How to Use What-If A

and Operations Plan

By Sujit K. Singh and Jane B. Lee

E x ecutive S ummary | In uncertain markets, what-if analysis is a must for demand and supply planning. The
authors show how to use it by discussing a number of case studies, and the way to determine their impact. To make
the most of this analysis, one has to go beyond standard technologies and use the one that is specific to this type of
analysis.

S ujit K . S ingh | Mr. Singh is the Chief Operating Officer of Arkieva that specializes in a software system
for forecasting, S&OP solutions, production planning, inventory management, and what-if analysis. He has done
work for a number of large companies in different industries. He is certified CFPIM and CSCP by APICS.

J ane B . L ee | Ms. Lee is the Executive Director at Arkieva. She has wide experience in forecasting, planning,
and S&OP implementation. Prior to that, she worked for 20 years at DuPont where she created and led the global
S&OP process for the polymer division. In a consulting capacity, she has worked for numerous companies in
paper, mining, chemical, glass, film, food processing, optical fiber, and semiconductor industries.

S upply chain planning is no longer just a once-a-month exercise. In this demand-driven market, it is
critical for both Demand and Supply Planners to stay on their toes at all times, and monitor not only
“actual” versus plan, but also market changes that may require immediate action. This article discusses issues
involved in what-if planning, and how to use it.

