The Digital Supply Chain podcast

The future of Bussiness Planning in Supply Chain - a chat with David Vallejo

July 13, 2020 Tom Raftery / David Vallejo Season 1 Episode 53
The Digital Supply Chain podcast
The future of Bussiness Planning in Supply Chain - a chat with David Vallejo
Chapters
The Digital Supply Chain podcast
The future of Bussiness Planning in Supply Chain - a chat with David Vallejo
Jul 13, 2020 Season 1 Episode 53
Tom Raftery / David Vallejo

I was chatting with David Vallejo (@sapvallejo on Twitter) recently when the topic of where is Business Planning going came up. David outlined a vision for the future of Business Planning that I hadn't heard before, so I asked him to come on the podcast to share it.

He agreed, and we had a fascinating look at Business Planning, where it is today, what needs to change, and where it needs to go to cope with increasing change and disruption.

We had great fun putting this podcast together, I hope you enjoy listening to it. If you have any comments/suggestions or questions for the podcast - feel free to leave me a voice message over on my SpeakPipe page or just send it to me as a direct message on Twitter/LinkedIn. Audio messages will get played (unless you specifically ask me not to).

To learn more about how supply chain leaders improve end-to-end supply chain visibility, download the research study of 1,000 COO’s and Chief Supply Chain Officers – “Surviving and Thriving How Supply Chain Leaders minimize risk and maximize opportunities

And if you want to know more about any of SAP's Digital Supply Chain solutions, head on over to www.sap.com/digitalsupplychain and if you liked this show, please don't forget to rate and/or review it. It makes a big difference to help new people discover it. Thanks.

And remember, stay healthy, stay safe, stay sane!

Show Notes Transcript

I was chatting with David Vallejo (@sapvallejo on Twitter) recently when the topic of where is Business Planning going came up. David outlined a vision for the future of Business Planning that I hadn't heard before, so I asked him to come on the podcast to share it.

He agreed, and we had a fascinating look at Business Planning, where it is today, what needs to change, and where it needs to go to cope with increasing change and disruption.

We had great fun putting this podcast together, I hope you enjoy listening to it. If you have any comments/suggestions or questions for the podcast - feel free to leave me a voice message over on my SpeakPipe page or just send it to me as a direct message on Twitter/LinkedIn. Audio messages will get played (unless you specifically ask me not to).

To learn more about how supply chain leaders improve end-to-end supply chain visibility, download the research study of 1,000 COO’s and Chief Supply Chain Officers – “Surviving and Thriving How Supply Chain Leaders minimize risk and maximize opportunities

And if you want to know more about any of SAP's Digital Supply Chain solutions, head on over to www.sap.com/digitalsupplychain and if you liked this show, please don't forget to rate and/or review it. It makes a big difference to help new people discover it. Thanks.

And remember, stay healthy, stay safe, stay sane!

[00:00:05] Future planning will be a, a platform catering to the business an always on real time environment to make decisions of the structural elements of my supply chain and transactional elements of my supply chain. [00:00:19][14.7]

[00:00:23] Good morning, good afternoon or good evening wherever you are in the world. This is the Digital Supply-Chain podcast. The number one podcast focussing on the digitisation of supply chain. And I'm your host. Global vice president of SAP, Tom Raftery. Hi, everyone. Welcome to the Digital Supply-Chain podcast. My name is Tom Raftery with SAP and with me on the show today. I have David. David, would you like to introduce yourself? [00:00:48][25.1]

[00:00:50] Thank you. And thank you, Tom, for having me on your show. My name is David Vallejo. I am the global solution owner for digital business planning at SAP, joined SAP about six years ago and had a number of roles all in supply chain and now lead our go to market strategy and for supply chain planning at SA P. [00:01:14][24.5]

[00:01:15] Okay. And we were chatting about this a couple of days ago, David, you and I. And you. You said we should have a chat on the podcast around the future of business planning and you pitch me some interesting ideas. So I invited you to come on the show. So thanks for that. But, you know, you use some of the ideas that you come up with some. Great. And I'm curious why what's wrong with planning today that we need to completely change it now, this whole future of business planning, the new vision that you spun out for me. [00:01:43][28.3]

