How to Navigate Trade Shocks with Supply Chain Scenario Planning

Article Highlights:

• Supply chain scenario planning is a risk management practice companies use to outline possible future scenarios and develop strategies for navigating those scenarios effectively.
• Supply chain scenario planning uses substantial time horizons to compel leadership to take a long view of their businesses, envisioning various possible futures and thinking through the best strategic frameworks for thriving in those different futures. 
• At the same time that the case for scenario planning has grown stronger over the past half-decade, technological tools have advanced, too, allowing organizations to engage in this process with greater precision. 
• The Oxford Scenario Planning Approach was developed at the University of Oxford, and the model stands today as arguably the preeminent scenario planning framework. 

There are a number of ways businesses can choose to manage and mitigate supply chain risk. There’s the reactive approach, in which companies respond to disruptions on the fly. Supply chain professionals seek ways to minimize damages and related costs in real time by carrying out crisis management measures—scrambling to identify alternative suppliers, ratcheting down production to match a slowdown in procurement, even reaching out to customers to inform them of impending shortages. 

Conversely, a proactive risk management approach establishes a framework for mitigating potential disruptions before they surface in supply chains. Proactive SCRM involves a raft of interrelated measures and initiatives, including:

• Mapping direct and sub-tier supply chains.
• Assessing risk exposure among geographical regions, suppliers, and production sites.
• Securing alternative suppliers.
• Diversifying manufacturers across geographical regions.
• Utilizing periods of relative stability to build up inventory.

The business case for proactive risk management grew much stronger during the COVID-19 pandemic, when companies were forced to navigate supply chain chaos, market upheaval, and the extensive revenue losses that stemmed from them. In the wake of those financially calamitous years, companies were arguably more willing than ever to invest in SCRM and work toward fostering genuine supply chain resilience.

While proactive risk management can be a very effective way of implementing contingency measures and preparing businesses for the next major disruption—or, in the case of COVID, succession of them—organizations also need a method for devising those contingency measures and developing the strategies critical to shaping them. Supply chain scenario planning serves exactly this purpose. Scenario planning takes proactive SCRM a step further by giving businesses the opportunity to think through possible risk landscapes months or even years before they actually materialize. In this way, it represents risk management at its most forward-facing, giving professionals a chance to envision different possible outcomes and evolve their risk strategies accordingly. 

What Is Supply Chain Scenario Planning?

Supply chain scenario planning is a risk management practice companies use to outline possible future scenarios and develop strategies for navigating those scenarios effectively. This is, of course, an oversimplification of what is nearly always a sophisticated, in-depth process, and other existing definitions go further in communicating this inherent complexity. According to the MIT Sloan Management Review, supply chain scenario planning “involves considering possible future states for a planning horizon ranging from three to 30-plus years. It requires a multistep deliberation process within the boundary of a single organization or its supply chain that may take a few months after the data has been analyzed.”

Supply chain scenario planning uses substantial time horizons to compel leadership to take a long view of their businesses, envisioning various possible futures and thinking through the best strategic frameworks for thriving in those different futures. At the same time that the case for scenario planning has grown stronger over the past half-decade, technological tools have advanced, too, allowing organizations to engage in this process with greater precision. Companies are now able to leverage large volumes of data, predictive analytics, and artificial intelligence to sketch out future scenarios and effectively extrapolate the impacts of those scenarios on their business. 

Companies are now able to leverage large volumes of data, predictive analytics, and artificial intelligence to sketch out future scenarios and effectively extrapolate the impacts of those scenarios on their business. 

What Is the Oxford Scenario Planning Approach?

The Oxford Scenario Planning Approach was developed at the University of Oxford by three distinguished experts in scenario planning, Kees van der Heijden, Angela Wilkinson, and Rafael Ramirez. The model stands today as arguably the preeminent scenario planning framework. 

The Oxford Approach was created around a decade ago in an effort to modernize previous scenario planning models and emphasize new ways of thinking about context, uncertainty, and signals. According to Oxford University, the model is an “ intellectually rigorous approach to scenario planning with theoretical aspects grounded in practical guidance.” Further, the Oxford model “offers a different approach to strategy development, asking you to focus on strengthening your ability to cope with uncertainty and secure the opportunities it offers instead of trying to predict the future.”

While the full scope of the Oxford Approach can’t be outlined in full here, there are several key features worth highlighting. 

• TUNA: An acronym developed in conjunction with the Oxford Scenario Planning Approach, TUNA stands for turbulence, uncertainty, novelty, and ambiguity. TUNA is intended to encompass challenging, unforeseeable events and developments that jeopardize organizations, threaten supply chains, and even throw entire business models in doubt. Examples of TUNA include Brexit, the COVID-19 pandemic, and, arguably, the tariff wars of 2025. Supply chain scenario planning is a valuable practice because it unpacks the complexity and multifaceted threats of events like these before they take place. Because of this, it gives businesses the opportunity to think through various potential future periods of TUNA—along with their consequences—with diligence and deliberation. 

• Contextual and Transactional Environments: Another key facet of Oxford’s framework is the concept of a tiered environment. In work published in MIT Sloan Management Review and elsewhere, Rafael Ramirez and colleagues break up a business’s environment into two categories. The transactional environment—also referred to as the “first layer” of the environment—is the organization’s stakeholders and immediate surroundings, including customers, suppliers, investors, and regulators.