4 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
f Analysis in Sales
anning
what-if scenarios
Whether short or long term, all
plans deal with the future, and thus
have a great deal of uncertainty around
them. Even if sophisticated techniques
are employed to develop a plan,
Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 5
uncertainty will prevail. It is, therefore,
important to embrace uncertainty
and incorporate it into a plan. A good
planner (or a planning team) realizes
that every plan is based on certain
assumptions. Plans are more likely
to be wrong than right in predicting
the future. As such, planners build a
plan based on a range around a final
number. As long as the final number
stays within that range, it is a good
plan. If it is outside the range, it will
require re-planning. At this point, it is
important to identify issues that will
make the plan invalid, and develop a
new one for both demand and supply.
What-Ifs During Normal Business
Environment: Most plans assume
stable conditions; meaning business
conditions of tomorrow will remain
similar to what we are experiencing
today. No game-changing event will
occur. This is a reasonable assumption,
but often, underlying parameters
change. For example, a big government
contract could go to a customer on the
East Coast instead of to one on the
West Coast, thereby causing a change
in the supply plan. Or, a machine
may breakdown, requiring a long
shut down for maintenance. Good
planners prepare themselves for these
possible scenarios by running what-if
calculations.
Challenges to the Status Quo:
The changing market dynamics may
challenge the status quo. A firm might
have always made a product at a certain
facility. Another facility could be used
but requires certification from the
customer or some changes in the design
of a part. Just because a given facility has
never made this particular product does
not mean that it cannot or should not
do it. A good planner evaluates different
what-ifs to arrive at the best plan.
Black Swan Events: A fundamentally
different type of scenario planning
has the potential of being a game
changer. This type of scenario planning
evaluates conditions that cannot be
described as business as usual. The
causes for such a change could be
environmental, natural, regulatory, or
geopolitical. While most good planners
run scenarios of the type described
above, a great planner would also
consider doing what-ifs on such black
swan events. Business decision makers
rely heavily on this type of analysis for
their strategic decisions.
This big-picture type of scenario can
6 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
impact both the demand and the supply
side of the equation. For example, if
a hurricane hits the eastern seaboard
of the United States, some supply is
interrupted, and so is demand. This is
different from the scenarios described
earlier because they only deal with
either demand or supply. It is critical
for the planner to understand all the
potential impacts of scenarios such as
raw material availability, operational
status, and/or customer impact.
SKILL SET
The ability to deal with these
scenarios depends not only on the
skill set of an individual, but also on
the tools at their command. A good
planner develops first a list of likely
what-ifs based on the experience, as
well as input received from colleagues
and experts in the area, and then
evaluates them on the basis of the
following criteria:
1. Is this change significant or just a blip
on the radar screen? If significant,
what-if planning may be needed.
2. Would this change impact at
the same level, or manifest itself
at couple of levels down the
hierarchy? For example, a given
change may impact the availability
of raw material as well as the
network capacity.
3. Would this change affect the whole
supply chain, or only the local area?
4. What kind of data/information is
needed to project its impact? A few
examples are:
a.  A customer is going out of
business, leading to a decrease
in demand.
b.  A competitor is going out of
business, leading to an increase
in demand.
c. A labor strike leads to a reduction
in available capacity.
5. Is the change so big that it
could modify the underlying
assumptions? For example, after
the 2011 earthquake and tsunami
in Japan, companies that had a
single source of supply for some of
their items from that area had to
re-think how they would meet the
demand in the future.
6. How can we make the corresponding
data change in the system? Which
tables need to be edited and how
can we do it effectively? How can we
make changes so that the master data
are not affected? For example, when
planners hear of a change in future
demand and “want” to run a what-if
analysis on it, they need to make an
appropriate change in the data in
the planning system so that future
requirements can be calculated
based on the changed demand. In
this case, they will need to know the
table that stores the demand data
in the database/software, perhaps
make a copy of it, and then change
the appropriate rows.
7. How can we evaluate the differences
and tradeoffs across scenarios once
calculations for the what-ifs have
been made?
8. How can we compute and compare
their effect on the bottom line to
determine the best one?
9. How can we establish trigger points
when the official plan has to be
replaced by another plan?
10. How can we bring scenarios and
their impact in a meaningful
way into an S&OP meeting or to
management for their review?
11. How can we translate the results
into action? For example, if a
scenario were on future capacity
reduction (say because of an
anticipated labor strike), then the
corresponding action would be to
start the inventory buildup at some
 point. A planner who has done this
particular what-if in advance will be
ready to do the inventory buildup if
and when the anticipated capacity
reduction is confirmed.
The person who has the requisite
knowledge as well as the tools to
work with will do well with the what-if
analysis. Figure 1 shows the steps to be
followed for this type of analysis.
Enabling software
To evaluate different scenarios
requires enabling software. The
software should have the following
capabilities:
1. The ability and the features needed
to create a model of the business so
that appropriate calculations can
be carried out.
2. The ability to conduct the analysis
without disturbing the master data;
sometimes referred to as a sandbox
environment.
3. Has a configurable model structure
that allows quick changes in the
Figure 1 | Scenario Decision Process
Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 9
model to react to a changing event.
4. Can store multiple scenarios along
with underlying assumptions.
5. Has the ability to compare and
evaluate different scenarios in a
meaningful way.
6. Can monetize the impact of
different scenarios.
7. Can report the results in a meaning­­ful
way to management. Management
often needs a graphical view for
quick understanding of different
scenarios and their impact.
8. The ability to replace the official
scenario with a particular what-
if scenario. This could happen
when a particular what-if scenario
evaluated becomes a reality. For
example, a particular high-demand
scenario becomes reality when
orders come in. In that case, it may
be desirable to replace the official
scenario with it.
Spreadsheet-based tools often fall
short of these capabilities. A supply
chain planning tool, based in DBMS
(Database Management Systems),
usually performs these functions well.
IT USUALLY STARTS
WITH DEMAND
What-if scenarios are needed when
changes have to be made in demand
planning. Every planner knows that a
forecast is not just a number, but also a
range around it. Implicitly or explicitly,
a planner can establish some degree of
variations around the forecast that can
be considered normal “noise.” (This is,
after all, one of the reasons for keeping
safety stock.) Starting with demand,
however, does not mean ending there.
Often demand-related questions
eventually lead to supply-related
questions. Let’s examine the impact of
several instances of changes in demand
on the plan using what-if scenarios
in cases 1-3. Case 4 and 5 deal with
changes in supply. Case 6 deals with
a natural event and highlights how a
planner can add value by preparing the
business for a possible future event by
conducting timely what-if analysis.
Table 1 | When Forecast Significantly Exceeds the Actual (Report of a Certain SKU/Location through 1-15-2013)
Total Total Customer Total Orders Total Orders
Original Customer’s Actual as Total SKU/ Forecast as % of MTD + OPEN MTD + OPEN Percent
Customer’s Orders % Over the Location SKU/Location for SKU/ as a % of of Month
Customer SKU Forecast MTD + OPEN Forecast Forecast Forecast Location Forecast Completed
Ajax Co., Product
45 60 33.3% 645 7.0% 340 53% 48%
Fort Fox, Missouri 1
Hartman’s, Product
345 380 10.1% 414 83.3% 410 99% 48%
Clinton, Ohio 2

original forecast for the month and not the demand planner will know, for
CASE NO. 1 the netted version. Finally, such a report example, that “shipments plus open
EXCESS OF DEMAND should clearly indicate how far into the orders” generally are, by mid-month,

