The COVID-19 pandemic triggered a major supply chain disruption.
Workforce volatility. Slowed movement of raw materials and goods. Emergency border restrictions. Changing trade regulations. More protective policies in manufacturing facilities. Increased inflation and shipping costs.
To you as the everyday consumer, these supply chain problems probably meant some more empty shelves, buying more online, longer shipping estimates and, of course, receiving that familiar warning to complete your holiday shopping sooner.
But to you as the FP&A pro, it’s another budgeting and forecasting challenge. And with no signs that the COVID-19 supply chain issues will subside any time soon, now is the time to forecast with greater accuracy and to plan for every scenario ahead.
In this post, we’ll cover three key steps to protect your budget from the dreaded COVID-19 supply chain disruption.
1. Integrated Business Planning
Collaborate with your organization’s other teams. Your budgeting and forecasting process requires insight from other departments, so implement integrated business planning which aligns your FP&A, sales, supply chain and operations teams and their respective goals. Integrated business planning—which often incorporates driver-based planning—could mitigate demand and supply risks created by the COVID-19 supply chain issues.
Follow these three steps:
- Consult with your sales leaders to forecast demand with greater accuracy. They’re informed of demand fluctuations, and demand forecasting is the primary driver for supply chain decisions.
- Consult with your supply chain and operations leaders to find out—to what extent—your supply can meet your demand. Your operations team is the expert on your supply chain structure and plans, and they know how much inventory is available and how many distribution points are needed.
- Consult with your deal desk to ensure that contracts and other negotiations permit flexibility if your supply and demand don’t align perfectly.
Watch the video to hear Benjamin Tal, CIBC Capital Markets’ Deputy Chief Economist, talk about the supply chain disruption as one of three causes of recent inflation.
To watch the full episode of CFO Confidential: The Great Resignation on demand, become a Plan To Grow member and join the community.
2. Rolling Forecasts
Use that increased agility to extend your budgeting and forecasting process past a fixed timeframe, and don’t limit your process to your fiscal years. Instead, build a rolling forecast to forecast across fiscal years to further improve your budgeting and forecasting agility. As the COVID-19 supply chain disruption creates greater supply and revenue uncertainty, be sure to evaluate cash inflow, cost allocations and further market changes with greater frequency.
Budget with ranges and contingencies for the ongoing, tumultuous market conditions. Prepare plans to reduce your costs if revenue forecasts fall short, but also for areas of investments if revenue forecasts exceed expectations. That way you can commit resources and allocate funds—without any delay—to where they would maximize their value toward reaching your company’s objectives.
3. Scenario Analysis
Now with increased flexibility, perform a scenario analysis to test your organization’s plans by modeling and analyzing what-if scenarios. Assess how each market variable would affect your organization, and then calculate how every one of your possible responses to those ongoing market changes would impact your bottom line.
Our 2020 industry survey found that nearly two-thirds of businesses perform scenario analysis when forecasting, leaving the other third unprepared to plan proactively and react quickly amid the ongoing COVID-19 supply chain problems.
Scenario Analysis Software
Vena’s Scenario Planning solution mitigates your risk with agile scenario modeling. By analyzing what-if scenarios, your company can see how your decisions today would affect your bottom line tomorrow. As market conditions change and uncertainty remains, it’s crucial you protect your budget from the COVID-19 supply chain disruption—and that your company prepares for every scenario in 2022.