The contextual environment, or the “second layer,” contrastingly, encompasses all the variables outside a business’s ecosystem and beyond their control. They include macroeconomic conditions, technological advancements, social trends, geopolitical developments, and demographics. Ramirez effectively distilled scenario planning in a 2017 research article, writing, “Scenario planning is about exploring how the second layer might transform the first layer.”

• Emphasis on “Weak Signals”: Scenario planning is about looking beyond high-probability outcomes and conceiving of hypothetical circumstances that may not be likely, but are nevertheless plausible. Events like the COVID-19 pandemic, the Russian invasion of Ukraine, or the global trade realignment of 2025 would never have been perceived as probable before they came to pass—yet they did anyway. The Oxford Scenario Planning Approach emphasizes weak signals—faint patterns, trends, and possibilities that may become more pronounced and influential in 5, 10, or 20 years. (It’s important to remember that scenario planning generally takes place on time horizons of three to 30 years.) Scenario planning invites businesses to reconcile themselves to the idea that standards, norms, and narratives change—sometimes dramatically—and weak signals can be an effective way of sensing those shifts before they fully materialize and change your business reality. 

Emphasis on “Weak Signals”: Scenario planning is about looking beyond high-probability outcomes and conceiving of hypothetical circumstances that may not be likely, but are nevertheless plausible.

How Can Companies Execute Supply Chain Scenario Planning?

Supply chain scenario planning is a fairly complex, multifaceted process. Because of this, organizations should establish a clear roadmap before moving forward with it. In general, there are a handful of key stages that should be regarded as essential. 

1. Choose Your Time Horizon

Most supply chain scenario models recommend that companies choose a time horizon somewhere between a few years and several decades. The time horizon you decide on depends on a number of factors. Small businesses who’ve been around for less than five years, for example, may want to limit their scenario planning to 24 or 36 months. Enterprise businesses, on the other hand, have achieved a level of stability that warrants deeper foresight and strategic thinking farther down the line. These companies should consider establishing time horizons of a half-decade or longer. 

2. Identify Key Stakeholders

An indispensable component of myriad risk management processes, identifying key stakeholders is equally important to supply chain scenario planning. Your stakeholders are often many of the actors and businesses in your “transactional environment,” including customers, direct and sub-tier suppliers, investors, competitors, and relevant regulatory agencies. 

3. Establish Your Driving Forces 

Driving forces—also often referred to as critical factors or uncertainties—are arguably the most important facet of scenario planning. These are the independent variables that could threaten the status quo within your time horizon, forcing you to adapt, evolve, and draw on all the risk management tools vital to maintaining resilience. Driving forces are generally found in your “contextual environment,” and include geopolitical developments, regulatory changes, materials shortages, economic recessions, and other macro events.

4. Create and Play Out Your Scenario

Creating your scenario entails taking one or multiple driving forces and exploring how those forces could impact your customers, business, and transactional environment. Companies will often apply two forces along an x and y axis according to severity, creating a matrix with four different scenarios. 

For example, an organization might choose a deregulatory environment and an economic recession as their driving forces. The economic recession could be placed on the x-axis, with the far left denoting a full-blown depression, and the far right representing a fleeting recession. The environment of deregulation, meanwhile, would appear on the y-axis, with a dismantling of major regulations appearing on the top, and minor changes to existing regulations at the bottom. This matrix creates four different possibilities that businesses can then map out and prepare for. 

5. Discuss Impacts and Strategies

Once the scenarios have been established, team members can move forward with assessing the different hypothetical futures. This is an essential step, as it offers team members the chance to engage in critical thinking about how their business should respond to driving forces and potential impending threats to their supply chains and revenue. Once the impacts are laid out, firms should brainstorm different strategies for mitigating the risks associated with those forces. 

There are any number of strategies organizations can come up with to mitigate potential future scenarios, including stockpiling inventory, growing liquid capital, diversifying their supply chain, or expanding their product portfolio. One of the key benefits of scenario planning is how it forces companies to focus on a specific set of circumstances, facilitating the development of concrete mitigation measures tailored specifically to those threats. 

Z2Data Provides the Data Foundation for Scenario Planning

In order to play out effective, realistic scenarios, businesses need to be able to draw on credible real-world data. Simulating a rare earth element (REE) shortage, or an armed conflict that eliminates all suppliers from a specific country, requires comprehensive supply chain data on manufacturers, raw material supplies, and other essential variables. Z2Data is an industry-leading supply chain risk management (SCRM) platform featuring three comprehensive databases that encompass over 1 billion electronic components, 1 million suppliers, and 200,000 manufacturing sites all over the world. These databases include the kind of in-depth information on parts, suppliers, and site locations that can be essential to effective scenario planning.

• Parametric search of one billion parts and over 1,000 commodity types
• Cross-references
• Proprietary lifecycle forecasting
• In-depth supplier profiles that include comprehensive risk assessments 
• Supply chain mapping
• Sub-tier intelligence

Organizations interested in carrying out supply chain scenario planning can draw on the Z2Data platform to create a process that’s informed by comprehensive, real-world data and intelligence. To learn more about how you can use Z2Data’s databases to drive scenario planning and power other SCRM measures, schedule a free trial with one of our product experts.