OVER SUPPLY month we are as a percentage (Percent

of Month Completed). In the example
ahead of the “Percent of Month
Completed” for this business. Provided
Demand for a given SKU/location/ below, this comes to 48% (=15/31). The that the inventory position for Product
customer is higher than expected. report would look something like Table 1. 1 at Fort Fox is okay, the demand
Hitting the forecast at a SKU/location/ Table 1 shows that even though planner would treat this variation as
customer level month by month is the Ajax’s actual is 33.3% above its “noise” within the expected range, and
practically impossible, so the planner forecast, its forecast represents only 7% thus no action is necessary.
may decide that anything more than, of the total forecast of the SKU at Fort Hartman, on the other hand,
say, 10% above the forecast at a SKU/ Fox, Missouri. Currently, based on the provides over 83.3% of the demand
location/customer level should be last two columns, orders are running for Product 2 at Clinton, Ohio. Demand
considered an exception. But a 10% a bit ahead of “Percent of Month for this SKU halfway through the
increase in demand of a customer who Completed.” In many businesses, this month is already 99% of the forecast.
takes only 1% of the monthly demand might be perfectly fine as orders are This situation requires investigation to
for a SKU/location is not as significant usually placed with some lead time, determine whether or not re-planning
as a similar increase for one who takes say by about five days. In such a case, is needed. To investigate this further,
more than half of the demand. For
this reason, the percentage of the Table 2 | Detailed Report of Forecasts and Actuals
total SKU/location volume should
Previous Open Open
be taken into account. Let’s look at a Product 2 4 Month Current Orders: Orders:
Clinton, Ohio Month –2 Month –1 Average Month Month +1 Month +2
sample report that provides enough
Total Forecast 410 392 399 414 396 420
information to make a decision.
Total Actual 414 388 398 410 250 20
Suppose we flag every SKU/ Actual Minus Forecast 4 -4 -1 -4 -146 -400
location/customer order that is 110% Hartman’s
or more of its forecast. A report Forecast 345 345 345 345 345 345
should give the following information: Actual/Month to date/Open 350 340 343 380 250
Remaining -5 5 -2 -35 95
customer’s forecast for a SKU/
Customer 2
Location, actual as a percent over the Forecast 35 35 35 35 35 35
forecast as of today, total forecast for a Actual/Month to date/Open 35 35 35
SKU/location, customer’s forecast as a Remaining 0 0 0 35 35 35
percentage of total forecast for a SKU/ Customer 3
location, and total shipped orders in Forecast 10 12 9 14 16 20
Actual/Month to date/Open 9 13 10 10
current month as of today (also known
Remaining 1 -1 -1 4 16 20
as current month to date or MTD) as a Customer 4
percentage of total forecast for a SKU/ Forecast 20 0 10 20 0 20
location as well as any open orders (or Actual/Month to date/Open 20 0 10 20 20
OPEN). A forecast is included as the Remaining 0 0 0 0 0 0

