Winning in the Turns: A Supply Chain Planning

Action Guide — Focus on Strategy and Action

Plans
Published: 17 October 2019 ID: G00450874

Analyst(s): Marko Pukkila

While some focus only on short-term mitigation tactics, top performers defy
conventional thinking. They keep focus on long-term strategy and execute
preconceived plans when anticipated disruptions occur. Supply chain
planning leaders must prepare and lead through all manner of turns.

Analysis
Sudden economic, geopolitical, environmental, social and competitive twists and turns can leave
some organizations floundering while some take the opportunity to accelerate into a leading
position. When disruptions like supply chain cyberattacks or natural disasters, trade wars or
recessions occur, winning companies demonstrate both the preparedness and resilience they built
before the turn.

Organizations need to choose which turns they need to be watching for by identifying key risks and
issues that are pertinent to their strategic assumptions. The picture can sometimes be confusing
with some risks seeing divergent signals. For example, will there be a global recession? There are
different data that points to different conclusions. Following a period of prolonged earnings growth,
in 2019 falling profitability is now an observable trend across large and small organizations in
multiple industries. At the same time, consumer sentiment remains relatively buoyant with the global
consumer confidence index hovering around historically high levels at 107 for 2Q19.

Identifying the risks and monitoring the triggers of impending disruption is not enough. Leaders
prepare plans associated with each risk to be ready to execute if the trigger point does occur. They
prepare so they can think correctly under pressure. They also keep their eyes on the long term and
this mindset and culture allows them to double down and accelerate through the turn while others
slow down.

Gartner’s efficient growth research shows that a small number of organizations that anticipated the
future and developed comprehensive action plans before the financial crisis of 2008 to 2010 were
rewarded with sustained advantage over their competitors in the following eight years.1 If we take
each of the companies’ earnings in 2003 and index it to 100, Figure 1 shows that in 2009, midway
through the great financial crisis, the efficient growth companies broke away from the average
control peers. (See “Winning in the Turns: A Supply Chain Action Guide”).
 Figure 1. Winners Accelerate in the Turns

The efficient growth leaders were seen to eliminate negative practices that acted as a drag on long-
term growth (growth anchors). They put in place positive practices (growth ladders) to pick out the
winning activities and give them a hand up. These practices include:

■ Providing adequate resources for growth by creating a safe-to-fail environment.

■ Keeping long-term plans relevant by focusing business leaders on longer-term outcomes.
■ Managing costs while supporting innovation by dedicating and protecting funding for
innovation.

This focus on the long term while managing in the turns allowed these winners to reallocate
resources to strategic opportunities, therefore positioning themselves for long-term growth and
value creation that significantly outperformed their competition.

In 2011, the Tohoku earthquake and tsunami in Japan shook supply chains all over the world. As
well as major loss of life, destruction of over more than 400,000 buildings and a nuclear power plant
incident, the global semi-conductor supply chain was particularly impacted. With many electronics
manufacturing facilities flooded, and in some cases, destroyed, including two major silicon wafer
market supplier plants, the industry saw extended lead times and higher pricing. At the time, Japan
manufactured over 60% of the world’s raw silicon wafers.

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 Our research shows that companies that prioritized capacity diversification in design of their
supplier network, pre-qualified alternative sources as backup options and required suppliers to
provide auditable business continuity plans, fared better in the aftermath of these events. The
purpose of these plans is to ensure the suppliers have a path to reasonable recovery in the event of
a natural disaster or any other event that impacts their ability to deliver. Work with suppliers of
components at high risk to ensure their warehouses are in diverse geographical areas with certain
minimum inventories to mitigate risk.

Supply chain planning leaders should already have a playbook

for sudden upticks and downturns.

Leaders engage in probable scenarios with clear steps to take. Those who fail to plan will be
involved in firefighting and even survival mode when a crisis hits. For example, when the
semiconductor and electronics supply chains were severely disrupted by the Japan earthquake and
its aftermath in 2011, companies whose supply chains were impacted fell into one of three broad
groups. Most likely, the companies’ plans were not necessarily specific to earthquakes but rather to
disruption in supply by material categories. Leaders would have already built their supply chains so
that they were not single-sourced with key materials. Other companies may have had a plan for
finding alternate supply in case of disruption; a plan that they set in motion after the disruption. In
the third group, there would’ve been companies that had no particular plan in place for disruption in
material supply; they had to figure it all out when the need arose.

Supply chain planning leaders should accept that uncertainty that impacts companies positively or
negatively exists across economic, regulatory, geopolitical, trade issues and competitor action.
Organizations should prepare for the turns, implement plans during the turns while fine tuning based
on actual events and then look to accelerate out of the turns. Three pillars are key to winning in the
turns: strategy, cost and talent (see Figure 2). Gartner has extensively studied the disciplines
needed in these pillars and how they help organizations win in the turns.

