Reducing the Risk: The Importance of What-If Scenarios

Posted by Nick Ostdick on Oct 27, 2016 9:00:00 AM

In today’s varianwhatif1016.jpgt-rich, global automotive supply chain, one of the biggest factors for OEMs is cutting through the complexity associated with multiple production and distribution streams scattered across disparate parts of the world. Mitigating risk, especially with the potential for bottlenecks or breakdowns, is a key driver in leveraging lean manufacturing principles upon which OEMs can optimize production and enhance productivity.

This is where what-if scenarios and the ability to run simulations utilitizing key factors such as forecasts and constraint modeling serve as a value-added element in today’s supply chain management. While not necessarily a crystal ball, what-if scenarios allow planners and managers to visualize a number of potentially disruptive events in order to see how responsive, agile, and transparent their production and supply streams truly are. This not only provides insight into an OEMs current supply situation - be it facility capacity and capability, inventory management, or container strategy - it also proves valuable in helping manufacturers understand the nuances of their production and supply networks and the potential impact in the event of port strikes, labor shortages, transportation and route problems, or other disruptions.

If the name of the game in today’s automotive supply chain is reducing risk and cutting complexity, what-if scenarios are perhaps an OEMs most important tool in staying ahead of the curve in a competitive global market.

Why What-If?

The answer may seem simple: If you can accurately predict how hypothetical conditions will impact the production and movement of component parts across the value chain, you’ll be better equipped to respond when actual conditions arise wherein stress is placed upon your supply steam. What-if capabilities also highlight areas where OEMs need to invest additional resources to ensure production, distribution, and transportation work hand-in-hand for on-time delivery and enhanced customer satisfaction. Planners can also make actionable recommendations based on detailed data and analytics that account for the intricacies of complex supply streams.  

It’s important to understand that what-if scenarios or simulations can be applied to more areas of the supply chain than just merely production- in fact, via intelligent, integrated solutions, what-if scenarios can be a value-added proposition at nearly every major touch point across the value chain including:

Demand planning. Understanding the capability and capacity of a production hub - a series of production networks - is a core driver in scheduling production programs and allocating the right resources to the right hub. While integrated solutions such as sequencing, order-slotting, balancing are crucial in fielding efficient production in the moment, what-if scenarios allow planners to test the limits of a certain production facility based on determined parameters to understand how well said facility can handle orders, modifications, and changes to production rules or definitions. What-if scenarios are beneficial in both mid- and long-term planning and allow planners to game out disruptive simulations that would be too costly or infeasible to enact in real-life manufacturing environments.

Inventory. Imagine an OEM is concerned about inventory and parts coverage at a production facility in South America. Port difficulties and local transportation routes have already put stress on this production hub in terms of sourcing materials for component part production in a timely and effective manner. What-if scenarios provide this hub’s planner a window into current part coverage and what steps should be taken in order to ensure continual production should the flow of materials and resources cease for an extended period of time. Based on the scenario, this planner can decide whether to increase inventory or yard holdings or leverage modified sourcing or freight strategies to guarantee enough coverage to withstand a large-scale disruption.  

Transportation. Why are deliveries not arriving on-time or as-scheduled? Why are delivery costs more than expected or disproportionate to the load or distance the shipment travels? Is the current transportation route as efficient as possible? These are the questions what-if scenarios can help planners and managers answers as they strive for leaner modes of transportation and freight management. Whether concerned with fuel costs, efficiency of transportation partnerships, or viability of rail versus chassis in certain markets, what-if scenarios offer visibility and actionable recommendations on how OEMs can leverage the most out of their transportation strategies.

Benefits of What-If Scenarios

Now that we understand why what-if scenarios are so critical and how they can be applied across the entire value chain, we can briefly examine the concrete benefits OEMs can experience by leveraging these simulations as part of their sales and planning strategy. Broadly speaking, benefits of what-if scenarios can be broken down into three categories:

Visibility. As we’ve discussed in previous entries, end-to-end visibility is of the utmost importance in today’s global supply stream. What-if scenarios allow planners to closely examine the current flow of parts or components across the value chain in service of discovering how the network could respond in the event of a significant disruption. Because complete visibility goes beyond what happens at a certain production hub or distribution center, what-if scenarios can help identify problems areas where ripple effects could cripple an entire network or production stream.

Analytics. In the age of predictive analytics where past data is used to forecast future performance, what-if scenarios provide planners a vehicle to implement this data in a safe, controlled environment. Data representing past efficiencies of a certain production hub can be actualized in a what-if scenario to determine how well this hub can cope with fluctuations in demand, modifications to customer orders, breakdowns in inventory or supply of component parts, or mechanical failures. Essentially, what-if scenarios provide planners a playing field with which to use analytics gained from detailed reporting platforms.

Response. Just as visibility is a critical aspect of supply chain management in today’s landscape, agility - or responsiveness - is just as crucial in leveraging lean principles and effective production. This goes beyond modifications to customer orders or fluctuations in production programs based on changes in demand - though these are significant elements. Rather, in an interconnected industry where what happens on one side of the globe can impact operations on the other side, a manufacturer’s ability to respond to significant hurdles in production and maintain current levels for on-time delivery is a priority in remaining competitive and efficient.

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Topics: Sales & Operations Execution (S&OE), Supply Chain Management