New Procurement KPIs and Thinking: A New Approach to Scenario Planning

Earlier this summer, Gerard Chick wrote a post in Procurement Leaders focusing on new management models and organization in procurement. The post got my attention on many levels (it’s a bit like putting the Alpe d’Huez highlights from The Tour De France on a big screen TV and seeing if a cycling enthusiast can avoid paying attention to it – not likely). One topic he addresses that is near and dear to my area of interest – on which I’ve lectured dozens of times and spent a number of years of my career researching – is the topic of scenario planning. In this regard, Chick suggest that:

Instead of using centralised scenario planning, why not set up approaches which allow for scenarios to be generated by your team. Take people out of their boxes. See your procurement team as part of a dynamic, boundary-spanning group on watch to spot trends. Also working across boundaries develops your knowledge collectively and shares intelligence across functions, rather than in silos.

In less than a paragraph, Chick manages to capture the essence of the scenario planning battlefield that in one corner pitted the Shell/GBN (Monitor/Deloitte) school of “expert-led” scenario planning versus everyone else, including my former employer (now defunct), Northeast Consulting. Essentially, the concept of the Shell/GBN model is to convene a small executive group together that thinks big thoughts on a topic and then attempts to bring structure to them. This stands in contrast to the more collaborative workshop or decentralized approach that convenes a dozen or more (often 30-40) team members in collectively building scenarios and seeing how they fit across different mental models about manners in which the market may unfold.

Regardless of approach, however, scenario planning is an ideal structure in which to develop overall procurement organizational strategy and structure with an informed worldview about how the market (and company) is likely to unfold. It’s been our experience that scenario planning approaches work best when:

  • Some experience and data can be brought to bear… but not enough to enable purely quantitative approaches to planning
  • The potential impact of “low probability” events is high (even catastrophic)
  • Purely right-brained (creative) thinking is inappropriate
  • Purely left-brained (logical) analysis is ineffective

One of the great advantages of scenario planning is that it can help organizations overcome procurement and supply chain group think – i.e., a shared view or mental model of how the world is unfolding. These views are typically built over a long period of time (unknowingly) and form the basis of management’s context for making decisions. They also tend to be deeply trusted, (e.g., “it got us to where we are today), but are not often shared or specifically described. Yet they form the basis of corporate “culture” and common assumptions. Their problem, however, is that they can also incorporate common blind spots.

Scenario planning can encourage procurement organizations and management to challenge these traditional models and to create new ones that better fit the future they want to help shape – or at least respond to with quickly and effectively for the business. At the same time, scenarios can create a common frame of reference and lexicon for thinking about the future. Perhaps most important in the risk adverse culture (and risk management centric environment) we’re operating in today, scenario planning can be a useful tool in procurement that can clearly show (in advance) the high cost of wrong decisions – or no decisions.

Scenarios can also call attention to new business, regulatory, and social trends. They can also show a lack of alignment (internally) for capital investment in initiatives (e.g., “IT is buying SRM seats, which we’re unlikely to ever use”). And they can also be used to encourage teams to “stay the course” over long investment cycles, such as those involved in building a sustainable (versus through-away and start again) procurement transformation effort.

I’ll pick up on the topic of scenario planning and procurement with an additional quick refresher on the subject in the next post in this series. 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. 

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