planning

Alternate Scenario Planning

Daniel Dumke — Mon, 02 Jul 2012 13:36:17 +0000

Scenario Planning has been around for some time now. By some companies it is seen as a core tool to assess a risky future and support strategic planning. Up to now I only mentioned it briefly in a few articles.

In 1977 Vanston et al. were one of the first authors to document a complete scenario planning methodology.
So this article answers questions of what scenarios are and how to generate and analyze them.

Scenarios

In order to minimize the risk inherent in planning against a single, unforeseeable future and to be in a position to profit from different possible trends and events, many governmental agencies and private companies are finding it desirable to plan against, not one, but rather a range of possible futures. Obviously, for the technique to be used effectively a set of alternate scenarios which are relevant, reasonable, and logically interrelated needs to be developed.

There are four requirements which each scenario should fulfill:

Plausibility.

Self-consistency.

Inclusion of all critical, relevant factors.

Similarity to other scenarios in form and scope.

Scenario Planning

The methodology consist of twelve steps, which are described briefly and afterwards discussed in a case study. In the case study the University of Texas (UT) was asked by the National Aeronautics and Space Administration (NASA) to develop a set of alternate scenarios for use in a workshop to assess possible national policies concerning portable fuels.

Define Purpose and Organize Development Team
The goal has to be set first, building on the objective the candidates for a development team are selected.

Case study: The general purpose of the workshop and the proposed use of the scenarios to be developed by The University of Texas (UT) team (composed of members of the Center for Energy Studies and the Population Research Center (PRC)) were outlined in the original NASA work statement. Subsequent meetings of UT, TRW, and NASA representatives allowed further definition of the intended nature of the scenarios and the methodol- ogy for integrating the scenarios into the workshop procedures. It was agreed that approximately six different scenarios could be accommodated-given the size of the workshop. […]
Gather Relevant Data
The underlying data is key to any good scenario and determines its credibility and completeness.

Case study: The contract work statement for the university team emphasized nontechnical aspects of the energy problem. The scenario development committee hence focused most of its data-gathering activities on “futures” literature and societal factors and demographic trends.
List all relevant factors
Now the factors which are relevant for the project in a social, political, economic, technical and ecological way. This selection should be broad.

Case study: the committee next listed all components of the social structure which could reasonably be associated with energy consumption or which would limit or restrict the production of energy. All relevant factors were listed even though in some cases their impact on the energy dimension appeared remote. In all,
approximately ninety factors were identified.
Determine the most pertinent factors
In a team work approach a further specification and selection of the factors has to be conducted. An inclusion of management staff is recommended.

Case study: At this point three additional consultants were engaged to assist in factor evaluation. These consultants included an economist, a sociologist, and a political policy specialist. After a general meeting of the committee with the consultants, members of both groups were asked to rank the factors in order of their importance to the energy status of the nation.
Choose themes for alternate scenarios
General topics for the scenarios should be defined. “Obviously, the company or agency can plan against only a finite, generally small, number of futures. Although the exact number of scenarios to be developed will vary, experience has shown that from three to six are usually appropriate. As will be discussed later, one of the scenarios should be the one believed to be the most probable. The other scenarios should be chosen according to the degree to which they provide maximum value to the planning process.”

Case study: The [6] themes were chosen as follows:
(a) Economic expansion: A future in which the nation puts primary emphasis on economic growth, increased production, and improved material well-being.
(b) Environmental concern: A future in which the nation puts major emphasis on environmental and ecological improvement even, if necessary, at the expense of other factors. […]
Arrange factors into related groups
The factors found in step 4 have to be summarized into groups to describe the interdependencies between them.

Case study: After the factors developed in step 4 were compared with the six chosen themes, it was decided that the factors could be grouped into nine general topics.
(a) Population, (b) Urbanization, (c) Labor Force […]
Define present situation in terms of the chosen factors
“Using information on the status at present and in the recent past of the previously chosen factors, a narrative statement is written regarding the present state of the relevant society and the manner whereby this state came into being.”