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 Figure 2. Strategy, Cost and Talent Are the Pillars for Winning in the Turns

Supply chain leaders responsible for planning must start pushing their teams now to make sure they
are prepared to implement plans, make course corrections and are ready to accelerate out of each
turn. Focus on these 3 vital areas:

■ Strategy: Prepare to act confidently amid uncertainty.

■ Cost: Use scenario planning and focus on cost optimization.
■ Talent: Identify and develop your workforce of the future.

Research Highlights
Strategy — Prepare to Act Confidently Amid Uncertainty
Winners in the turn define and monitor leading indicators that act as early warning signals that a
turn may be coming. Monitoring these indicators is done continually via the adaptive strategy

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 process that allows the supply chain organization to sense and respond to changes in the business
context as they happen. Typically, the areas that need to be monitored are:

■ Strategic assumptions: The assumptions on which the strategy is based — for example, 50%
of our customers will shift to digital channels in the next two years.
■ Strategic issues: The key trends that could significantly impact the strategy if they reach
critical mass — for example, a new market entrant reaches 5% market share.
■ Strategic triggers: Scenario planning for the events that challenge the strategy — for example,
the enterprise fails to meet profit targets for three consecutive periods.

Companies that fail in the turns don’t do much strategic thinking. Also, when they sense trouble,
they often end up stuck in endless analysis of detailed data, trying to find anything that would tell
the leaders with certainty if there is a turn ahead or not. They preoccupy themselves with the daily
fires, many of which are self-inflicted. Not every plume of smoke is a fire, but these organizations
react to all incidents as if they were an emergency.

Supply chain planning leaders must lead the organization in realistic scenario planning with cost
estimates to spell out what could happen and how the organization would respond. These efforts
should provide the visibility into what is normal and abnormal. It is also vitally important that in
scenario planning the risks of taking no action are considered. In turbulent times there is no safety in
indecision and waiting to see what happens. Visibility requires the right set of metrics so it’s clear
when the trigger has arrived and it’s time to take action. The right people must manage the
safeguards so that fires don’t spread.

Supply chain planning leaders should engage in scenario planning based on likely outcomes of the
demand or supply. Good planning involves building scenarios based on real outcomes possible in
your business and identifying trigger points to set an action plan. Some companies think of worst
case scenarios but can’t distinguish between normal and abnormal. Turns that matter are not end of
the world developments. Scenario planning enables supply chain planning leaders to catch the
coming wave, what to look for and when to take action.

Supply chain planning leaders have a plan for cases when assumptions are missed. Strategic
assumptions in supply chain planning should include traditional issues such as market growth, the
company’s evolving position in the market and the availability of suppliers in the event of a natural
disaster or sudden new competition. Strategy must also address emerging issues such as growing
demands by consumers related to social responsibility. These issues affect demand, how products
are made and transported and where to build plants in a region.

“Prepare for a Successful S&OP Transformation by Building a Well-Thought-Out, Comprehensive

Project Plan.”

Sales and operations planning (S&OP) transformations are often complex and time-consuming yet
lack sufficient investment to create realistic and acceptable project plans. This research helps
supply chain leaders responsible for planning create robust project plans that achieve objectives
and align with stakeholders’ expectations.

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 “Industrial Manufacturers Must Become Agile and Cost-Effective to Combat Business Volatility.”

The top two concerns for industrial manufacturers are global uncertainty and demand risk in their
complex supply chain networks. This research will help supply chain leaders streamline their cost-
service trade-offs and position them for sustainable global growth.

“Supply Chain Brief: Postponement Is More Than an Inventory Strategy.”

Many companies embrace postponement as a way to reduce inventory risk but underestimate its
implications. This research provides supply chain planning leaders with insights on drivers for
employing postponement along with the network design choices and operating capabilities required
for success.

“Range-Based Demand Planning: Accuracy Trumps Precision.”

Effective demand planning does not have to be an exact science. This research helps supply chain
leaders responsible for demand planning establish a range planning capability that provides
demand plans that are accurate enough to support scenario planning in their S&OP process.

“Shape Your Supply Chain Network to Support Growth and Manage Risk.”

Supply chain risks are evolving to include concerns over many types of risks, from material
availability and operational technologies to digital security and long-term talent availability. Use a
structured approach to identify the most significant risks to mitigate with your supply chain design.
Identify and partner with strategic suppliers to ensure continuity of supply and enablement of
growth-driving innovation.

Cost — Use Scenario Planning and Focus on Cost Optimization

During turns, companies often stop discretionary spending, lay off staff, reduce training and cut
capital investments, but winners think long term and forecast for the upturn. Winning enterprises
have an ongoing cost management discipline and practice cost optimization as opposed to cost
cutting.