10 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
the Demand Planner should be able to
call up a report like Table 2 at any time.
The columns in this report represent
two months before the current month,
one month before the current month,
the average demand for the last four
months prior to the current month,
the current month, next month, and
the month after that.
For the current month, the rows
labeled Actual/Month to Date/Open
include both month to date shipments
and open orders (all demand for the
current month); for the future months,
this row represents open orders (as
there is no month to date shipments
in future months at this time). Note
that Forecast in all cases is the total—
not net—forecast for the month.
“Remaining” rows are Forecast minus
Actual; a negative “remaining” amount
means demand has exceeded forecast,
while a positive remaining amount
means the amount of orders are
still expected for current and future
months.
As can be seen, a wealth of
information has been conveyed by
this report. For example, Customer
4 is expected to place an order of 20
units every other month. Customer2,
on the other hand, places an order of
35 units every month, but it has not
yet placed an order for the current and
the following months. The increase
in Hartman’s order by 35 units in the
current month means that Hartman
may wind up using the inventory
intended to meet Customer 2’s
forecast. This may require the Demand
Planner to consult with the Supply
Planner. Depending on what sort of
production cycle the product is in
and how much safety stock is kept,
it may be necessary to increase this
month’s production in order to meet
the expected order for an additional
35 units, or to transship the product
Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 11
from another location, or to buy
more from an outside vendor. These
alternatives need to be evaluated.
Even if there is adequate inventory
to cover the additional 35 units this
month, more investigation is required.
The Demand Planner may ask the sales
rep to call Hartman to find out if this
is a permanent increase in demand or
merely a onetime advance in timing of
an order, which normally would have
come in the next month. The answer
will influence both forecasts and safety
stock calculations.
If it is a permanent increase in
demand, then a supply-side what-if
analysis may be necessary to determine
the best way to meet this increase in
demand. Do we have capacity to make
the additional quantity? Do we have
to move production to a different
location? If we are tight on capacity,
do we have an option of increasing
production of either this or another
product competing for the capacity?
What is the most cost-effective way of
handling this? A properly conducted
what-if analysis will provide the
answer.
Case no. 2
A new product
IS selling much
faster than
expected
Forecasts for new product
introductions are educated guesses at
best. When orders exceed the forecast
significantly, the demand planner
must evaluate different assumptions
about continued growth rates. At the
same time, the demand planner must
consider whether the new product
will partially or fully cannibalize the
existing product. The new forecast(s)
should then be passed on to the
Supply Planner for supply planning
runs. Here the Demand Planner must
be careful not to assume that a one-for-
one replacement is a given. It is quite
possible that the new product may
run at a very different rate (perhaps
takes more or less time to produce)
or require some special equipment
or raw materials not needed by the
product it will replace. If overall
capacity is fairly tight, an accelerated
new product sales rate is more likely to
require what-if planning than a slight
increase in sale of an existing product.
CASE NO. 3
TAKING MORE NEW
BUSINESS FOR A
CERTAIN PRODUCT
Very often a question is brought
to the attention of a Demand Planner
by a product line manager or sales
manager, which is this: what to do
with spare capacity? In that case,
taking on new business for a given
product would not present any
problem. Before answering this
question however, a Demand Planner
must consider all the ramifications. It
may be possible the product being
considered for production expansion
may be produced at a specific plant
that is already at or near capacity. For
the sake of discussion, let’s assume that
the business as a whole is operating at
or near capacity. This raises a series of
questions:
1. If we take more new business of
Product Y, which products do we
need to cut back?
2. What is the bottom-line tradeoff in
terms of profitability?
3. If we cut back the production of
a certain product, would we lose
 business only of that product
or also of whatever else those
customers buy from us?
Question number three can only
be answered on the basis of market
knowledge and business intelligence.
A true optimization model with
appropriate prioritization of products
and profitability is needed to answer
the first two questions. Simple tools
that are rule based (such as a home
grown tool in Excel) might not be able
to evaluate the tradeoffs properly.
CASE NO. 4
MANAGING A PLANT
SHUTDOWN FOR
MAINTENANCE
Issues impacting supply can also
necessitate what-if planning. Let’s look
at some examples.
In Case No. 4, planned shutdowns
generally require a buildup of inventory
ahead of time to cover demand
during the shutdown, particularly if
the shutdown is expected to be for a
longer period. Two types of inventory
must be considered:
1. Products that can be made only at
the facility that is to be shut down.
In that case, there is no alternative
source of supply, and then an
inventory buildup is imperative.
How far in advance that buildup
must start will depend upon
not only the demand for these
products but also on the available
“spare capacity.”
2. Products under consideration
may have an alternative source
of supply, which may be internal
(an alternate facility) or external;
each source may have its own
limitations. Alternate facilities
must have “spare capacity” to make
12 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
room for materials normally made
in the plant being shut down, and
for external sources, it is important
to determine whether or not
the outside source can meet the
demand in a timely fashion.
Like Case No. 3, the ability to
model the move of a shutdown will
be significantly limited unless there
is a sophisticated optimization model
that can identify product that can
be moved from one unit to another
or dropped altogether without a
significant penalty. Similarly, it is
critical to recognize that there is not
necessarily a one-to-one tradeoff
between facilities, because Product
1 may take twice as long to run on
alternate facility B as it does on primary
facility A, thereby causing an increase
in the overall cost.
Case No. 5
A key raw material
IS IN short supply
In some standard capacity models,
availability of raw materials may be
assumed rather than be modeled. In
