David Vallejo: 0:00

I think very successful supply chain planning, modernization project starts with a really healthy design of how I want my organization also to run that could mean centralizing some of my planning efforts

Tom Raftery: 0:16

Good morning, good afternoon, or good evening, wherever you are in the world. This is the digital supply chain podcast. The number one podcast, focusing on the digitization of supply chain. And I'm your host global vice-president at 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 my special guest Dave, Dave, welcome back. You have been on the podcast a couple of times in the past. It's great to have you back. Thanks for joining us. Would you like to introduce yourself for anyone who hasn't had the pleasure of hearing you on this podcast before?

David Vallejo: 0:51

Thank you so much, Tom, for having me I'm so flattered to be on your podcast, which is a getting raves now. And a lot of people listening to it and I listen it myself. So thanks for having me. So I'm David Vallejo. I lead our solution management for all of our supply chain planning solutions. So looking after our strategy, sort of having the telescope of looking into the future and of course, working with our product development team, with our customers on bringing innovations to the forefront.

Tom Raftery: 1:23

Cool. And look, Dave, we on the podcast, I cover all kinds of aspects of supply chain. So just, for people who maybe work in logistics or distribution, or in some other aspect who are not totally familiar with planning, could you give us a one-on-one on where planning fits into supply chain.

David Vallejo: 1:42

Yeah, absolutely. Supply chain planning. If you think about the different dimensions of supply chain, you're designing a product. You're setting it up for manufacturing. You have logistics, so you need to transport the goods, inbound and outbound of the supply chain. You have. Your asset management, where you operate all the assets planning is the brain that coordinates essentially all the different activities trying to predict what my future demand will be what customers want in terms of products and planning, new product introductions, et cetera. And then Essentially aligning that to all the resources in the supply chain that are required to actually to meet that demand and to hit your profitability goals and top line goals and what is now called the green line. Also sustainability goals that you're tracking essentially on the way. So it's a very continuous effort of the company and I think digitizing that effort and being a lot more. Agile is I think something that we want to help our customers with our technology.

Tom Raftery: 2:48

Okay. And when you say digitizing, you don't mean moving from clipboards to spreadsheets and faxes.

David Vallejo: 2:53

It's funny that you say that, right? Because you would think that a lot of very large companies, of course abandoned sort of the analog processing and while that is true. Paper. I remember it was like 15 years ago, somebody I asked, how do you measure your effectiveness of the supply chain? And and they said, we measured in inches and I'm like, what does that mean? And they said, yeah, we're printing out our MRP results. In paper and then we go through it line by line and the faster we go in through that in inches of paper, the better we perform. So I think that's history. I think that's history in all honesty, but I would still say there a lot of analog processing that companies, namely, you know, using spreadsheets and. doing the mundane data moving and report creation that has taken a lot of time. and, I listened to the podcast of Marty Groover who talked about the digitalization and codifying the process. And I think that's uh, Becoming now top of mind looking at the disruptions. If we just look at last year, what we had was like the Suez canal, floodings in Europe semiconductor shortages that impacted all sorts of industries container shortages, port of LA was congested. COVID lockdowns and reopenings it just, I could continue on the list of.

Tom Raftery: 4:27

Its been a funny time for supply chain, hasn't it?.

David Vallejo: 4:29

Yeah. W what is amazing though? It's the selective perception and what I mean by that is we think it's a culmination of these events that they have become more. W what I believe is happening. They have actually not really become more. It just becomes more top of mind. They hit the news and we have seen empty shelves. So now all of a sudden we think oh, this must be some really bad recent event. We forgot that these events happened before 2011. We had the earthquake in Japan, one of the lesser known issues. There is, there was an important plant, a really one factory that was producing very important pigments for paint. and that was used for painting cars.

Tom Raftery: 5:24

Right.

David Vallejo: 5:25

So now all of a sudden cars couldn't be delivered anymore because of paint, if you imagine that. And if you go through history, there have been all these exams. 2014 was, it was a really important year for children. Why was that an important year for children?

Tom Raftery: 5:42

No idea.