Case study: At this time the scenario development committee prepared a narrative description of
the present status and recent history of the United States based on the above groups of factors. All listed data were carefully referenced and a glossary of terms was attached.
Develop most probable scenario
The authors suggest to start of with the most probable scenario and set the factors. To generate the necessary information either own forecast and/or projections of others shall be used.

Case study: To begin the development process, values were assigned to each of the relevant factors.
These values were carefully chosen after comparing estimates from various technical and “futures” sources with trend extrapolations developed by the committee itself.
Alter basic factors to support alternate scenarios
Finding alternative possibilities for factor combinations then support the other scenarios.

Case study: The scenario development committee next examined each of the relevant factors and
determined how they might be affected by the futures envisioned in the six alternative themes. When appropriate, factors were modified to reflect projected effects.
Prepare alternate scenarios
“All scenarios should be as closely alike in format, wording, and style as practical. This congruency will assist in comparison of the planning programs based on the different scenarios. As with the most probable scenario, projections should be referenced where possible, and reasoning carefully explained.”

Case study: Using the modified factor values developed in Step 9, scenarios were developed for each
bounding theme. To the extent possible, each alternate scenario had the same format and, in many cases, the same phrasing as the most probable scenario. This parallelism was intended to facilitate comparison of the plans which would be developed using the different scenarios.
Check all scenarios for consistency, clarity, and completeness
“It is very easy in a complex scenario to overlook internal inconsistencies and normally
obvious violations of logic and reason. All scenarios should be checked by people not involved in their preparation to guarantee their clarity, correctness, and completeness.”

Case study: The completed scenarios were then sent to two editors for review and rewrite as necessary. Copies were also sent to selected consultants for suggestions and comments.
Modify scenarios as necessary and organize for use
Depending on the purpose of this method the scenarios should be organized and finalized.

Case study: The comments of the trial run participants were carefully weighed and scenarios altered as appropriate.

Conclusion

Scenario planning can help companies to try to get a better grasp of future events and their effects on strategic variables.
The method presented here does show several drawbacks. It does leave a lot of room for interpretation and any reasoning for using exactly this process is just missing.

On the other hand I think the major advantages lie in the communication processes which are induced by using this or any similar methodology and I agree with the authors’ conclusions:

It forces planners to accept and act on the fact that the future can never be exactly known. Thus, the plans resulting from the use of this technique should involve more flexibility than those drawn up to meet one set of postulated events.

It serves as a tool for communication between people with very different points of view and encourages cross-fertilization of ideas.

It provides a vehicle for integrating relevant technical and nontechnical factors into the planning process.

It encourages the development of a structured system for monitoring trends and events of import to the organization. Thus, it aids in preventing the organization from being faced with unexpected threats and from failing to take advantage of emerging opportunities.

It helps to identify the point at which important decisions will Irave to be made in the future. This should allow more time for consideration and data acquisition.

Reference:

Vanston, J., Frisbie, W., Lopreato, S., & Poston, D. (1977). Alternate scenario planning Technological Forecasting and Social Change, 10 (2), 159-180 DOI: 10.1016/0040-1625(77)90043-9

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planning

Discovering the Right Planning Approach for your Supply Chain

Daniel Dumke — Mon, 24 Oct 2011 13:51:00 +0000

Some weeks ago I wrote about Fisher’s suggestions on how to select the right supply chain for your product. But how to continue from there? How do different products affect the further planning steps needed?
So I looked for another article to fill the gap and found “Selecting the right planning approach for a product” by Kaipia and Holmström (2007) which covers different planning approaches for different products.
This review is based on the review of Fisher’s model, so make sure to read that article as well.