[00:01:44] Yeah. So I think it's interesting because, I mean, what we've just gone through, I think, elevated and amplified a lot of the thoughts that we had of reimagining supply chain planning. And if you look at the history of supply chain planning, it kind of dates all the way back to to nineteen sixty where MRP was was invented, where companies went away from just the standard reorder point, like, you know, if I'm running low in my fridge of milk, then at a certain point I reorder, you know, a new gallon of milk. They thought, hey, maybe we can be more strategic about it and create something called the forecast. And I break this forecast and down into everything that is required to meet that forecast. So that was essentially the first institution of supply chain planning, and that's still largely been used as a principle. And companies today. Now, what is wrong with that? The very first question that I often ask customers is how well can you actually predict your business? What is the forecast accuracy that you have? And that in itself gets into an interesting conversation because, of course, the forecasts is never right, especially coming through through these times. People realise that the predictability of their business is actually very much impeded right. By the current situation. So if the if the forecast is not right and let's just say I can predict my my sales of my products with an accuracy of maybe 60 percent, 70 percent, and that's for a lot of companies is actually a good thing. If I get that high and then with a principle of MRP or with a principle of just breaking it down into a deterministic, calculated number of here, the resources that are required to meet that falls short because the moment changes have to redo this all over again. So a lot of companies are still caught in these planning cycles. They call them planning cycles where they re state all the, you know, number of quantities and volumes they need to manufacture things that they need they need to procure all over again. [00:04:09][144.8]

[00:04:10] And that creon, how long how long would a typical planning cycle take? What are we talking about? [00:04:14][4.2]

[00:04:14] Yeah. Great question. I mean, I think a lot of companies are still doing this like on a weekly basis. Some of them have even longer cycles, depending on which industry we're talking about. But the friction that occurs, what happens within that week or what happens within that month. So there's a lot to say about increasing essentially the predictability of your business, increasing the forecast accuracy. Sure. By the time of the 80s, Oliver White came along and say, you know, there is something to say about a more holistic approach. They called it sales and operations. Planning and sales and operations. Planning is a is a discipline where get everybody on the table that has an opinion about where the business is going. So now you have product management, marketing, sales operations come together on the table to agree on a plan. It's a very coordinated effort. But still, in the end, I'm creating a plan that is sort of a I pretend this will be deterministic. In nature, this is the plan and I'm going with. And then I break this plan down into the logistics and the manufacturing and everything that is required. So now I believe the next generation planning and these are the thoughts that we're having, is that change essentially will become the norm. It has always been the norm. And preparing for the change and preparing for the volatility that I have from a demand perspective essentially becomes the objective function. And so we we there are disciplines around calculating how much inventory you need to keep. And that is also a function of how variable my demand is, how variable my suppliers are, how reliable that is, because if it's not reliable, I need to carry more inventory to cater to the same service. [00:06:18][123.2]

[00:06:19] And I think it might be more inventory in different regions, I suspect. [00:06:22][2.6]

[00:06:23] And that may be in. Exactly. So it's not just how much I need to keep, but where do I need to keep it right. And if I have a complex supply chain, the weather question is almost as important as how much. And if I have multi-level distribution, then I don't want to end up with stranded inventory. I want to make sure that I have enough. And inventory is sort of. It's like cholesterol. There is something good about it and there's something bad about it. Right. Okay. There is something good about it. Sales often say they want to have as much inventory as they can because for them it gives them a safety net that they can always respond to demand. Sure. But inventories is bounding a lot of working capital and foot. For some, industry, inventory is almost perishable. In industries like high tech, perishable means. Cost is deteriorating. So at the moment, I have inventory. I'm losing money. Yeah, it's it's like the car sales dealer that, you know, a car that is sitting on the lot doesn't make any money. It just costs money. So I think the next generation planning the way we're thinking about is going away from this purely deterministic model. Thinking more about probabilities. Thinking about introducing also machine capabilities into the equation that sometimes can actually be more intelligent about how your business is evolving and how your business is going. [00:07:56][92.9]