David Vallejo: 5:44

No idea. The movie frozen came out. And you think like, what does a Disney movie have anything to do with supply chain? It caused actually a major supply chain issue because the movie got so popular and how these movies work, watching it in the movie theater or at home is just one commercial outlet. The other even bigger is the merchandise that goes with it. And. There was a huge shortage of the Elsa's and Olaf's and parents got really mad and took it to Twitter and said, I want to get the doll for Christmas. It's not available. So they have been across industries. It is a constant phenomenon. It will continue to be carrying on. And so supply chain planning is really becoming a, top priority, because if you can't predict potential fractures, potential disruptions just thinking what could potentially happen. What is the bottleneck? It's just two weeks ago. What is it called? The ambassador bridge that is between Canada and US. And you had trucker protests. All of a sudden this bridge was identical because it's now blocked. I identified this as a major transportation bottleneck, right? So another supply chain issue. So I think what companies are starting to analyze is just these potential bottlenecks that could happen and looking at ranges of outcomes, of impacts that could happen. And that's just very hard to do on paper to say the least but also hard to do on spreadsheets, right. there was a McKinsey study that said that, 73% of companies are still planning on spreadsheets

Tom Raftery: 7:41

But doesn't that mean that planning on spreadsheets is a good thing. If everyone is doing it?

David Vallejo: 7:45

It is a, it's almost like a drug. Because you think the spreadsheet is the most flexible thing. I can throw anything in there. I can just make ad hoc analysis. Right? So every business that starts up and needs to solve any sort of problem, I want to track my employees. I want to track my inventory. I want to track anything right. Has flurry of spreadsheets, also all of a sudden going around the problem that you have, and it seems to solve like this immediate problem. How often do we stand up an ad hoc spreadsheet? If we do anything right? You probably, if you're planning your podcast, you have a list of potential candidates of topics, and that's what you use a spreadsheet for.

Tom Raftery: 8:30

If I was planning,

David Vallejo: 8:31

fine outside.

Tom Raftery: 8:36

it might be a little more ad hoc than you're giving me credit for it. But anyway,

David Vallejo: 9:14

I think the issue comes in. In first of all, the amount of data that you need to track, right? So you have companies that have thousands of SKUs and you have history that you need to look at and you need to track assumptions. Do you need to do essentially codifying the process also means you need to be able to have analytics. How are you performing? With a spreadsheet that's just very impossible to do. You cannot really keep up with the business dynamics. We have one customer, very interesting, they're Danone a French company. They're doing a lot of

Tom Raftery: 9:52

Dairy

David Vallejo: 9:53

a dairy company.

Tom Raftery: 9:53

and things. Yeah.

David Vallejo: 9:54

yoghurts, etc. And look, they were doing sort of manual forecasting and they had I think like 20,000 SKU location combinations, which is already enormous. And it took them like 160 hours to go through the whole forecasting process. Okay. If you're doing that manually, that means the human being, the planner is actually just grinding through data. and they've moved to a completely AI driven forecasting using our SAP integrated business planning and actually getting it down to four hours. And now managing instead of 20,000 data points, 66 million, because now they're actually also looking at the customer dimension, not just what am I selling, but who am I selling to adding the factory where it's, being produced. So where is it coming from? So dramatically increasing the forecast accuracy. And so that's, I think an example of the going step-by-step into digitalization. I think the McKinsey report also said that a lot of companies are stuck in, non-mature solutions. And they're stuck and they feel we can't really move, or we don't know how to move, or it seems very daunting. Right. Sometimes supply chain planning is considered like a multi-year journey. And requires a lot of investment to make it work. And I think, with the solutions today, I think they've become a lot more accessible and a lot more modular so that you can actually start on a, not so daunting journey and uh, identifying sort of the value and pain points first, prioritizing them and then tackling them essentially one by one. So I think that's what we want to help customers to make the technology very easy to adopt essentially in logical chunks.

Tom Raftery: 12:06

Okay. And is the fact that it's cloud delivered, perceived as a good thing or a bad thing, because I know some people are a bit reticent about cloud solutions.

David Vallejo: 12:15

Yeah, I think it's funny that you say that. I think there was still a reservation for cloud. I think because people have in their head that if things are in the cloud, then it will be slower to get data in and out. Which is not valid anymore. This is coming from people that probably grew up with a dial-up modem, when I had the us robotics, 56 K.