Methods

The authors build their planning approach on three methods:

Literature review
Development of a framework to differentiate planning approaches for different types of products based on a case company
Application of the selection framework in a case study

Figure 1: Overview Case Companies (Kaipia and Holmström, 2007; click to enlarge)

Case companies

Three case companies were examined: Vaisala, Mattel and Zara. Figure 1 exhibits the product properties and planning approaches currently used by them.

Vaisala, focusses on short lead times in the distribution network and local component buffers for supplies. Production is “to-order” with a high degree of flexibility. The strategic goal is to be responsive to customer demand.
Mattel, Inc, uses continuous, planned product changes, to keep supply and manufacturing efficient.
Zara’s system is based on fast reaction to changes in sales, in combination with a highly compressed design-to-customer process. Half of the demand can be seen as quite stable, so overall less responsiveness is necessary.

Planning approaches

The authors distill eight planning approaches from the literature, which are used as a basis for the selection of the right planning process. Included in figure 2 are the features and requirements for each planning approach.

Figure 2: Planning Approaches with Features and Requirements (Kaipia and Holmström, 2007; click to enlarge)

Selection process

Using the cases different product properties in supply and demand are analyzed and aligned with the requirements of the planning approaches. From this the authors deduce the selection process shown in figure 3.

Figure 3: Selection Process for the Right Planning Approach depending on the Product Type (Kaipia and Holmström, 2007; click to enlarge)

The authors conclude with general recommendations for the right planning approach for several OEM product types, shown in figure 4.

Figure 4: Recommendations for different Product Types (Kaipia and Holmström, 2007; click to enlarge)

Conclusion

While Fisher (1997) kept his work low-key, with only few pinpointed recommendations for specific products or companies, the authors in this article were more aggressive. There is even a strategy of last resort if everything else fails: simplify, invest and create the “planning organization”.

I did not find any errors in their logic conclusions, but of course these recommendations might be overly specific for many other case studies. What to use? I really liked the approach of listing the different planning approaches with the respective requirements and to deduce the planning process for the different product types from that, so may be this might be the common denominator which could be used for a multitude of cases.

Reference:

Kaipia, R., & Holmström, J. (2007). Selecting the right planning approach for a product Supply Chain Management: An International Journal, 12 (1), 3-13 DOI: 10.1108/13598540710724347

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Supply Chain Design: Capacity, Flexibility and Wholesale Price Strategies

Daniel Dumke — Wed, 24 Nov 2010 16:49:00 +0000

This is the forth contribution to my series on doctoral dissertations on Supply Chain Risk Management. An immense effort and dedication is spent on these works only to find the results hidden in the libraries. So the goal is raise interest in the research of my peers.

Author / Topic

This dissertation was written by Brian Tomlin in 1999 as his doctoral thesis at the Massachusetts Institute of Technology, Cambridge, USA. It can be downloaded here at his homepage at his current employer (Tuck School of Business at Dartmouth). The title is:

Supply Chain Design: Capacity, Flexibility and Wholesale Price Strategies

Summary

Tomlin cumulates three distinct topics and analyzes them in depth in his dissertation. His core question is always the supply chain design, with demand uncertainty as the dominant risk.

Wholesale Pricing Strategies
Using a game theoretic model with two actors (supplier and manufacturer) he explores the best strategies for setting the wholesale price. The objective is to maximize the supply chain profit (think of it as a return on investment in the supply chain). He shows, that no matter if quantity-discount or quantity-premium pricing schedules are used, non-linear pricing schedules outperform linear pricing schedules.
Process Flexibility Strategies
He then tackles flexibility strategies in a multi-product, multi-stage supply chain environment. He first identifies two inefficiencies which only occur in a multi-stage environment, namely stage-spanning bottlenecks and floating bottlenecks. He develops a mathematical supply chain optimization model and based on the results he concludes, that “in supply chains with a large number of products or stages, additional flexibility is advisable, especially for stages in which the capacity is not much greater than the expected demand.”
Capacity Decision
With this chapter on capacity decision making in multi-product, multi-stage supply chains he walks on new grounds, since up to then only single-stage models have been analyzed. He uses two criterion for his analysis: service level and expected shortfall. The results of his analysis show that under optimal capacity allocation: for every stage must hold true: for a small increase in a stage’s capacity, the decrease in shortfall divided by the capacity cost should be the same for all stages.

