Scenario planning for USDA food supply chain risk management

¶ … Planning: USDA's focus on its future strategies

The concept of risk

Scenario 1:'no major future changes' in the external environment.

Scenario 2: 'negative future changes' in the external environment

Scenario 3: 'positive future changes' in the external environment

Critically evaluate the contribution that scenario planning can make to effective strategic management. Draw on relevant theories and examples to support your arguments.

The concepts of scenarios and scenario planning

Vision-Driven scenarios and its application in strategic planning

Decision Driven Scenarios

The stickiness of information

In this paper, we use scenario planning as a strategic management tool to be used in the proactive and predictive identification as well as mitigation of risks associated with the U.S.A.'s food supply chain as well as the operations of USDA.

Introduction

Food security forms a critical element of any successful nation. Hamm and Bellow (2003) defined community food security as a condition in which all members of the community are in a position to obtain a safe and yet culturally dependable amount of nutritionally adequate diet via a sustainable food system that optimizes the level of community self-reliance, democratic decision as well as social justice. Community food security is therefore a critical component in the ensuring that the necessary conditions are put in place in order to enable members of a community and of a given nation to enjoy a healthy living. The threats to a nation's food security are often drastic as evidenced internationally by the high level of perpetual malnutrition by the Sudanese children as noted by Gettleman (2007) as well as domestically by about 56% of the Houston Astrodome shelter residents who were exposed to lack of sufficient food after their homes were ravaged by Hurricane Katrina back in 2005 as noted by Brodie, Weltzien, Altman, Blendon & Benson (2006). Food availability can therefore dictate whether a nation dies or thrives. It therefore becomes a matter of national as well as global importance. The United States Department of Agriculture is the one mandated with ensuring food security in the entire U.S.A. In this paper, we explore how scenario planning can be used by USDA in ensuring that it is prepared to tackle any situation/threat to the national food security. In this paper, we use scenario planning as a strategic management tool to be used in the proactive and predictive identification as well as mitigation of risks associated with the U.S.A.'s food supply chain as well as the operations of USDA.

The concept of risk

Risk is defined by the Royal Society (1992) as the probability that a particular negative event takes place during a stated period of time as a result of a given challenge.

Scenario 1:'no major future changes' in the external environment.

The external environment of the United States of America's food supply chain is defined by the level of imports emanating from other countries. A situation of 'no major future changes' in the external environment would therefore be defined by normalcy within the entire food supply and value chain system. The food supply chain is represented in figure 1 below;

Figure 1: The food supply chain (Deep & Dani,2009).

Scenario 2: 'negative future changes' in the external environment

The existence of 'negative future changes' in the external environment' signifies the existence of actual risks within the external environment of the U.S. food supply chain. Fearne, Hornibrook et al. (2001) noted that despite several food safety legislations, the escalating levels of customer concerns as well as the resulting costs that are imposed on the society due to the numerous food safety as well as security scares have resulted to an increase in the attention to the causes, the effects as well as prevention of the possible hazards. The work of Peck (2006) in which she discussed the reliance of business sector on the larger food sector indicated a very wide gap in the level of preparedness for the BMC (business continuity management) because very few corporations have adopted a preventative or proactive approach to the crisis management and are instead operating in a reactive mode. She indicated that the quest for efficiency coupled with the just-in-time philosophy within the food industry had only served in progressively reducing the levels of stock throughout the U.S. food supply chain. On the contrary, the consolidation of the distribution networks by the main food manufacturers as well as the general trend towards the adoption and implementation of a supply chain system via the 3PL (Third Party Logistics) providers, coupled with the reduction in the distribution sites implies that the general loss of site as a result of natural disasters like flood and fire can cause a serious interruption of the supply chain.

Kliendorfer and Saad (2005) classified supply chain risks into two main categories.Those that arise from problems of coordinating the supply and demand parameters as well as those that arise from the disruption to the normal supply chain activities. The work of Christopher and Peck (2003) however categorized these supply chain risks into five main categories namely;

1. Risks that are internal to the firm such as; process and control

2. Risks that are external to the firm but that are however internal to the overall supply network such as demand and supply risks.

3. Risks that are external to the network such as environmental risks

According to Peck (2003), the risks that affect the food supply chain includes the following;

1. Product contamination as well as recall

2. Loss of access to products due to terrorism

3. Loss of access to products due to protesters

4. Loss of site

5. A reduction in capacity

6. Loss of individuals/manpower

7. Loss of a supplier

8. Dual sourcing

9. Contractual cover

10. Market forces.

The concepts of scenarios and scenario planning

Several definitions exist of the terms scenarios and scenario planning. According to Porter (1985) "A scenario is an internally consistent view of what the future might turn out to be -- not a forecast, but one possible future outcome" (p.63) while Schwartz, (1991, p. 45) noted that a scenario is a tool used for the ordering of one's perceptions regarding an alternative future environments within which one's decisions might as well be played out. Scenario planning on the other hand was defined by Ringland (1998, p. 83) as the part of strategic planning that relates to the various tools as well as technologies that are used in the management of the future uncertainties. Schoemaker (1995, p. 13) on the other hand defined scenario planning as a form of a disciplined methodology that is used for effectively imagining the various possible futures in which a given organizational decisions may as well be played out.

