNINGAddressing a capability gap affecting

industry competitiveness

2018

Authors Who we are.

GRA was founded in 1997 and is Australia’s premier specialist supply chain consulting firm. Our team has extensive commercial & government supply chain and logistics experience across a broad range of industries and at all levels of the process, both strategic

and operational.

At GRA we understand the complex challenges industry is facing. We can help you with not only designing an optimal supply chain, but also ensuring that your inventory is optimised to ensure that the highest possible service levels can be achieved at the lowest possible cost.

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Supply Chain Strategy,

Planning & Execution

Carter McNabbCarter is a founding Partner of GRA and is widely acknowledged as an influential industry expert. He advises CEOs of some of Australia’s top companies and has helped organisations in North America, Asia and Australia deliver rapid and sustained supply chain improvements.

Charles EdwardsCharles is a Senior Consultant with GRA. Charles has worked with clients across the Australian Defence Force, MROs, automotive,

telecommunications and retail industries to enhance their performance. He is particularly interested in business strategy and the impacts of disruptive technologies on the supply chain.

2XThe volume of

data is doubling every 3 years.

SETTING THE SCENE

Exponential population and technology growth is

occurring at a rate never before seen in history.

Together, these forces have created the data driven

world we live in. The business landscape has become

more competitive and complex given the increased

level of capability required to scale, evolve and

rapidly gain market share; shortening the business

maturity lifecycle.

A critical success factor to survival and succeed in

both nature and business is the ability to learn and

implement quickly – to adapt and evolve. By

reducing the time it takes for your business to know

what’s happening, learn what is needed for success

and implement, you can outpace your competitors

and capture new opportunities.

Today, there is an imperative to turn the vast seas of

data into information, something useable which

drives insights and enables us to make decisions

which optimally utilise assets and resources. In

operational speak, this entire process is enabled by

excellence in Scenario Planning.

SCENARIO PLANNING

Scenario Planning is a structured “what if”

analysis of the future internal and external

operating environment.

It enables proactive strategic, operational

and tactical adjustment to address

potential issues and opportunities. Trade-offs

between opportunities & risks are then

analysed against given constraints.

Effective Scenario Planning supports rapid,

optimal decision making and enables a

business to act swiftly and with confidence.

The qualitative benefits of Scenario Planning

include:

Essentially, Scenario Planning enables organisations to

turn unknowns into knowns, factually assess options and

act with confidence.

Informed Trade-

off DecisionsForward Visibility

Decision

Optimisation

BENEFITS OF SCENARIO PLANNINGTrade-off decisions, such as “is it worthwhile targeting a 2%

service level increase on A class items?” and “what is the

required investment?” can be determined with confidence

with mature Scenario Planning.

It follows that we can measure the impact of certain

scenarios to a high level of confidence, enabling informed

decision making. Often these scenarios can deliver both

revenue and cost improvements.

5-15% supply chain

operating cost

reductions are not

uncommon from

optimising both

fixed and variable

costs

Inventory

management

Scenario Planning will

often reduce holding

requirements by 10%

to 40%, freeing up

cash.

Superior scenario

management and

decision making

typically yields

revenue increases

of up to 10%.

In GRA’s experience,

Scenario Planning projects yield

investment ROI of minimum 3:1, with typical ranges in the order of 10:1

plus

Higher Service Levels at Lower Inventory Cost

$82.1M

$72.0M

$59.5M $57.1M

Current Position

Average Inventory Position

Current Policy

Optimised

$48.8M

& Additional Forecast

Algorithms

& Mfg Constraints Removed

Service Level

98%

92%

*Actual client results

TOP- AND BOTTOM-LINE BENEFITS

WHERE IS THE INDUSTRY TODAY?

A recent survey

conducted by GRA and

the AFGC into the

Australia’s food, drink and

grocery manufacturing

industry found that:89%

of respondents

identified their

capability in

Scenario Planning

as non-existent or

insufficient.

of survey

respondents

identified as

having a formal

S&OP process in place.

60%

THESE RESULTS SUGGEST

• an industry capability in

scenario planning has

not evolved out of

S&OP yet

• organisations are not

fully prepared to

manage shocks or

changes to the business

environment

HOWEVERSO WHY HASN’T AN INDUSTRY

WIDE SCENARIO PLANNING

CAPABILTY EVOLVED

?

