Mind Over Matter: Planning Horizons in a Dynamic Economy

Uncertain conditions are something that every supply chain, no matter how long or short, global or localized, has to withstand. But while most organizations would agree with this notion, few would agree as to exactly what characterizes uncertainty.

Uncertainty is a human creation – not because we set unexpected circumstances in motion in all cases, but because the majority of us expect to know what will happen next.

On the simplest level, uncertainty is just the unknown. Most people expect to know what will happen in the next 24 hours, while no one expects to know (with any degree of certainty) what will be happening 5 years from now. This means that somewhere between today and 5 years from now we reach the reasonable planning horizon: but when is it? How far out should we expect to be able to predict what business conditions will be? Which of the assumptions behind our decision making will make future events seem unexpected?

All conditions and circumstances that have not yet occurred are unknown. With the exception of the sunrise, sunset, death, and taxes, these unknown circumstances come with varying degrees of probability.

When we talk about risk, what we are actually describing is the potential delta between what we think is going to happen and what actually happens. Our expectation of predictability is highly subjective, but ultimately determines just how ‘uncertain’ each set of conditions appears to us.
Perceptions of uncertainty vary from person to person, but they are highly subject to anything that changes our visibility. This means that the availability of information and the speed with which that information can be communicated have a significant effect on perceived uncertainty. The more we know in advance, the less uncertainty we experience.
Planning Horizons in a Dynamic Economy

Planning Horizons in a Dynamic Economy

An example – Hurricane

Take the example of a natural disaster – a hurricane for instance. Hurricanes bring just as much potential to cause loss and damage today as they did a century ago. The difference is that today we have weather satellites, meteorological radar, and Doppler radar, all of which provide information that improve forecasting through weather models. Just as importantly, communications have improved to the point where information about weather can travel from region to region faster than a storm can move. This information is powerful when delivered in
time to prepare.

Robust risk profile

The key to managing uncertainty has less to do with luck and location than it does to do with the availability of information. I used the example of a natural disaster above, but the same is true of financial downturns, geopolitical instability, and labor strikes. Increasing visibility is the best way to minimize uncertainty. Building a robust risk profile fueled by authoritative sources of information and keeping that profile up to date in near real time is a transformative approach that any company in any industry can benefit from.

In fact, while predictive analytics may still sound like the stuff of science fiction, in many cases it only requires increased awareness that an event is probable long enough in advance to prepare for it. The hurricane that destroyed a huge area of New England in 1938 is just as possible today as it was back then. The difference comes from a modern combination of information and communications. Today, the storm would be watched closely by meteorologists – possibly for days – as it moved up the coast. Businesses would be locked up. Homes would be shuttered. Children would be kept at home. Emergency medical services and public response teams would be ready.

We have not yet reached the point where we can affect the storm itself, but by taking additional proactive steps, we can significantly minimize the impact it has once it arrives. Once we develop a strong understanding of our own risk profile, the next step is to do the same for all of the players – both customers and suppliers – in the supply chain. More information available sooner becomes the difference between a dreaded disruption and a variation in circumstances that we are well prepared to address
and maybe even take advantage of.
Kelly Barner is the Owner and Editor of Buyers Meeting Point, LLC. Kelly has a unique perspective on procurement from her experience on both sides of the negotiation desk. She has led projects involving members of procurement, supplier and purchasing teams. She has practical skills in strategic sourcing program design and management, opportunity assessment, knowledge management, and custom taxonomy design and implementation.

Kelly has her MBA from Babson College as well as an MS in Library and Information Science from Simmons College. She was recognized as a Supply & Demand Chain Executive ‘Pro to Know’ every year from 2012-2016. In 2013 Kelly was also recognized as one of S&DCE’s 28 ‘Top Female Supply Chain Executives.’ In 2014, Kelly co-authored Supply Market Intelligence for Procurement Professionals: Research, Process, and Resources and in 2016 she released her second co-authored title, Procurement at a Crossroads: Career Impacting Insights into a Rapidly Changing Industry.

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