The main outputs of any scenario planning are present in the definition that was provided by Chermack's (2005) that suggests that scenario planning should contain plausible alternative views/stories regarding the future, altered mental models, learning, organizational dialogues and improvised performance which is derived from the making of better decisions.

These outcomes are noted to be a synthesis of several different definitions of the concept of scenario planning.

While investigating the importance of scenario planning to strategic management practices, it is critical to note that there exists a big difference between the concept of scenario planning and that of scenario building. For the sake of our discussion, it is important to note that scenario planning is regarded as the overarching process of producing multiple plausible alternatives of the future environment and then effectively using these environments for the development of organizational strategy.

Vision-Driven scenarios and its application in strategic planning

Vision driven scenarios are employed in the identification of the relevant assumptions at a firm's macro environment. This implies that a lot of time must be spent in the analysis of the trends as well as forces that affect the macro environment. The forces that are normally considered for this process are the STEEP (Social, Technological, Environmental, Economic, and Political) forces. This is then coupled with insights that are gathered from in-depth interviews with the company's top executives, managers as well as organizational members. In order to differentiate between decision-driven scenarios and vision-driven ones, it is worth mentioning the work of Courtney (2003) who argued that the process of scenario planning is usually employed at the macro level in situations where innovative thinking on various unpredictable forces are necessary. The concept of vision-driven scenarios was further noted by Courtney (2003, p.14) to help managers and the executives to think outside the box as well as effectively question their own assumptions regarding the future.

Decision Driven Scenarios

The vision-driven scenarios on the other hand are noted to lack any specific direction or even commitment to any near-term strategic objectives/decisions. They are therefore often used for informing a well-specified strategic decision or choice. This choice is what is considered in a situation where the 'better' option is not easy to arrive at due to uncertainty over the exact impact of that specific choice.

The decision driven scenarios are usually employed in addressing of more specific issues like new product launches as well as in the case of deciding whether or not one should construct a new plant as noted by Courtney (2003). He argued that the application of broad vision driven scenarios are never appropriate in cases where one has to make several near-term decisions. The implication is that should one use this tool then failure is eminent.

Courtney's (2003) attempted to differentiate between the two scenarios by noting that the difference between them is rooted in the observed failures in some of the projects in which the project's scope as well as the problem for which the solution is being sort are mismatched. It is therefore paramount that managers and executives use apply scenarios to initially consider the specific time frame in which they will be operating as well as tell the nature of the problem that will need to be solved. Should they be dealing with problem that require near-term strategic decisions then the process of planning for the scenario must take a totally different path as compared to the one taken by managers who seek a more generalized view of a given project.

The stickiness of information

The increasing need for relying on processes that are knowledge intensive by organization that are managed by various interdisciplinary team is noted by Ford & Sterman (1998) to be another reason for preferring decision-driven scenarios. Information stickiness is a term which is used to refer to the level of difficulty in transferring information between as well as among people. Stickiness was defined by Von Hippel (1998, p. 629) as the incremental expenditure that is required in order to transfer that unit of information to a specified locus in a special form which is deemed useable by a given information seeker. A low value denotes a low level of information stickiness while a higher one means that stickiness is high.

Several discussions of the concept of information stickiness have included even simple recognition that there is always a cost which is associated with the process of information transfer as well as the differentiation of stickiness and the concept of friction as indicated in the work of Ford & Sterman (1998).

Whenever information becomes sticky, a high level of expertise as well as specialized knowledge is usually required in the making of a particular decision. Szulanski ( 1996) noted that stickiness is the main characteristics of highly personal, specialized tacit knowledge that hinders easy transfer. The concept of stickiness is therefore the main difficulty in the transfer of tacit knowledge.

Conclusion

As noted by Sevaguru and Safa (2005), the concept of scenario planning can be regarded as an alternative tool for strategic management. This is because scenario planning, as a strategic management tool can effective help in the preparation of managers for any future possibilities. The futures in this case are what are referred to as scenarios and may reveal themselves or not in reality in the similar manner in which they were predicted. Such futures/scenarios can help in the provision of the possible options that can be appropriate for all possible circumstances to which the company may be exposed to. The whole idea is to get the entire management team exposed to the scenarios that may present themselves. There is therefore a need for adequate institutional learning in order to help the management and the organization as a whole to adapt to possibility of totally new scenarios.