7

Tactical Horizon

0-2 months

Operational Horizon

3-12 months

Strategic Horizon

12-36 months

Tactical Planning• Scheduling

• Replenishment

• Refine transportation

• Redistribution

Operational Planning • Demand shaping and statistical forecasting

• Key event / promotion planning

• Product run-out strategies

• Capacity planning

• Procurement

• Supplier collaboration / re-planning

• Product portfolio analysis

• Transportation planning

Strategic Planning • New product / service introduction

• New market Entry

• Customer segment expansion

• Network redesign

• Joint planning with customers & suppliers

• Service level offering enhancement

…BECAUSE IT TAKES TIME

& COMMITMENT

S&OP forms the building blocks of Scenario

Planning capability, and an effective and

mature S&OP process evolves incrementally.

S&OP, and Scenario Planning, should layer

across the organisation’s Strategic,

Operational and Tactical horizons. Examples

of some of the Scenario Planning activities

that occur over these horizons are illustrated

in the adjacent figure.

Based on these horizons, organisations need

to commit to the process in order to see

measurable and sustainable results in the

long-term. It’s an evolutionary journey.

Building an effective Scenario Planning

process does not come without its

challenges. These often include establishing

a disciplined and trusting culture – and

development of a integrated planning and

analysis framework which enables the ability

to act with confidence.

STAGES OF S&OP MATURITY

If Scenario Planning sounds a lot like S&OP, that’s because it’s the next step in its evolution…

Effective Scenario planning is a product of mature, adaptive S&OP. Scenario Planning is not just a

capability, but a clearly defined process which is overlaid across cross-functional frameworks.

S&OP may start as simple demand & supply balancing,

but it then typically evolves to consider organisational

level trade-offs, considering both volumes and financials.

It also takes time. An organisation cannot

simply skip a stage; however, it can move

through them more quickly with the right

enablers. Ultimately, Scenario Planning

must evolve in response to increasing

competitive pressures, if organisation are

to survive. Today’s “leading” capability is

tomorrow’s “essential” foundation.

• Inter-business S&OP

• S&OP drives forward business & financial plans

• Integrated business management

• Used to deploy & drive the value proposition

• Intra-business S&OP

• Focus is tactical demand & supply balancing

• Common KPI framework & single set of numbers

• Enhanced structures, processes & systems in play1. Foundation

2. Operational

3. Enterprise

4. Adaptive

• Scenario planning

• Focus on competitive priorities

• Responds & adapts to strategy

• Reshapes with changing

structures

• Information gathering

• S&OP structure & process design/definition

• Gap analysis (people, processes & systems)

• Implementation approach

“How do I

develop a

good

plan?”

“Can I

supply to

projected

demand?”

“What is the

financial

impact?”

“What is

likely to

happen

if…?”

Ca

pa

bility

Time

EFFECTIVE S&OP ISN’T

EASY…

Sometimes in the face of complexity,

organisations oversimplify and make

costly assumptions. The simplification

approaches highlighted here lead to loss

in value in the S&OP process and

business results, and can ultimately

erode confidence in the S&OP

framework altogether.

Often these simplification techniques

and settings occur behind the scenes

and deep within ERPs and other

planning systems. They are common in

industry and lead to a substantial loss of

value and unmanageable supply chain

results.

As a result, many organisations invest

heavily in the structures and frameworks

of S&OP but don’t see results.

Systems which allocate

“Top Down” via

averaging, can lead to

cases where two different

items, one with sales

trending down and

another with sales

trending up, get allocated

the same forecast!

Demand Planning

lacking Analytics

Replenishment methodologies

which do not provide forward

visibility, such as ROP/ROQ and

Min/Maxes do not yield effective

time phased replenishment plans.

Basic Supply

Chain Planning

Portfolio

Review

Demand

Review

Supply

Review

Pre-

S&OP

Exec

S&OP

Approaches like “Days Cover” do not consider costs,

service level targets or variability. They are inflexible and do

not achieve consistent, targeted service levels.

Over simplistic Service Level Optimisation

AN EFFECTIVE CULTURE FORMS

THE BACK-BONE

In addition, the importance of a strong team culture in

achieving effective Scenario Planning cannot be

overstated.

We outline the components of an effective culture later,

but in short, clear processes, roles and responsibilities are

fundamental for success. Processes should be

understood and lived across the organisation. Roles and

responsibilities can be well defined using the established

RACI framework, as an example.

