A New Approach to Scenario Planning: How to Build Procurement Scenarios
Procurement organizations would benefit greatly from applying scenario planning approaches to strategy and alignment. But traditional, often finance-led strategy planning and budgeting rely on an approach that generally looks like the present. Such approaches show contingencies where the world is generally headed up and to the right – or down and to the right – with assumptions that tweak existing models (e.g., headcount, revenue, spend, etc.) by +/-10%. If you’re Cisco or Apple, the model shows growth. If you’re Phillips Morris and the product involves generating smoke, well, the scenario models are headed in the other direction.
Yet better forecasts acknowledge a wider range of possibilities, including greater variation on the present. There’s also a much broader view of contingencies and specifically, how new activities could completely change a market (for example, in the tobacco market, the emergence of smokeless tobacco and e-cigarettes is creating the need for entirely new products, supply chains, procurement activities, and even retailing efforts – yet this market was not even conceived a decade ago).
To carry out a scenario planning approach that fully considers the emergent as well as the emerged, the approach I was taught to scenario planning – and that I’ve seen work again and again in team environments – suggests that groups convene and assume the future has already unfolded and that the world is as it is at a specific date in the future (e.g., 2018). In the approach I use, I have multiple teams, building and defending often separate and orthogonal scenarios. I tell these teams to imagine that they are living at this future date, and in doing so, each team constructs a storyline: a description of how the world evolved from today into their assigned scenario. I give them the general framework of the scenarios they must build and defend.
During this exercise, each team advocates in favor of how and why the scenario occurred, essentially “why is it good” and why it happened. I ask teams to suspend disbelief around the scenario. During the scenario planning exercise, they are like attorneys who have been hired to defend the future state.
Each team then crafts a presentation and describes the overall logic and story behind the scenario and how it evolves. I ask teams to work backwards in explaining to the broader group how a scenario could happen, which can help clarify the potential of the unknown or unprecedented (e.g., China’s original devaluing of its currency, which flooded the world with more cheaply produced items). I also ask those participating to use modular ‘events’ to discover points of convergence and divergence. For example, an event might be: “2016: India GDP Growth Hits 11%” or “2016: Growth-Led Capacity Challenges Lengthen Lead Times in India.”
We also tell teams to factor in additional considerations in their efforts to “defend” scenarios:
- Don’t just argue that the world will turn out this way. Just tell us what happened to make it so.
- Suspend disbelief (re: we know that these collective scenarios are not mutually exclusive and clearly exhaustive – the world may indeed turn out differently).
- Feel free to “use” any of the material from other strategic planning exercises.
- Consider your company (and procurement’s) role in this scenario from all sides.
One of the best things about using scenarios as a strategic planning tool for procurement and supply chain is that they’re granular and fractal. They can work on the organizational level (e.g., “Procurement and Supply Chain’s Role at XYZ company in 2020) or much more broadly (or narrowly), covering, to name just select areas:
- Procurement / sourcing
- Commodity markets and volatile
- Demand planning and forecasting
- Supply chain / logistics (other)
- Government policies
- A particular competitor
- Geographic regions
- Business unit
As our analysis continues, we’ll consider a real-life example of a procurement scenario planning effort, including five distinctive scenarios for procurement technology in 2018. I’d also like to thank my colleague and friend, Art Hutchinson, on which some of this material is based, for many lessons and collaborations over the years in the scenario planning area.