By evaluating carefully crafted "what-if" scenarios, decision-makers can test-drive potential solutions to various supply chain challenges and choose the ones most likely to yield the best outcomes.
The management technique, called scenario planning, is not new but is more critical than ever at a time of extreme business uncertainty. Penske Logistics is using advanced scenario planning modeling to help shippers retune their supply chains to fast-changing markets.
Is Your Customer Base Changing?
"We have seen an uptick in demand for our scenario planning services as shippers navigate the changes wrought by the COVID-19 pandemic and other uncertainties," says Amy Ilyes, vice president of logistics engineering for Penske Logistics.
These changes take many forms, and the potential supply chain responses are just as varied. But the range of scenarios that can be modeled is limitless, and each one can be aligned with the shipper's business goals.
"One of the most common challenges today is managing changes in customer profiles," Ilyes says. In a volatile commercial environment, business models are constantly adjusting to shifting demand and the emergence of new business opportunities. Each shift often requires significant changes in supply chain design and management.
An example cited by Ilyes is a Penske customer located on the West Coast of the United States that delivered to bars and restaurants. As many of these establishments closed when the pandemic hit, the company lost a significant portion of its customer base. However, it also experienced increased demand in markets such as food service. "That meant the company might need to pick and transport larger orders, which required it to look at different supply chain solutions," Ilyes explains.
The arrival of a new customer may increase order volumes, which impacts the amount of inventory a company holds as well as the transportation and warehousing services it needs to support the business. Different combinations of these variables can be modeled and evaluated using scenario planning.
Modeling Short Supply
Another issue that has become more common for shippers is dealing with labor shortages in critical parts of the supply chain, such as trucking and warehousing. Scenario planning can help shippers map the consequences of such shortages and develop mitigation strategies.
An example is a modeling exercise Penske undertook for a client that explored the use of different classes of drivers to offset shortages of these professionals. Penske looked at the network design implications of replacing tractor-trailers operated by drivers with Class A licenses with smaller vehicles driven by individuals with lower classes of licenses. The shift could increase the total number of miles driven in the network but make it easier for the company to source drivers.
Inadequate staffing levels in warehouses can lead to lower productivity and higher error rates. An obvious solution is automation, and Penske uses scenario planning to assess this option. For example, a pilot project looked at the business case for using robots to work in certain areas of a customer's warehouse. The project also considered the deployment of automated forklift trucks, especially in more expansive lanes within the warehouse where packages are moved over relatively long distances.
Careful Preparation Pays
As Ilyes explains, in addition to deep supply chain and modeling expertise, this type of scenario planning requires a firm grasp of technological developments. Supply chain technology evolves rapidly, and a solution recently written off as too costly or unwieldy can suddenly become viable. Penske works with robot solution companies to keep abreast of the latest innovations in this area.
Shippers also need to be prepared if they are to get the most out of these exercises, she advises. Preparation is particularly important when it comes to data. "Depending on the scenario, we may need a lot of data. For instance, modeling a warehouse requires transactional data on product flowing into and out of the facility," Ilyes says. Penske uses the data to build a baseline scenario of the warehouse operation. "We incorporate every facet of the operation and build a model that explores different configurations, such as changes to the building and the layout, possible slotting arrangements and labor requirements, and in which aisles robots could be used."
Given the sheer range of modeling possibilities, Penske also recommends that "shippers come to us with well-defined problems," says Ilyes.
The market unpredictability companies now face is unlikely to abate soon, and business trends such as the growth in e-commerce will continue to reshape supply chains in the medium term. Companies will need scenario planning to help them navigate these changes.