Disciplined business processes and carefully considered

KPIs help to drive an organisation in the right direction

and break down silos which can otherwise occur

between the likes of sales, marketing, supply chain and

finance teams. Silos and KPI misalignment can be large

hurdles in assessing and acting on Scenario Plans.

Top management ownership and involvement in S&OP

and Scenario Planning also helps to drive the right

culture.

Responsible Accountable Consulted Informed

For your business process, task or project do you know who is:

R A IC

The RACI Framework

?

THE KEY INGREDIENTS TO SUCCESS

The key ingredients to successful Scenario Planning are a strong foundation

of effective culture and information which enable “one version of the truth”.

The

Right

Culture

one version of the truth

Reliable

Info

Scenario Planning

Results from Scenario Planning

are often lacking as many

organisations haven’t yet created

this single truth in which trade-off

analysis results can be acted on

with confidence.

The most frequent issues we see

are disintegrated planning

systems and cross-functional

frameworks. There is often no

central way to make a change

upstream and assess the

downstream impact. Scenarios

are often created in isolated

spreadsheets, built independently

with disintegrated information

which aren’t able to create an

accepted “single version of the

truth”. The “one set of numbers”.

THE RIGHT CULTURE

The right culture can be difficult to quantify; however, it should include

strong trust, discipline, clarity and commitment. For an excellent

definition of trust, we recommend Brene Brown’s B.R.A.V.I.N.G

(BecomingWhoYouAre, 2015). Of note, it is essential that your people

have capability, ownership and can speak the truth without fear or

reprisal.

Google calls this “Psychological Safety” – feeling safe to take risks and

be vulnerable in front of others. In its 2015 study of the interactions of

over 180 Google teams over a 2-year period, Google found five key

dynamics of successful teams, with “Psychological Safety” being “far

and away the most important of the five dynamics”.

If your company culture is such that mistakes are punished and

freedom to experiment curtailed, there will be less opportunity for

open minded trade-off decisions to be assessed, let alone

implemented.

Roles, responsibilities and accountabilities should be clear to all. It is

essential that the team is empowered, trusted and accountable. An

environment where “what do we need to do now” is valued above

“who did something wrong then”.

The No. 1 most

important factor to

building successful teams (Google, 2015)

“PsychologicalSafety”

RELIABLE INFORMATION

Reliable Information could involve AI, Advanced Planning Systems, and

blockchain. Or, it could just be a relatively simple Excel model.

Simple is OK for some Scenario Planning tasks. The key is to have reliable

and integrated data where it matters. At the end of the day, users must

be able to quickly and reliably assess outcomes which deliver results in

which there is organisational wide confidence.

Some of the essentials in securing reliable information include:

Information must be able to be transparently transformed and read

across all sectors of the business for analysis results to be reliable and

trusted.

Systems don’t

need to be

‘perfect’. Think

roughly right

versus precisely

wrong.

Data integrated across all business

functions, and includes financials.

Data granularity applicable to the business (such as

product-by-location or by customer).

Both data and systems

management has clear owners and

policies.

Systems and settings configured

specifically for the business and fully

understood.

Organisation wide confidence in data

accuracy.

Easy to use systems which enable users

to quickly and reliably assess

outcomes.

a change in

store

forecast...

a change to

store

replenishment...

a change to

DC

purchasing...

a change to

inventory

investment ...

a change

inventory

balance...

a change to

projected on

hand.

ONE VERSION OF THE TRUTHA strong culture and reliable

information enable scenario plan

analyses to yield one version of

the truth. Scenarios are

repeatable, reliable and their

implications can be fully

understood across the supply

chain.

This example is a high level

illustration of the power of one

version of the truth in

understanding the down- and up-

stream impacts on the supply

chain of different scenarios.

J F M A M J J A S O N D J F M A M J J A S O N D

J F M A M J J A S O N D

150 150 150

J F M A M J J A S O N D

J F M A M J J A S O N D J F M A M J J A S O N D

In Australia, Simplot is a leader S&OP maturity and Scenario Planning. Simplot

is a leading Australian food manufacturer and the home of many known

household brands, including Birds Eye, John West and Edgell.

Simplot operates in a complex environment.