To avoid sudden cost-cutting in a turn, supply chain planning leaders need to develop cost
estimates associated with each scenario in advance. They should facilitate a discussion with cross-
functional stakeholders and business leaders to explain the response and cost involved with each
option. Get leadership approval to take specific actions, such as reduced plant hours, layoffs or
overtime, rather than wait for an emergency to ask permission to take actions.

The plan should also be documented in writing, so in the event of turnover the action plan is still
clear.

Supply chain planning leaders should continually work on cost optimization. As scenarios unfold,
planning leaders need to flag issues when costs exceed their targets as trade-offs are made
between demand and supply. Metrics and performance indicators provide the warning that costs
are rising.

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 Visibility and discipline are needed to take action when costs exceed targets. One system of record
and a robust S&OP process can aid this process by ensuring numbers are updated and a
consensus is reached on the targets.

“Follow a 5-Step Supply Planning Process to Support Business Objectives and Drive End-to-End
Supply Chain Profitability.”

Supply planning is critical to balancing service, inventory and cost optimization objectives. This
research defines a framework that supply chain leaders can use to enable a disciplined cadence
that supports S&OP decision making.

“Supply Chain Leaders Must Orchestrate Three Decision Categories for Inventory Excellence.”

Managing and explaining inventory performance is among the most complex supply chain
challenges. This research provides supply chain leaders with an overview of Gartner’s inventory
framework with insights from a compilation of the most recent published content.

“Apply 4 Principles for Integrated Supply and Inventory Planning Capability.”

Supply planning organizations must balance many constraints and incentive conflicts to maximize
profitability while meeting demand. Supply chain leaders in supply and inventory planning roles can
apply four principles to develop improved capability that optimizes service and cost performance.

Talent — Identify and Develop Your Workforce of the Future

Healthy, high-performing teams are essential to winning in the turns. The turns present an
opportunity to revamp your playbook around hiring, development and performance management.

Supply chain planning leaders need talent who can spot the first signs of a turn that is disrupting
demand or supply. This requires the ability to analyze and interpret data intelligence.

New roles will be needed, such as citizen data scientists to interpret the growing data. These roles
are difficult to fill, so efforts should be made before a turn to make sure this talent is in place. During
a downturn, supply chain planning leaders need to ensure investments in talent in these critical
roles are preserved and even enhanced. This talent will build the capabilities to accelerate out of the
turn faster than the competition.

Collaborative skills are essential as well to work on a team to evaluate scenarios, handle the bumpy
road, cooperate to develop the best plan and rally the troops. Talent must be able to combine the
demand and supply outlooks and convey the credibility of scenarios.

Attracting and retaining top talent requires a good career path for planners. Leaders have to
promote supply chain planning by encouraging planners to have well-rounded business experience
so they can help the business be successful. Understanding what the commercial side of the
business needs and having business capabilities will enable a career path from supply chain
planning to operational roles in sales, marketing and commercial leadership.

“Toolkit: Job Description for the S&OP Coordinator.”

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 Supply chain leaders responsible for planning often look for guidance on how to structure a role to
focus on the detailed coordination of the S&OP process. This Toolkit describes the role of an S&OP
coordinator and provides a template to build an S&OP coordinator job description.

“Ignition Guide to Sourcing High-Quality Supply Chain Talent.”

This guide will help supply chain leaders create a plan to source high-quality supply chain talent,
identify new talent pools and select channels to engage potential candidates.

“3 Steps to Bridging the Supply Chain Gender Gap.”

The financial benefits associated with gender-diverse teams have been documented for years, yet
progress toward gender equality has stalled at all levels of leadership in the supply chain. Supply
chain leaders should leverage a three-part approach to bridge the gender gap across their
organization.

“Competing for Digital Skills: Unconventional Tactics for Sourcing Supply Chain Talent.”

Traditional approaches to recruiting are expensive and ineffective at attracting critical supply chain
talent to support digital transformation. Chief supply chain officers must embrace new approaches
to offset talent shortages and meet digital business transformation objectives.

Gartner Recommended Reading

Some documents may not be available as part of your current Gartner subscription.

“A Supply Chain Vision for Driving Cost Optimization Across the Enterprise.”

“Eliminate Underperforming Products From Your Product Portfolio.”

“Managing Disruption Requires Supply Chains to Foster Innovation and Scale the Digital Supply
Chain: A Gartner Trend Insight Report.”

“How to Focus in an S&OE, S&OP and Annual Strategic Plan Process.”

“S&OP Process: Product Portfolio Planning.”

“S&OP Process: Design a Robust and Value-Adding Demand-Planning Process.”

“S&OP Process: Deliver Critical Business Value From Supply Planning.”

“Set Up Sales and Operations Execution Process to Support the S&OP Cycle.”

“Gartner’s Top Actions for Supply Chain Inventory Reduction.”

Evidence
“Efficient Growth—Full Research Findings,” Gartner.

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