The importance of Black Swans in our planning process

Our everyday experience in Social media appears to be clouded by a few words and excitement.          

This can be created by either the complexity that we live in or the fear of the competition beating us by being better at something.  The chilling question that Consultants and Software vendors seem to ask is “Your competition is doing this. Are you?”.

A simple but complex question:

How do we prepare for Black Swan events?

Black Swan events are those highly unpredictable events that occur out of nowhere and cause a systemic shock to the process and the way we do things.  They may perennially alter the way we conduct our business.

To quote the wiki:

“The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight.”

Most of us have lived through these black swan events in the recent past – Sep 11, the financial crisis, the Sunamis.

However, there are Black Swans that are not necessarily gloom and doom for everyone.  The launch of the iPhone – gloom only for the Blackberry company.  Amazon.com – good for everyone but gloom for the Brick and Mortar Stores.

The Black swans may be sudden – planning will be in a panic and preparations will be in crisis mode.  The Black swans may slowly evolve with a specific trend which means more time to plan.  But there will be more frequent re-planning and revisions to your forecasts and strategic plans.

The launch of a new product and an unexpected 500% upside is a positive Black swan event – but it also comes with hectic re-planning and many sleepless nights for the new product team, the planners as well as the President of the company.  I have been there during my days as a demand planner for the Bain de Soleil products.

When they evolve slowly, the key is in re-planning with demand-driven inputs – field Sales, Customer inputs and even observing the POS trends almost on a daily basis.  (Note the word demand-driven is not in the same sense of the cliche used in the MRP literature)

Keep in mind such unexpected spikes may also disappear soon enough – so it is important to plan scenarios when demand will dissipate or follow-through from these unexpected demand opportunities.  Planning for such events should be an important part of the demand planning function.

While helping companies transform their demand planning process, we emphasize the importance of demand modeling for events – both expected as well as Black Swans. 

Most companies have Strategic planning functions that look out for the long-term - two to five to twenty years of planning.  Their job is to evaluate scenarios and do sensitivity analysis for different Black Swans.  In essence, they are the Black Swan hunters.

What are the trends in the market place and what could fundamentally change our business?  The holy grail for most organizations is to bridge the demand plans and strategic plans so the twenty-four-month demand plans serve as a starting point for the long-term strategic plans.

To grow and mature in the organization, demand planners need to look outside their box of three to four months with the ability to question the strategic plans as well – Review the period outside the current year horizon and get a sense of your plans in revenue terms at an aggregate family or product line level or even your business unit level.

This will help one grow up from the weeds to the top of the trees and the ability to look at the entire jungle.

As a demand planner you can add value to your organization by asking the following questions:

1. Is anyone in your company looking at potential Black Swan events?

2. If you have a strategic planning group, do they look at your 24-month demand plan in dollar terms as a starting point? 

Are the demand plan and the Strategic plan vastly different?

Please visit https://valuechainplanning.com/domain/Demand-Planning- to know about Valtitude services offerings and how to build a holistic planning process that will bridge Short-term, medium-term and long-term plans.   

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