Tom Raftery: 12:41

had a 56 I was on 14.4 And then I got to a 28.8. I thought I was flying.

David Vallejo: 12:47

Yeah. I have one gigabit at home. Okay. And so the bandwidth has increased dramatically. So the whole, if I operated in my own data center, or I operated in the cloud data, latency is not applicable anymore. The other reservations that companies have is if it's in the cloud and it's a product managed by a provider, I cannot easily change it or customize it to my needs, which, if they're coming from an environment, if they're coming from a spreadsheet where I can do anything, they wonder will the solution be as flexible as I'm used to. And I think that's a challenge for us as a technology provider to cater, to required flexibility, ease of adapting to changes or to unique needs. So that I think. Overall, I feel good about overcoming these reservations and a lot of companies that are maturing in that have overcome it long time ago. They're like we're moving everything into the cloud. And uh, even ERP system, we're big on. Helping our customers rise. I liked the rise with SAP, we're rising to the cloud. And so I think this is a trend that will continue. 10 years from now we will look back and I think having your own data centers with on-prem software will not be really relevant anymore. be think it w in the cloud will be, yeah, exactly. Good point.

Tom Raftery: 14:25

And you mentioned AI as part of this. How does the AI help?

David Vallejo: 14:31

So AI helps with finding patterns in your supply chain and supply chain planning is essentially a system of decision-making. So, And I can only make decisions if I know essentially root causes an impact and ranges of outcomes. So it's not just like I'm predicting one thing. Companies increasingly look at ranges of outcome, right? If I tell you it's gonna be between 50 and 90 degrees Fahrenheit tomorrow and you just go with the average of 70, you will neither have shorts or jacket, so you're losing information, and a lot of the traditional supply chain planning, how it was looked at is just look at an average of something AI can actually help to look at influencing factors and ranges and. And automatically adjust those. and so there are fascinating things that can be done there. I've heard of one use case where, you take satellite images over cities and look at the parking lots of retail stores and make a predictive model, how this is trending. Are, people going back to the store or are they still buying more online? And so now translating these unstructured things like pictures into really kind of a numerical model, AI can help with that. It can also help with finding patterns with external other data factors. Labor rates, GDP stock market. How does that influence my own forecast for my products? Cross industry relationships, for example, steel and automotive, for example, or, you know, my product is a handheld device and for some reason, correlates with, a completely different industry sector. So that. Is where AI can help. It can find essentially patterns and help me create a much better predictive model that otherwise with very traditional models where I just look at my shipment history, I wouldn't be able to do. So that's where AI can help in assisting the human the way I would look at that. In a decision process. And so that the human really gets empowered to just make very important decisions and has all the data available to make that decision, but not being in charge of collecting all the data and doing V lookups and the spreadsheet that we don't want a planner to be dealing with that anymore at all.

Tom Raftery: 17:17

Okay. Okay. Very good. And of course if it's, if it's in the cloud as opposed to on spreadsheets, it's one version. Whereas on spreadsheets, if you send it to your colleague and they make a change and send it to their colleague, they make a change. You suddenly get a whole versioning issue arising.

David Vallejo: 17:33

Oh, yeah. Which, we know when we use spreadsheets in our day-to-day lives, that's a big issue. And this is what I think is also a big aspect is to still be able to have scenarios that I can plan. But now I'm collaborating with multiple planners on that scenario. If gas prices are going up for Europe. Okay. What does that mean for me? For example, designing products that are really relying on fossil energy. I'm doing my long range forecasting. So now I want to create a scenario. What if prices hit this price point, how will that affect the consumption of my product vis-a-vis products that don't rely on that. So this is where scenarios come into play because it hasn't happened yet. But in order to be resilient, I need to be prepared. I need to be prepared and I need to have a full analysis of what does that mean financially from a manufacturing product design perspective selection of my suppliers. Maybe I have to go into more having my products being driven by electricity. Oh does that all the sudden means a whole, range of different things. So that will be very important. And again, you can't do that on paper or even on spreadsheet, it will take a long time. And I think the speed is key speed of decision-making, which sets apart companies that will strive versus companies that will be slow. To react and are not really prepared for what's coming.

