A Scenario Planning Approach to Lead Manufacturing Industry in Challenging Situation

Background

Since the World Health Organization announced Covid-19 spreads as a global pandemic, it does not take long for the government, along with the stakeholders in every sector, are racing against time to be able to mitigate the risks of future potential losses.

Manufacturing will be among the industries to be most negatively affected by the spread of the Covid-19. The spreads of the Covid-19 is heavily disrupt both the demand behavior as well as the supply, and also the capability of the companies to deliver goods to the market.

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Regardless of the action of the Government in order to save the national economy and the stability of the financial system amidst the pandemic, the pandemic put the market in uncertain situation that causing the management having difficulties to make a firm strategy.

For the management to make a firm strategy, is the management shall use the strategic planning. One of the strategic planning to be used is the scenario planning, also called scenario thinking or scenario analysis, is a strategic planning method that some organizations use to make flexible long-term plans. It is in large part an adaptation and generalization of classic methods used by military intelligence.

The scenario planning may involve aspects of the creative thinking, therefore, to find the driving force, the management have to conduct the brainstorming and discussion within the stakeholders that having different point of view.

The Driving Forces

The major categories of driving forces are social dynamics, economics, political affairs, technology. Based on the major categories above, the driving forces shall be divided into two factor that most deemed predetermined (inevitable) and uncertain in your business. However, prior we determine the driving forces, we have to first determine the early warning signals. The following are the early warning signals for the manufacturing industries during the pandemic outbreak:

1. New Booking expected low due to temporary closure of the workplaces (businesses). It is causing the delay and cancellation for the execution of the new project. The company will survive if having strong backlogs, otherwise the company shall reducing the cost of the operation drastically to maintain the cash in certain level;

2. Payment capability of the clients. All sectors having the same problem: cash. The signal about cash problem is increasing both Aging Receivables and Aging Payable.

3. Reducing the operating margin to compete with the competitors. As mentioned in point 2 above, two variables that determine whether the company will survive or not, are backlogs and cash. Due to the competition, operating margin shall be diminished, therefore operating efficiency is a must.

4. Social issue within the employee, community and company. Nobody feels safe in this pandemic situation. The risk of infected by Covid-19 is high, especially in the factory located in red zone. Social issues such as job security, community asking for help from the company due to the small-medium enterprises were shut down and the unemployment increasing.

Based on the above early warning signal, as well as the brainstorming and discussion, there are two driving forces: the pandemic period is over and market demand.