Conclusion

I have to admit that I do not really like the segregated design of the thesis itself, analyzing one topic in depth usually should be sufficient for one dissertation. On the other hand the work by Tomlin on the three topics would probably also have sufficed for two or three separate dissertations as well.

Compared to other dissertations I read it was refreshing to see, that he did not spend (too) much time on making an in depth literature review beforehand but focussed very much on his own works.

Reference:

Brian T. Tomlin (2000). Supply Chain Design: Capacity, Flexibility and Wholesale Price Strategies Massachusetts Institute of Technology, Dissertation

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Supply Chain Design - Robust Planning with differentiated Supplier Selection

Daniel Dumke — Wed, 13 Oct 2010 13:28:00 +0000

This is the third contribution to my series on doctoral dissertations on Supply Chain Risk Management. An immense effort and dedication is spent on these works only to find the results hidden in the libraries. So the goal is raise interest in the research of my peers.

Author / Topic

This dissertation was written by Stephanie Freiwald in 2005 as her doctoral thesis at the University of Bochum. It was published by Peter Lang, Frankfurt a.M. and can be ordered here from amazon.deor your local library. The title can be translated as:

Supply Chain Design – Robust Planning with differentiated Supplier Selection

Summary

In her work Freiwald builds a mathematical model of a four echelon supply chain (supplier, producer, distributor / inventory, customer) starting with a literature review of existing models. Building up from there she first adds variables to include sophisticated criteria for the supplier selection extending the traditional price-only selection.

Robustness can be oriented towards the models optimality, reliability, result-robustness and goal robustness. So as the next step the author set the goal to include robustness to uncertainty and unsettled preferences of the decision maker to the model.

As a final step the author applies her model to an industrial case, with the goal to find optimal, robust solutions for an Supply Chain Design problem.

Conclusion

Stephanie Freiwald’s work stands apart in including multiple aspects of the supply chain design problem into one concise model for optimization without neglecting the implementation of such a “theoretical” model.

Reference:

Stephanie Freiwald (2005). Supply Chain Design – Robuste Planung mit differenzierter Auswahl der Zulieferer Peter Lang, Frankfurt a.M., Dissertation

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Identifying important Activities within the SCOR Processes

Daniel Dumke — Mon, 16 Aug 2010 10:07:00 +0000

The Supply Chain Operations Reference (SCOR) model has been developed by the Supply Chain Council to provide a best-practice framework for supply chain management practices and processes with the goal to increase performance.

SCOR

The SCOR model consists of five major process categories: Plan, Source, Make, Deliver and Return

Starting from that best practice processes are defined up to level three.

Supply Chain Operations Reference Model (SCOR, SCC 2000)

Research Question

In 2004 Lockamy and McCormack published an exploratory study on the question

What are the most important supply chain management planning practices in the Plan, Source, Make, Deliver decision area that relate to supply chain performance?

Results

From literature and the questionnaires nine general practices are derived, that might influence performance.

Planning processes
Collaboration
Teaming
Process measures
Process credibility
Process integration
IT support
Process documentation
Process ownership

Using factor analysis the authors find that “Planning processes” and “Collaboration” is especially important for supply chain performance within all SCOR process categories. The aggregated results are shown in the following table.

Results Lockamy and McCormack (2004)

Reference:

Lockamy, A. III, & McCormack, K. (2004). Linking SCOR planning practices to supply chain performance: An exploratory study International Journal of Operations & Production Management, 24 (12), 1192-1218 DOI: 10.1108/01443570410569010

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