[00:07:57] So I've talked to actually some customers. They had side by side models to use machine prediction model of how my sales forecast is evolving and have Youmans actually update the forecast. And they found that the machine does. Have something that humans have, machines don't have, which is called bias. So at the moment, human touches a plan. They oftentimes cannot avoid that. They have a certain belief, a certain aspiration, a certain agenda. And it's the same thing that happens in every company. The moment you're predicting something, you want to have an aspiration baked into it or you want to have some sandbagging packed, backed into it, depending on where you're coming from, a machine doesn't have that. It just takes the numbers. So that's one aspect is is introducing concepts like machine learning that will start to learn how the business is evolving and can then better predict where things are going. And that companies start using that more and more as as a good baseline. And then also going away from this purely deterministic model where always create. If I use the analogy of creating a travel itinerary. If I ask you, you know, would you be able to travel next week to a certain place in the world, you will be saying. My calendar looks open. I think I will be able to get there. You have not booked your flight. You have not book your hotel. You have not booked a rental car. You've done none of that. Like an Emma P, what it does is it will look at all the resources required and the moment something changes, it will do that once again. And I think the next generation planning the level of detail that I'm checking will be more indicated by the question that I'm having. The horizon that I'm looking at and the probabilities that are that are likely going to be in play for the answer. So the way I think we're thinking about is is is a new model that looks at. Multiple different versions of your forecast. This is a very natural thing. If I ask you how things are going into the future, you are naturally thinking about a best case scenario. A likely case and the worst case scenario. Now we can just like scenario planning. Exactly. And we can now be very strategic about these scenarios, too. Then. Balance this against like, what does that mean? If the best case occurs, the best case could be I'm selling a whole lot. All right. Well, that means from a resource perspective, that requires a lot of investment. A likely case requires less investment and the worst case requires even less investment. But then I'm also making less money. So now we're looking at a balance of the revenue that I want to produce going into the future with the investment that is necessary to do that. So I think the next generation planning becomes a lot more rooted in. Also financial planning. And Gardner calls this the XP DNA, which is kind of a new discipline, extend planning and analytics. And it's sort of an extension of PNC Financial Planning and Analytics, which means the chief financial officer and the chief operating officer will actually work hand in hand. More and more. And I think we had SJP realised this already years ago when we said we need a new platform because supply chain planning is not deterministic in nature. It needs to be integrated in nature and it needs to be really more about planning the entire business. So integrated business planning is this is what we've essentially brought to the market. It still has a lot of the traditional planning disciplines. So, you know, statistical forecasting demand, sensing, getting a better grip of my forward looking business date is still very much important. The predictability of my business, the better I can predict this, the better I can prepare and the better I can make investment decisions. But at the same time, becoming more independent of the accuracy of that prediction. We call that resiliency. And you see, when we went through kov it, this concept of resiliency was something that companies realised is absolutely critical. Right. If you look at if you look at the game theory. Right. We can learn the rules. We can learn how to make the moves. But we were not prepared for somebody toppling over the chessboard. Right. And now we have to be. Resilient, meaning we have to respond much faster. And I think coming out of it now, companies are facing this rebound where the demand may go now into different channels. So we see this in the food business where the channels have changed. It's not the restaurants that I'm delivering goods to, but I deliver this to to people at home that has different requirements for packaging, that has requirements for the logistics. And I need to respond to this relatively quickly. Now, the next generation planning. I believe resiliency means that I have a lot of these options of how to respond to things pre pad, pre baked. I already know that I have multiple options where to manufacture, where to transport and how to deliver. So I think next generation planning will be a lot more resilient, probability based instead of deterministic. So that is something that we are guiding our innovation. With an essay P. There is one element that is, I think, absolutely critical, and that means having also access to real time data. And that's another thing that became very apparent. You know, in the last few weeks, we were all waking up to a dashboard from John Hopkins and say these are the infections. Yeah, right. And having access to more real time data of of, you know, certain counties, regions, countries going through reopening has a dramatic impact. How I'm running my business because I am not alone. I'm business. I'm having a network of different businesses. So the way they're they're opening they are opening manufacturing locations again, obviously with tight down security rules and safety rules. But now having that real time access to data makes me puts me in a position to make much better decisions, because now they're routed actually in in real time data. So everything that we just talked about makes it clear that the traditional planning where we started the conversation of a weekly cadence, a monthly cadence of creating a forecast and take that essentially as the gospel through the organisation won't work anymore. I have to wake up with a new reality every day and I need to react to that reality. And in a profitable way. So so this, I believe, is becoming very apparent to companies. And we have very large companies that still operate in this very traditional mode and are now embarking on. Inventing, essentially, Dave, they believe it's an invention of this next generation panting Come Brazillian. And we're supporting them. [00:16:40][522.8]

