Supply Chain Frontiers issue #50
While it is impossible to predict the future with certainty, we can envision plausible outcomes and prepare for them. This is the essence of scenario planning.
A research project at the MIT-Zaragoza International Logistics Program at the Zaragoza Logistics Center in Spain, used the methodology to develop a dashboard that signals market changes for specialty chemical manufacturer Clariant. The company sponsored the work.
The research was carried out by Mark Ismael Vital Boyonas and Luis Olavarria for their MIT Zaragoza Master in Logistics & Supply Chain Management (ZLOG) thesis. The thesis advisor was Dr. Maria Jesús Sáenz, Professor at the Zaragoza Logistics Center.
In scenario planning, different futures are mapped out by creating hypothetical worlds based on trends and developments that impact an enterprise’s competitive environment. The company analyzes these worlds, identifies likely outcomes, and explores ways to prepare for them.
Boyonas and Olaverria applied the technique to Clariant’s supply chain operations. They focused on the company’s supply chain strategy in the Asia Pacific region with a time horizon of 10 years.
In order to develop the scenarios, the students analyzed both local factors and driving forces. Local factors cover internal capabilities such as the skills level of employees, and are subject to executive decision-making. Driving forces, on the other hand, include external developments such as shifting demand patterns that are not directly controlled by management.
These various influences were prioritized in terms of their overall impact and likelihood of occurring.
Three dominant driving forces were identified: the emergence of trading blocs, changing consumer needs, and the availability of logistics infrastructure in the region. The team created three logistics scenarios based on these driving forces. Two were given a high value and one a low value.
Using the scenarios, the students developed a set of indicators that relate to the driving forces and provide the company with a signpost to future market conditions. By monitoring the indicators, Clariant can adjust its strategy if necessary, and maintain a clearer picture of the uncertainties that are shaping the markets in which it competes.
This dashboard monitors the number of free trade agreements that are signed in the region (a measure of emerging trade blocs), per capita GDP (a measure of changing consumer needs), and road/rail/air infrastructure statistics (a measure of logistics infrastructure).
In addition, a second type of indictor known as “weak signals” was created by the students. More qualitative in nature, these are based on news and information that could potentially trigger changes that disrupt the trajectory of the driving forces. Two examples are the rise to power of Aung San Suu Kyi in Myanmar and the construction of the Thailand Canal.
Clariant is now evaluating the possible implementation of the method.
“In today’s fast-changing business world, the requirement to do sound planning is getting more and more important. We wanted to support our business units in finding new methodological approaches to predicting the future,” said the company.
Scenario planning is an example of such a planning approach, and the work done by the graduates will continue to benefit the company as it evaluates future market changes.
"The application of the methodology will give Clariant’s supply chain excellence teams the ability to proactively think ahead in their supply chain strategies. And they will be able to extrapolate the key supply chain trends to other business units," said Dr. Maria Jesús Sáenz.
For more information on the ZLOG thesis Scenario Planning: A Tool to Prepare for the Future by Mark Ismael Vital Boyonas and Luis Olavarria, contact Cristina Tabuenca, Marketing Manager, Zaragoza Logistics Center.