reality, this is not the case. Therefore, a
substantial restructuring of the model
is required to account for the limitation
of a specific raw material. A properly
formulated model (optimization or
heuristics based), which explicitly states
raw material quantities available, can
reflect a shortage by merely changing
the appropriate table that holds these
data. (Most modern software will hold
such data in tables that are kept in a
database.) It may show how much of a
certain amount of raw material will be
available in a given month. It could also
show whether alternative bills of material
(or alternative recipes) could provide
a way around the shortage by using a
different recipe that does not require
the raw material that is in short supply.
Alternatively, if the raw material will not
be available from the usual supplier,
then alternate suppliers, quantities, and
prices have to be incorporated in to the
model. Once again, an optimization or
rule-based model structured for this
purpose can easily do this job, as well
as indicate the additional cost of using
alternate suppliers.
While the cases above have dealt
primarily with issues internal to one’s
own business and production facilities,
an experienced planner may also look
into other potential problems that are
beyond anyone’s control. If they occur,
they could prove disastrous.
Case NO. 6
A Shipping
lane becomes
unavailable
Let us now look at a business that
ships grain by barge from various ports
along the upper Mississippi to New
Orleans for export. Suppose that in late
2011, a planner had enough foresight
to recognize that a drought might close
down most or all barge traffic along
the Mississippi in mid-2012 because
of record low water. This is the sort of
“out of the box” thinking that can prove
invaluable if planning is done early
enough to allow the business to develop
a plan that takes into account this worst-
case scenario. The transportation section
of an optimization model is generally
set up in tables containing information
such as:
1. Mode(s) of transportation available
from A to B.
2. Capacity of each mode of trans­
portation available in each model­
ing period.
3. Transit time from A to B for each
 transportation mode.
In order to model a closure on the
Mississippi, the planner may make the
following changes:
1. Ensure that railcars can be used for
transportation for each location
where shipping is currently done
by barge.
2. Set barge capacity to zero for each
such location for each anticipated
river closure period (month).
3. Set the available railcar capacity for
each current barge location/period
to a number large enough to
handle the normal barge volume.
Then the model will tell you the
exact railcar capacity you will need.
4. Set the appropriate transit time for
each ship-from starting location to
New Orleans for the rail car transit.
Note that many versions of this
problem/solution can be run by
varying the length of time of the low
water, and even the section of the
river that might be closed. In addition,
tanker trucks could be added as an
additional transportation mode from
some or all locations. Having run
these scenarios and making resulting
logistical arrangements in advance
could avoid a great deal of scrambling
and delay versus dealing with the
issue when it arises. If and when the
crisis strikes, a company that is well
prepared can take away market share
from the competition.
Which straw WILL
brEAk the camel’s
back?
One of the most vexing questions
about what-if planning is how many
changes can or should be modeled at
one time. Certain things are obvious.
When you have a whole new monthly
demand forecast, it is necessary to
14 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
model all those changes together.
Further, if you now know that a
shutdown will be moved from June to
July, it should be made a part of the
same modeling run.
Suppose further, within a month,
there have been several disruptive
changes in capacity. The management
wants to know how much sales it would
lose as a result. Also, it wants to know
how early we should start building up
inventory for a seasonal demand that
is anticipated to be heavier than usual.
How many scenarios must a planner
run to answer these questions?
This sort of conundrum is faced by
planners every day. There is no pat and
easy answer. But the planner needs to
explain to those asking the question
and/or to the S&OP team the reasons
for the output the planner produces.
While any optimization program makes
hundreds of thousands of decisions, the
planner still needs to be able to make
sense of the results to “laymen.”
In the situation outlined here,
the minimum scenario runs will be
two, though more may be required.
First, consider that the anticipated
disruption to the capacity is now
confirmed. The new (reduced) capacity
should, therefore, be incorporated
in all new scenarios. Further, let us
assume that the reduced capacity will
necessitate an inventory buildup if
the demand is as expected. Since the
business is anticipating the possibility
of a higher-than-usual demand, the
next set of questions will then be
twofold: when should the inventory
buildup begin if the heavier than
anticipated demand
a) Will not happen?
b) Will happen?
The answers to these two questions
will be provided via two scenario runs.
One scenario run will assume that the
business gets the extra demand and
determine when the inventory buildup
must start in that event, while a second
scenario run will determine when the
inventory buildup must start if the
business does not get the extra demand.
All sorts of permutations, however, may
require additional scenarios, including
when the new demand is expected to
begin, with what if any other demand
it will replace, and whether we will lose
the rest of those customers’ business
(see Case No. 3, question 3) beyond the
orders we cannot fill.
Bringing the
Change to the
S&OP
The role of the S&OP meeting is
to summarize alternatives, and then
seek the management’s approval.
This requires a concise report backed
by detail as needed and then quickly
taken to an offline meeting if too
much detail is required. For example,
the anticipation of low water in the
Mississippi months in the future might
be presented briefly in the S&OP, with
a separate meeting set up for those
who need more detail in order to make
decisions, and to set trigger points
(e.g., water levels at specific points) for
contingencies.
The only thing for sure in business is
change and uncertainty. If there were
no change, there would be no need
for planning beyond the back of an
envelope. Wherever what-if planning
is done, the results should be brought
into the S&OP process. How quickly
they should be brought to the attention
of S&OP depends on the immediacy of
the need for a change. Indeed, part of
the training of an S&OP coordinator/
planner is to know what is critical and
what can wait for the usual up-coming
monthly meeting. (info@ibf.org)
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