[00:16:42] So it's real time planning. [00:16:43][0.7]

[00:16:44] Yes, I think real time planning could be a good real time planning, real time steering. You heard you heard it here first, folks. It's happening. And I think technology now enables us to do this. [00:16:59][14.9]

[00:17:00] And this is the you know, there's nothing wrong with traditional planning how it happened in the past, because a lot of this was also within the confines and constraints of technology that existed back then. And a lot of, you know, the way organisations are set up today in supply chain are really around the constraints of technology. That's how they we had a demand planning organisation and they worked on the demand and then we had a production planning organisation. They looked at the factory. And if you look at it, these organisations were actually built around the technology we provided to these different entities within the enterprise. Technology now allows us to actually break that down to provide Real-Time access to data. We call this the digital twin of the supply chain. So having a digital representation of the physical supply chain, that then allows us to make much more Real-Time decisions. So supply chain planning then becomes sort of a system of decision making instead of a deterministic. If this happens, then this needs to happen. It becomes a network of decisions. And these decisions need to be informed. They need to be aligned and they need to be also ultimately routed of what's happening in the market real time here and now. So these are some concepts that we're bringing forward in our platform. One of these work streams is called Intelligent Visibility Ability, and that's really the foundational layer of the digital twin of the supply chain. So getting a good view of my work and process of transportation events. What if all of these events. Do I need to know about that impact my ability to to respond. So it may be a million. Ten millions of events that happen in a supply chain every day. So I need to bring them into the context of what of these do I need to actually look at that, have an impact on my business? So that's intelligent visibility. And the Teligent part here is. I don't just look at them. I provide means for. And here's what you can do to respond. And then prescriptive means and here is based on learnings. Here's how you should respond. For catering to your business outcome. So that's the intelligent part of that visibility. What is happening? What can I do? And what should I do? So the human becomes since we were respectful now to the human brain instead of just processing data. The human brain is really good in making very informed decisions. Right. Right. And so a a planner becomes less of a person that moves data. If I interviewed planner and say, what are you doing during the week? Oftentimes it coming back to me. And 90 percent of their work is I'm downloading this report and then moving this report in here. And I'm changing the numbers this way. And then I'm moving the report into a different place. That's not a very satisfying work environment. That's not a very satisfying job description. What is a satisfying job description is I'm catering prescriptive elements of making decisions to the human being. So that's step one, intelligent visibility is the foundation. And then step two is. What of these decision can we actually automate? What of these decisions can we learn over time? Because maybe these are some mundane decisions, like I'm having an incremental demand. Can I change my manufacturing schedule to incorporate that into the plan? Why does a human being need to make that decision if I have all the data available to me? The change over overhead, the ability to have all the material available for making that happen. The incremental revenue and business that I'm able to take with us. So now if we have this intelligent visibility and a prescriptive model on top, we can start automating more and more. So the plan becomes we call this the value stream analyst. They're managing now a value stream and make much higher level decisions that are more fundamental. And they're actually empowered to then make decisions that maybe also span multiple disciplines, because it all comes down to. What of my decision caters to my business outcome? I think the future planner will be less of a large attrition of being informed of the granular integrity of my supply chain. But that incrementally will be taken over by machine that can can do that to a process that data. But we'll be much more a business owner of its value stream and making very much informed decision. [00:22:30][329.7]

