Supply Chain Resiliency – Top to Bottom
There is an increased focus on being prepared for supply chain risks, and coping with these risks necessitates addressing supply chain resiliency at both the bottom and top layers of the Gartner “CORE” supply chain planning model.
Gartner defines four types of supply chain risk (see chart above) depending on frequency and impact. The low impact events are in the two left quadrants. The high impact events are in the two right quadrants. The truly extraordinary and unexpected events, called “Black Swans,” are in the lower right quadrant. The unusual but more frequent events, called “Gray Rhinos”, are in the upper right quadrant. (Design Resilience into Your Supply Chain with Scenario Planning to Weather the Unexpected, 5 April 2018)
One way to address both low and high impact risk is through the lens of “CORE”, a Gartner model which stands for Configure, Optimize, Respond and Execute. This is a planning hierarchy with a lower frequency and longer time horizon towards the top and a higher frequency and shorter time horizon towards the bottom.
Gartner explains the CORE layers this way: “Configure planning helps you to determine the right configuration of your supply chain, a bit like determining the right genetic makeup of your supply chain. Optimize planning helps you to get an optimal plan that best uses the constrained resources you have available over your tactical time horizon (this is traditional planning). Respond planning recognizes that execution is unlikely to follow your optimal plan and that you will need to effectively respond to these execution events in a way that keeps you as close as possible to your corporate goals (typically service- and profitability-oriented).”
Each layer plays a different role in bringing resiliency to supply chain planning.
For high impact events, Gartner says that “the interconnected nature of complex global networks means the core strategy must adapt to a variety of factors beyond cost and performance.” They therefore recommend that companies “design the network for resilience by simulating broad and pragmatic scenarios based on known risk attributes in a strategic planning cycle.” This is accomplished in the Configure layer and to some degree in the Optimize layer (see chart below).
High Impact Resilience
Low Impact Resilience
For low impact events, the Respond planning has to sense events and determine an appropriate short-term response. But it requires a “degree of freedom” to effectively respond without making large-scale plan changes and associated bullwhip effects. Therefore the Configure and Optimize layers have an additional role to play by providing a certain amount of resiliency for the Respond and Execute layers to utilize.
Gartner explains the coordination this way, “Respond planning needs to work in conjunction with optimize planning (and configure planning to some extent). The resilience of the supply chain (where and how much to buffer variability of all kinds) will be a key output of the two upper levels of planning that will feed Respond planning to help set guidelines as to how Respond planning can resolve issues in the short term” (2017 Hype Cycle for Supply Chain Planning Technologies, 18 December 2017).
Respond planning is becoming more end-to-end in nature, nearer to real time, and increasingly automated, causing a convergence between planning and execution. This in itself is generating resiliency for low impact events in the Respond and Execute planning layers. Gartner reports that in addition to improved KPIs, users deploying more automated Respond planning are reporting a reduction in planning nervousness which gives planners an opportunity to focus on execution deviations. As Respond planning gets closer to real-time execution updates, supply chains become more stable because the inventory buffers dampen the variability, and they experience fewer unplanned disruptive changes.
Meanwhile embedding advanced analytics (such as machine learning) into supply chain planning solutions is adding a degree of robustness that is improving resiliency even further. Responding quickly to disruptions in a complex networked environment is a skill ideally suited to the scale and power of a highly automated system. A new breed of planning tools employ adaptive probabilistic algorithms to deal with low impact volatility and demanding response times. Planners are called on to intercede only for exceptions that fall outside the boundary limits of statistical uncertainty.
Click below for a more in depth discussion of supply chain planning and the Gartner CORE model.