On the supply side, Simplot has an “Australian Grown” customer value

proposition for many of its categories, making alternative sources of supply

hard to come by. There are requirements to contract growers out two years

in advance. Further, being in the food industry, they are at the whim of

mother nature and seasonal variability, what is grown is what can be

supplied. A basic staple such as potato's presents Simplot with a high cost

trade-off decisions. When processed at harvest they yield approximately

80%, however if demand requires them some time later, the yield quickly

drops to levels near 60%.

On the demand side, Simplot’s customers expect consistent and excellent

service. Their customers include quick service restaurants such as McDonalds,

and large supermarket chains which have no tolerance for service failures.

These supply chain constraints require Simplot to have accurate two year

forecasts. On top of the day-to-day there is the continual search for growth

via new customer contracts and product range management.

CASE STUDY: SCENARIO PLANNING @ SIMPLOT Background Foundations Capability

Simplot has become extremely effective at navigating this complex and

changing environment and developed a strong Scenario Planning

capability.

How did they do it?

Simplot have been running a disciplined S&OP process for over 15 years and

regularly audit for improvement. All business processes are interconnected,

with S&OP being the central thread.

The right culture:

• Roles and responsibilities are clearly defined

• Middle management is empowered and trusted

• Ability to quickly mobilise teams to assess options and capabilities

• High confidence in potential outcomes & ability to service contractual

changes

• Strong capability to win work

Reliable information:

• Sophisticated and integrated systems where they count; a tier one ERP

and supply chain planning system which is well tuned to the business

• Data is granular, and costs well understood.

• Data accuracy is prioritised based on what inputs drive decisions

CASE STUDY: SCENARIO PLANNING @ SIMPLOT Background Foundations Capability

At Simplot, most Scenario Planning discussions are around financial outcome

risks and opportunities, plans are then syndicated throughout the

organisation with S&OP driving action. ‘What-if’ analyses are employed to:

• Assess capability to manage changes in demand or supply

• Negotiate new supply agreements with distributers

• Assess options to close budget gaps

Simplot has clear trigger points and high confidence in potential outcomes &

their ability to service contractual changes. This ability to commit with

confidence has provided a strong capability to win work.

Recently, Scenario Planning enabled Simplot to win a frozen goods contract

with a large supermarket retailer. When the offer was on the table, Simplot

quickly established a team to assess their ability to service the contract into

the future. They assessed options and customer impacts quickly and with

confidence. In doing so, Simplot was able to respond swiftly and win the

work; locking out the competition in the process and delivering a clear

competitive advantage.

Scenario Planning is not a silver bullet, impacts in the tactical horizon are still

felt. The difference is that Simplot can see most issues coming and adapt

and respond quickly. Hard decisions are made from an informed position.

Lessons are learnt and the Scenario Planning capability is continually

evolved.

LESSONS

LEARNT

Foster a culture where everyone can speak the

truth

Reliable, integrated data across systems where it counts

Employ capable people and give

ownership

Clear business owners and

policies

CASE STUDY: SCENARIO PLANNING @ SIMPLOT Background Foundations Capability

18

PIECING IT ALL TOGETHER

What’s required to survive in this volatile, changing

World? Market adaptation in the face of rapid

change, with Scenario Planning as an underpinning

capability.

While Scenario Planning may be considered an

emerging capability today, with only leading ‘best in

class’ organisations at the forefront, we expect to

see it become more and more common and a

necessity of survival in the not too distant future.

Organisations embarking down the Scenario

Planning path should do so with full consideration for

the commitment required to make it effective.

Organisational transformation may be required. The

key is to establish the right culture and reliable

integrated information which enables one version on

the truth.

The benefits of Scenario Planning are real.

Excellence in Scenario Planning is a competitive

advantage and your organisations capability in it

can build barriers to competition.

It’s an

evolutionary

journey and a

competitive

necessity.

HOW DO YOU KNOW YOU’VE GOT IT?

Imagine you just got a call form the MD. A new customer wants to

increase online sales volumes by 40%. The MD is querying if you can

supply them, within current lead-times, and if you did, how would it

impact your other customers? What are the supply chain costs

and capacity impacts into the future?

If your response here is one of self assuredness in your ability

to assess the situation in an accurate and timely manner,

your confidence is likely built on your Scenario Planning

Capability.

However, if your response is one of anxiety, there

may be a case for developing your Scenario

Planning capability!

50%The Percentage chance of

survival of all publicly traded

companies todays business

environment.Daepp, MIG (2015), The Mortality of Companies