A Scenario Planning Approach to Lead Manufacturing Industry in Challenging Situation

Warta Ekonomi, Jakarta -

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.

Scenario	Short term (0-2 yeras)	Mid Term (2-5 years)	Long term (> 5 years)
Downsizing the Business	- Cost optimization strategy - Starting reducing the employee and restructuring the debt - Develop new geographic market where demand is still high	- Define new geographical market and start to move asset gradually - Develop new product and diversify the product - Downsizing incountry operation.	- Establish new business in new geographical - Launch new product with complete solutions - Closing the operation in the country that has no demand (there is no market)
New Normal – Low Ball strategy	- Maintain high backlog to keep high capacity utilization by reducing operating margin - High operating efficiency thru applying technology to optimize the cost - Develop Scenario for BOO and BOT to provide total solution for clients and keep margin level - Implement strict health procedure and swift employee benefit to health care plan	- Slowly increase margin to new acceptance level - Maintain operating efficiency - Start new pilot project for BOO and BOT. - Launch new optimization technology for production - Start partnership with artificial intelligence company to auto monitoring health all employee.	- Keep margin level and maintain backlogs - Implement new automation in production line - Implement artificial intelligence to monitor operation and production as well as employee health condition - BOO and BOT scheme will drive 50% or revenue.
Extend the Runway	- Reducing margin to create strong backlogs. - Create leasing method to create new demand. - Debt restructure and develop financial institution company - Cost optimization strategy	- Using existing optimization technology to increase plant productivity - Dump price to increase incountry demand. - Continue with leasing method	- Slowly increase price since demand expected higher. If not, go to downsizing business scenario - Start direct selling and stop leasing gradually to get cash. - Implement advance technology for production. Making new investment for new product development.
Growth Strategy: Invest and Expansion	- Invest for new production line to capture market demand - Developing to expand for nearest geographical - Developing artificial intelligence combine with advance optimization production technology to increase competitiveness	-Continue invest to geographical area - Penetrate to Asia pacific market -Start new factory in south east Asia pacific - Offering BOO and BOT model for new market. - Established optimization and artificial intelligence for production - Develop new product for new market segment	-Acquiring competitor to become leader in Asia Pacific regions -Continue implement BOO and BOT for green market - For brown market, established new product that improving company competitive advantage - Established artificial intelligence in all sectors such as: SCM, Project and Finance

Scenario planning helping the management to define their strategy to face this uncertainty situation. The Company has to swift from scenario to other scenario after the management assess the situation. The scenario planning itself is not a fix strategy but a sustainable process of creative thinking.

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Some researcher argue the effectiveness of the creative thinking in systematic business environment. In my opinion, since the definition of the strategy is "what we do differently compare to the competitors", thus the creative thinking is still the most effective way to determine the strategy.

The above, is the general example of the scenario planning, therefore the management shall make it more details on the key performance index (KPI) that has to be achieved by the company. The management also need to examine that if all the implemented strategies giving the results as expected, since this is a continuous process.