Stress-Testing the Supply Chain: Using Scenarios to Build Resilience

What is the impact to your supply chain when disruptions occur? Well, over the past few years, we’ve had every unwanted opportunity to find out. Supply chains around the world have been battered by many challenges – volatile demand and supply, material and talent shortages, geopolitical events and beyond. One thing we know to expect, these disruptions will continue to emerge.  

We keep hearing this. We all know this. So why then are so many still being reactive? Companies need to focus on a proactive approach to effectively mitigate risk and handle uncertainty, and one of the most effective ways to increase resilience is to understand the impact of disruptions well before they happen. 

Recently, reports have shown that demand has softened with the rise of inflation, triggering a cost of living crisis in several economies. The decline in consumer spending has had a significant impact on the economic landscape, leading to a plummet in the price of container shipping on vital global trade routes. Then, to prevent the shipping rates from falling too low, shipping companies started to reduce the number of sailings, leading to an increased number of cancelled shipments. According to research, the number of cancelled or skipped shipments last year between east Asia and Europe or North America increased by 40% compared to the previous year. This is just the latest continuation of some of the disruptions supply chains have experienced over the past few years in what can be described as a never-ending chain of events. 

Supply chain leaders must strive to ensure that their network can resist disruptions and be optimized for peak performance. Stress-testing the supply chain involves simulating various scenarios with different market conditions or disruptive events, to assess how the supply chain would respond and detect potential vulnerabilities and bottlenecks. By identifying these weak points, companies can take steps to mitigate the risks and improve resilience.  

While the concept of what-if scenarios is not new, many companies still lack adequate planning tools to make the most of advanced technology to plan for uncertainty, making it challenging for them to swiftly adapt to market changes.

Understand the Impact of Decisions

Advanced technology to stress-test the supply chain allows companies to envision, design, and evaluate the supply chain's resilience in the face of a series of hypothetical disruptions. 

Like having a crystal ball to see into the future (well, kind of), what-if scenarios are designed to test out different options and visualize the impact of multiple decisions in a snap, including valuable insights to understand the financial impact and execute based on strategic goals This allows planners to assess and fully grasp the effect of different actions on the supply chain, to gain the upper hand in responding to market dynamics and choosing the best possible outcome. 

By simulating various disruptions and challenges that could potentially happen in the supply chain, companies can identify vulnerabilities and weak points, as well as potential areas for improvement. This is a critical step to proactively plan for uncertainty and risk, such as shipment cancellations, delays or disruptions caused by unexpected events. 

Increased Visibility to Pivot Quickly

Stress-testing is critical to assess different scenarios and find weaknesses that might otherwise go unnoticed – and take the steps to address them. In advanced stages of supply chain planning maturity, digital twins allow us to run simulations that can stress-test the supply chain. A digital supply chain twin is a virtual replica of the supply chain mirroring the various relationships and interdependencies, with the ability to model scenarios to recommend a course of action to support decision-making.  

Companies can, for instance, plan containers as one input into their scenarios and evaluate the outcome against the risk of cancelled shipments that can interrupt supply. Then, plan accordingly or choose alternative options as the situation requires, from transfers to changed network design. 

A real-world example: Global baby gear manufacturer Wonderland Group overcame challenges in distribution caused by a simple model of shipping single SKU containers, which wasn’t optimized to account for warehouse or shipping container constraints, and implemented a solution that allows the integration of distribution and transportation to manage the company’s multi-tier replenishment. Wonderland Group is now making the most of a digital twin to maximize warehouse capacity by projecting when and how much warehouse space is needed, ​while automating container optimization (mix containers versus shipping single SKU containers) with the ability to adjust order timing and size based on regional warehouse space. Watch the on-demand webinar to learn more.

Build a Resilient Supply Chain Network

With the ability to develop risk mitigation strategies and a good understanding of the impact of decisions, companies can build a more resilient supply chain network that is prepared for disruption and changes in the marketplace. 

Going back to the example of cancelled shipments, by running scenarios and stress testing the supply chain businesses can better understand the risks involved and take measures to mitigate them. They can evaluate, for example, the option of paying a higher rate for a more reliable carrier to avoid cancellations and ensure a more consistent supply versus carrying more safety stock versus transferring internal stock. In the end, it is better to be prepared for potential disruptions than to be caught off guard and suffer the consequences.  

An added benefit of this proactive analysis is a playbook of responses to take, if and when disruptions occur. This provides added agility and better optimized responses to disruptions.

Plan for the Unknown

Stress-testing means adopting a "what if" mindset to uncover opportunities and identify risks in supply chain planning. This approach makes it easy to evaluate different scenarios to make better, more informed decisions that can minimize the impact of disruptions and keep the supply chain running efficiently. 

Especially with how fast and often the market is changing nowadays, scenario planning is a powerful lever and a critical step to find any weak spots in the supply chain and make improvements to stay ahead of the game, while driving up profits and operational efficiency to achieve a resilient supply chain. 

Our Atlas Planning Platform offers an advanced end-to-end supply chain planning solution that helps leading organizations master the interconnectedness of their multi-enterprise supply chain ecosystems. Let’s take a look at how you can perform stress-testing, model scenarios, and create a digital twin of your supply chain to support your business goals through intelligent orchestration.