[00:22:31] How we're I'm conscious of time and where we're at around. We're little over the 20 minute mark. [00:22:37][6.0]

[00:22:39] So a couple of questions, too, to try and wrap this up, I guess. [00:22:44][5.0]

[00:22:46] What kind of time horizon are we looking at before this is the norm? Would be the first question. And the second question would be what have we not yet covered in this podcast about the future of planning that you think it's important for people to be aware of? [00:23:03][16.4]

[00:23:04] Yeah. Let me just wrap up. I think we talked about the foundation and I think a lot of companies are they need the time to get to that foundation of the digital twin of the supply chain, which is the foundation, everything we're talking about. Then the next step is to synchronise this through this through the organisation we call the synchronised planning. So what is happening in the market needs to be synchronised. What is being what needs to be transported, needs to be manufacturer. What needs to be procured. And this this is essentially then the next step to build on on this very solid foundation. And and I think the third aspect is a convergence of the what we call mass to data was just a description of the supply chain, the structure of description of the supply chain, to also realise that that is constantly changing. It's not just the demand and the market and my suppliers. The transactions are changing, but the entity itself, how much I can produce is a function of how much capacity I have. But that may change. So it's not mass data that is describing the structure of my supply chain, but it's something that I can measure and predict. So it becomes essentially transactional in nature. So in the end, I think. The future of planning will be s a platform catering to the business and always on real time environment to make decisions of the structural elements of my supply chain and transactional elements of my supply chain. I think from a timing perspective, companies are now accelerating. This is what we're seeing coming out of COGAT made a spotlight on this. And I think a lot of companies are accelerating this because they know if they don't do it, their competition will and then they will be able to capture the market, capitalise on the market much quicker than they can themselves. So I believe it will be a matter of a short time where companies are depending on where they are and their maturity churn, but it will go step by step through the different steps that I mentioned. [00:25:24][139.9]

[00:25:25] Okay. [00:25:25][0.0]

[00:25:25] And as I said, the other question is, is there anything that we haven't touched on before we wrap up that you think it's important that people be aware of about this? [00:25:33][8.0]

[00:25:34] What I'm telling companies is, is we we we're in charge. Also with not giving technology out to customers, but we're in the middle of talking to a lot of industries and a lot of companies. I want to invite customers to partner with us also to help them in their journey organisationally and and help them with the transformation that will not be a big bang. A lot of companies, they're embarking on AI in machine learning initiatives while they're still in this monthly planning cycle situation or weekly planning cycle. And I think what I want to mention is that it is a journey. It is a journey that companies have to go through step by step and they cannot misstep. And that also goes hand in hand with humans that are involved in this process and getting them long and believe in this change and believe that it is a good change if you change people's job description that sometimes uncomfortable. So being very mindful of that and being very mindful of the change that is occurring in the organisation as along with the technology, is what I would like to to leave our audience with as a very, very important aspect. [00:26:49][75.0]

[00:26:50] Okay, great. [00:26:51][0.3]

[00:26:52] David, if people want to know more about planning, about the future of planning about David Vallejo, where would you have me direct them? [00:27:00][8.5]

[00:27:01] Very good. Very easy. SAP dot com slash ibp nice may very short. This is our integrated business planning platform. It has been adopted, I think by now close to eight hundred companies in the world that have embarked on this journey in adopting IPB and. And we're happy to work with you on, on your individual journey and again, goes hand-in-hand. [00:27:27][26.3]

[00:27:28] People process and technology. Fantastic. David, that's been great. Thanks again for coming on the show today. Thank you very much, Tom, for having me. OK. We've come to the end of the show. Thanks, everyone, for listening. If you'd like to know more about digital supply chains. Head on over to SAP dot com slash digital supply chain. Or simply drop me an email to Tom Dot Raftery at SAP dot com if you'd like to show. Please don't forget to subscribe to it. And your podcast application of choice to get new episodes as soon as they're published. Also, please don't forget to rate and review the podcast. It really does help new people to find the show. Thanks. Catch you all next time. [00:27:28][0.0]

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