Supply Chain Frontiers Issue #28. Read all articles in this issue
It comes as no surprise that supply chains have to flex with unforeseen events, yet companies are being caught off guard by the complexity of the changes they now have to deal with. Unexpected twists in business fortunes are unfolding faster and more frequently. To help companies compete successfully in unpredictable, convoluted business environments, the MIT Center for Transportation & Logistics is developing a new approach to managing uncertainty based on the idea of building future-focused supply chains.
Complex changes are not easy to analyze. Take, for example, the steep rise in commodity prices triggered by recent increases in trade tariffs and duties. Behind these price hikes is the increasing cost of oil as well as political and environmental concerns.
Even when companies do analyze market possibilities, their view of the future is often impaired. For example, they frequently rely on historical data to project a singular view of the future. Forecasts essentially replicate history and present only those outcomes that are guided by events that actually happened. Yet there are numerous possible pasts that failed to materialize but had seeds of future realization embedded in them. Failing to capture past possibilities, the forecast has a limited view of what is plausible in the future.
Instead of seeing the future as a backward-focused, single, linear path that starts in the past or the present, companies need to consider many paths and potential changes in direction. Future-focused organizations use the information about plausible futures to develop powerful strategies to shape their destiny; they think about real-world events as they unfold in curves rather than straight lines.
As part of a research project, MIT CTL has developed a three-step framework for the curved thinking approach to managing uncertainty.
1. Scenario Thinking
Simulating possible outcomes through scenario planning reveals both the kinds of uncertainty that companies face and potential courses of action. The scenarios can be constructed to explore particular business issues and environments or they can be more generic. A powerful outcome of the exercise is the identification of trends and market developments that the company should be monitoring. To keep tabs on markets, “sensors in the ground” track vital information on the changes that are constantly impacting the business.
Scenario thinking also helps executives to “suspend their disbelief” in unorthodox outcomes. A major impediment to competing successfully in the face of uncertainty is that company leaders become tethered to established beliefs and accepted wisdom – in other words, to hidden assumptions.
2. Strategy Alignment
The next step is to align the responses derived from the scenario thinking exercise with the company’s strategic goals. In light of the learning from the scenario thinking, it may be necessary to modify these goals, but the ultimate aim of alignment is to make sure that the actions taken to support the strategy are in sync with the firm’s overarching business objectives. A thorough knowledge of supply chain capabilities is a prerequisite to carrying out this step successfully.
3. Implementation and Development
Finally, executives look at the nuts and bolts of implementing the strategies they have decided to follow as a result of the previous two steps. There are a number of important considerations.
It is imperative that organizations be able to react quickly to market changes, since even the most meticulously planned strategy is likely to be undermined by real-world events. Research has shown that speedy decision making is facilitated by a number of key factors, including the greater use of real-time information and the ability to examine alternatives simultaneously.
The process of strategic thinking also reveals “forks in the road” or trade-offs that will influence the organization’s strategic direction. These should be treated as opportunities to fundamentally change the nature of the competition. For example, cost and quality used to be considered antithetical. Now, leading companies consider cost and quality as two sides of the same coin and concentrate on their duality.
Supply chain professionals have to change the way they approach uncertainty. No organization can be in complete control of its commercial destiny, but with a future-focused mindset, leaders can become more adept at navigating change.
The future-focused methodology will be explained by MIT CTL’s Dr. Mahender Singh in a special presentation at the Council for Supply Chain Management Professional’s Annual Global Conference 2008 in Denver, CO, on October 7, 2008.
For more information on the research, including a copy of the white paper “Future-Focused Supply Chains” contact Dr. Mahender Singh.