Making Global Supply Chain Design Decisions Under Uncertainty in Practice

Managers should consider the following ideas to help them make better network design deci­sions under uncertainty.

  1. Combine strategic planning and financial planning during global network design. In most organizations, financial planning and strategic planning are performed independently. Strategic planning tries to prepare for future uncertainties but often without rigorous quan­titative analysis, whereas financial planning performs quantitative analysis but assumes a predictable or well-defined future. This chapter presents methodologies that allow integra­tion of financial and strategic planning. Decision makers should design global supply chain networks considering a portfolio of strategic options—the option to wait, build excess capacity, build flexible capacity, sign long-term contracts, purchase from the spot market, and so forth. The various options should be evaluated in the context of future uncertainty.
  1. Use multiple metrics to evaluate global supply chain networks. Because one metric can give only part of the picture, it is beneficial to examine network design decisions using multiple metrics such as firm profits, supply chain profits, customer service levels, and response times. Good decisions perform well along most relevant metrics.
  2. Use financial analysis as an input to decision making, not as the decision-making process. Financial analysis is a great tool in the decision-making process, as it often pro­duces an answer and an abundance of quantitative data to back up that answer. However, financial methodologies alone do not provide a complete picture of the alternatives, and other nonquantifiable inputs should also be considered.
  3. Use estimates along with sensitivity analysis. Many of the inputs into financial analysis are difficult, if not impossible, to obtain accurately. This can cause financial analysis to be a long, drawn-out process. One of the best ways to speed the process along and arrive at a good decision is to use estimates of inputs when it appears that finding an accurate input would take an inordinate amount of time. As we discuss in some of the other practice- oriented sections, using estimates is fine when the estimates are backed up by sensitivity analysis. By performing sensitivity analysis on the input’s range, managers can often show that no matter where the true input lies within the range, the decision remains the same. When this is not the case, they have highlighted a key variable to making the decision and it likely deserves more attention to arrive at a more accurate answer.

Source: Chopra Sunil, Meindl Peter (2014), Supply Chain Management: Strategy, Planning, and Operation, Pearson; 6th edition.

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