be categorized as high, medium, or low risk based
on the risk boundaries created earlier.
x Calculate the organizational supply chain risk
score. As a final step, assign a weight to each risk
category based on its strategic impact on the organization’s supply chain. The weights should be
in the range of 0 to 100 percent, and the cumulative weight of all risk categories should total 100
percent. A simple dashboard can be created in a
program such as Excel listing the risk categories,
the weights, and the final risk score, as shown in
Figure 6. For this particular example, the weighted
average risk calculates out to 9. 56, which represents
a “medium” risk level based on the risk boundaries
created earlier.
SCENARIO PLANNING
Scenario planning is a hypothesis-driven, strate-
gic planning method that involves developing
“informed predictions”—that is, “future state” sce-
narios—and building response strategies for oper-
ating under each scenario. Its purpose is to prepare
an organization for most plausible eventualities,
and to enable it to steer through disruptions in such
a way that there will be no substantial impact on its
supply chains.
Scenario planning was originally conceived in
the 1940s for military applications. But the roots of
modern-day scenario planning were developed in
the early 1970s by the petroleum company Royal
Dutch Shell. Back then, Shell developed a set of possible future scenarios and built response strategies
around the price of oil for each scenario. As a result,
Shell was better prepared than its competition in
reacting to risk and volatility, and consequently
made better headway than the rest of the industry.
At a high level, the process of developing scenarios is as follows:
x Identify the “focal question.” The first step in
building scenarios is to identify the focal question—the problem or opportunity—that is to be
explored. There are hundreds of scenarios that
could be developed about the future, but the objective is to address that one key issue that would
have the biggest impact on the organization. The
focal question can be broad; for example, “Should
we expand into China and open X number of
additional distribution centers?” Or it can be very
specific; for example, “Should we invest in a multi-
[FIGURE 4] SUPPLY CHAIN PRIORITY MATRIX
Overall
Rating
4.0
4.0
3. 8
3. 6
3. 2
2. 4
Criteria
Weight 20%
4
6
5
3
2
1
20%
2
1
6
5
3
4
20%
3
2
1
4
6
5
20%
5
6
3
4
2
1
20%
6
5
4
2
3
1
Revenue –
Rank
Gross
margin –
Rank
Number of
SKUs – Rank
Unit
Volume –
Rank
Strategic
Importance –
Opinion
YOUR COMPANY
Supply Chains
Supply Chain Priority Matrix
Food products-
U.S. retail markets
Technology products-
U.S. retail markets
Technology products-
U.S. OEM key account
Food products-
U.S. distributor markets
Food products-U.S. direct-
to-customer markets
Food products-
U.S. government
OEM = original equipment manufacturer
SKU = stock-keeping unit
R
an
kin
g