Tom Raftery: 19:17

Yeah, because, I mean, you said if I remember correctly in Danone, it was 20,000 items and it was taking them 160 hours to run that data. I mean, That's a week that's just insane. How can you react to something a week after it has happened and expect a decent outcome.

David Vallejo: 19:35

Yeah, no, that's exactly right. But by the time you're done with your analysis, it's essentially already outdated. And.

Tom Raftery: 19:42

again.

David Vallejo: 19:43

Everything has changed again. So you're starting all over and. And I think the time is you know, for really getting into real time planning I had, so SAP was, the inventor of a real time ERP. I had to mean that's where. The origination of, this company is, and I think it getting into real time supply chain is the next frontier, so that you're able to actually make sense of the market conditions, your customers, your essentially future demand of your products, how you can design them profitably and sustainably where you have to pivot sometimes. A lot more real time. And then being able to. Design and operate your supply chain also in a lot more real time. So the changes become a lot more important than the plan itself. And it sounds almost irrational but absolute you need a plan, but you need to be able to change it very quickly and do so by looking at the financial outcome for your business, by looking at your sustainability footprint protecting your brand, protecting your trading partners. And I think the cure to a lot of the issues that we're seeing with, global supply chains, a lot of people think about, okay, if I start to be vertically integrated, I'm insourcing everything again. Then I have better control. I think digitalization, digital collaboration with my trading partners and more real-time planning is making me a lot more independent of, another company as part of my own company. Or if that is a trading partner. If I have a very good digital fabric within my supply chain.

Tom Raftery: 21:38

Okay, very good. David we're coming towards the end of the podcast. Now, is there anything I haven't asked that you wish I had, or any aspect of this that we've not touched on, that you think it's important for people to think about.

David Vallejo: 21:51

Yeah. So I think again, just as a reminder, kind of recap, right? I think starting with that recognizing that a lot of companies are still planning. With non-modern solutions and they want to go and modernize it and be digital on the supply chain. Planning front is my recommendation is to take it. Step-by-step in small chunks and don't skip a beat. I don't think you can immediately go from a spreadsheet to full AI driven automated planning. Because you are missing the data fabric to do that. You're perhaps also missing the organizational structures to do that, if you're very decentralized in planning, let's say every planner in a factory has their own spreadsheet. That's not a good basis to to just automate this immature process. So it's also about redesigning the process and looking at the organizational setup. So a good, I think very successful supply chain planning, modernization project starts with a really healthy design of how I want my organization also to run that could mean centralizing some of my planning efforts. We have Proctor and gamble is a good example. They have mastered centralizing some of their planning teams. So they using, for example, our IBP for inventory solution to actually right-size the inventory for, thousands of products around the globe. And they're doing so by having really strategic teams that serve different markets or lines of businesses. And that's a very successful way to to set up the organization, to have these kinds of service centers that become experts in what they do. And they service essentially multiple segments of the business. So that would be one thing that I really want to highlight is the organizational maturity as well.

Tom Raftery: 23:57

Interesting. Cool. Very good. Very good. Dave if people want to know more about yourself? David Vallejo or about supply chain solutions and include planning any of these kinds of topics that we discussed in the podcast today. Where would you have me direct them?

David Vallejo: 24:13

So the easiest is sap.com/ibp integrated business planning, very short, very easy. You can find resources, you can find reference case studies. You can learn more about the products and our roadmap. So that would be a perfect landing spot to start. And of course we have now announced we're also going to have a wonderful Sapphire conference. And so we going to be showcasing a lot of of our newest innovations and we'll have customers presenting on their individual journey. So I encourage one to consider coming to Sapphire either in person or attend virtually.

Tom Raftery: 24:55

Lovely. Brilliant, Dave, that's been great. Thanks a million for coming on the podcast today.

David Vallejo: 25:00

Thank you so much, Tom, for having me and you have a great rest of your day.

Tom Raftery: 25:03

Okay, 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.com/digital supply chain, or, or simply drop me an email to Tom dot Raftery@sap.com. If you'd like to show, please, don't forget to subscribe to it in your podcast application of choice to get new episodes, as soon as they are 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.