Fake scenarios help companies to prepare for emergencies

fake scenarios

The world is becoming increasingly unpredictable, and unforeseen changes pose new risks for globalized supply chains. To create more certainty, companies should use scenario planning to view risks from various perspectives, said Eugenie Molyneux, Chief Risk Officer of Commercial Insurance at Zurich Insurance, during the SCRM Summit held in Hamburg on 15 October.

By Marysa Vos

Global trends and geopolitical shifts can impact on companies, supply chains and purchasing organizations. There is growing tension between world powers and climate change is causing disruptions in the supply chain. According to Eugenie Molyneux, our worldwide infrastructure of roads, railways, ports, the internet and energy faces considerable risks due to global warming, and supply chains will not be able to escape the consequences. “Our infrastructure is hugely important for globalized supply chains. But what we still fail to accept is that in 15 years’ time the sea level will have risen and many power stations will be under water,” cautioned Molyneux.

Signalling risks

There is an urgent need for a holistic approach to risk management that also takes indirect problems into account. Such problems can cause chain reactions due to today’s interconnected devices or globalized and hence complex supply chains. “Companies need to understand the various scenarios, even if they are indirect. That’s crucial to their ability to decide how best to react,” emphasized Molyneux.

Rolf Zimmer, Co-founder and Managing Director of Riskmethods, agreed. As examples of problems that can have an impact on a company, he mentioned external signals such as trade wars, the scarcity of raw materials, strikes, natural disasters and PR incidents. “But so-called soft signals within the company can also indicate a risk, such as delays in salary payments or a couple of business units being put up for sale,” Zimmer explained. In his view, it is essential for companies to be able to detect, interpret and understand the impact of both direct and indirect signals.

Risk-aware leaders

Today’s market leaders may not succeed in retaining their position if they fail to anticipate the current developments and the associated risks in time. After all, in the case of supply chain disruption, you can’t assume that your company will be the first to be informed. In that case, a digitalized approach to risk management in the supply chain adds significant value. “Leaders in supply chain risk management are risk aware and use the information to their advantage,” said Zimmer. He explained that risk-aware companies are flexible and well balanced, which enables them to turn risks into opportunities and ultimately leads to good results: “On average, the shares of such companies perform 7% better than companies who don’t anticipate risks.”

From reactive to proactive

One company that has succeeded in transforming its reactive approach to risks into a proactive one is Mölnlycke Health Care. This manufacturer of medical solutions has been actively focused on risk management since 2018. “When you are aware of a risk in good time, you can be proactive towards your suppliers, arrange to be given priority and avoid a crisis situation,” commented Petra Ericsson, Strategic Sourcing Development Manager at Mölnlycke Health Care. The company has therefore drawn up contingency plans with all its major suppliers, has made dual sourcing a must and uses scenario planning to train for various emergencies. “We quantify and evaluate potential supply chain disruptions and then use fake scenarios to run through our crisis management plans so that the various departments know what to do in an emergency situation,” said Ericsson.