Planning is a fundamental part of supply chains, and while I have had some customers on the podcast who refer to their use of planning, I haven't had an episode dedicated to the topic of planning, and how it is needing to go more realtime in these disrupted times.
Consequently, I invited David Vallejo (@SAPVallejo on Twitter) to come on the podcast to have a deep dive into planning - where it is today, and how the requirements to be more nimble means supply chain planning is rapidly needing to go to cloud, and integrate with other functions, and organisations.
This new vision of planning is called Synchronised Planning - and you heard about it here first folks ;)
David and I had a great chat, and as ever, I learned loads. I hope you did too
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).
For more information, do check out the 2020 global research study "How to drive agility and productivity in Manufacturing with Industry 4.0"
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!
My trading partner comes to the planning table, if you will, just like an internal stakeholder. So that synchronises that aspect, which used to be kind of arm's length away. I may share a spreadsheet over email and then wait for response in a in a week. That doesn't work anymore. It needs to be real time.Tom Raftery:
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 my special guest on the show today is David. David, welcome back. Would you like to introduce yourself?David Vallejo:
Thank you so much, Tom, for having me. Yes. David Vallejo here, I lead solution management and go to market for all of our Supply chain planning solutions at SAP, namely integrated business planning, which is a very exciting innovation to rethink and innovate supply chain planning in the cloud. So I'm happy to be on your show. Thank you.Tom Raftery:
Thanks, David. Just for because we've we've had a couple of conversations about this before and about supply chain planning in particular. And it's a very grey area for me. So just I know everyone else listening to the show knows exactly what you're talking about. But just for me. Can you tell me what's the function of planning in a supply chain?David Vallejo:
Yeah. So, so very interesting, because I think it has a long history and it has also evolved over over the years. Fundamentally, what Supply chain planning does is essentially connecting what I'm seeing as demand out there in the market and connect it to all the resources required to service that demand. So it goes back to to like the 70s or even back into the 60s, whereas things like mature requirements planning were were invented, which became then eventually part of of ERP. And since then, it has evolved into a very integrated environment that is not just looking at the logistics aspect of connecting the demand to what needs to be produced, what needs to be procured, but also integrating it with the finance perspective. What investments are unnecessary? How does that look like with, from a revenue perspective, working capital perspective and then on all the different dimensions of supply chain planning, adding machine enabled capabilities, for example, to do a better view of my demand plan, using statistical methods, removing essentially that human bias. What have I sold in the past, projecting that into the future, using techniques like different optimisation and hueristic to increase the efficiency of my production resources of the material that I'm buying. Because what is really, really expensive is inventory that is inserted into the supply chain that is not needed. So an integrated supply chain planning brings all of these things essentially together. And so we're very excited to have a lot of companies around the world adopting these solutions to essentially mature their supply chain planning discipline.Tom Raftery:
OK, I think I got that. So for, let's say, a toilet paper company, the signal of a an imminent lockdown might be a something that they put into their planning to say "Oops, there's going to be a spike in demand. We better start buying up more recycled paper" or change to, you know, say instead of selling to hotels, maybe start selling to grocery stores or something like that.David Vallejo:
That's exactly right. So so you're introducing actually an interesting point, which is the time horizon of my planning. And that's really important. There are aspects what what we call strategic supply chain planning. So that has a longer lens. I'm looking out like two to three years to create a plan that says, here's how much I want to sell. Here are the resources that I need. Maybe I need some investments here, some new products that I'm introducing. So I have to make sure that they are introduced to not cannibalise products that I already have. And then you're getting into the more short term horizon. We call this the tactical horizon. So this is more looking at like six months out. And then now you're introducing the example why in the recent few months this time, horizons have essentially collapsed for companies, things that happened over years in terms of evolving demand or changing the channels from, for example, shipping in bulk, shipping directly to to to other businesses or distributors have changed. All the sudden during the lockdown, I had to react very, very quickly. So that introduces this concept of of that short term planning being essentially embedded in my strategic planning, meaning decisions that I'm making today. You mentioned that, you know, toilet paper company. They woke up overnight and all the shelves were empty and toilet paper. It is an example that has a really high ratio of volume to price. So that means it's very, very expensive to store because it consumes a lot of volume, which introduced actually the problem for these companies, because normally toilet paper has a very steady demand. OK, it's very predictable long term how much is being consumed. So that is easily then being disrupted. So it introduces essentially the need for what we call synchronised planning, connecting that strategic planning long term with the tactical mid-term, with the short term, because what happens in the here and then now can impact what I'm strategically trying to accomplish. So that's one trend that we're seeing that actually got amplified in the last few months. There are other trends that essentially influence the need to be a more real time and more synchronised in your planning activity with what's happening on the execution side. Some companies have, like the consumer products companies, think about a more direct to consumer model. So that introduces obviously now a consumer products brand. I typically sell indirectly through the retailers. I'm sort of taken a back step. I'm shipping in bulk, shipping in big volumes. Now I have my my brand out there. I have a shopping experience directly for consumers and more intimate with them. But I also then introduce a more diverse and complex distribution models that are all the sudden. I own myself. So that brings in that planning what I'm thinking I'm going to sell how much will be needed, which is going to change. Link that with my execution. How much am I producing? How much am I needed to load in my logistics? How many trucks will I need? Where do I ship this? So that's that's another example of trends. The other trend is, I think the timeliness, as I mentioned, Covid kind of made us all realise that time is collapsing. If I would ask you, what days is it today? You would be like looking at your calendar. I don't even know. So that compression of time, the expectation also for consumers to get things in a very short amount of time. Same day shipments that. Something in the morning and it arrives at your doorstep in the evening, essentially changes the whole way we think about planning, which is not just articulate. How much will be needed. How much will be ordered. And then weeks from now. I that connects to how much I'm producing, how much and my shipping. It needs to be acting a lot more in a synchronized way.Tom Raftery:
OK. I mean, you've you've used the term synchronised planning now a couple of times in the podcast. What do you mean by that? And what does it mean to link up your demand to your execution?David Vallejo:
Yeah, a great question. So. So typically I introduced this concept of strategic planning, tactical and operational planning. What that typically does is it is looking at volumes by a certain time period. So, for example, how much I'm not gonna sell in week four, week five, week six. And it's just using one number because that number is actually a lot easier to handle. It's kind of the thought process of a more aggregator plan. Operational planning then says, all right, I'm now putting it into days. How much am I going to produce next Monday, Tuesday, Wednesday? And it's still somewhat aggregated plan. If you look actually into a factory in a plant, they have to actually look at shifts. They have to look at detailed production lines that need to be scheduled. So some large companies are overseeing potentially a hundred factories around the globe. And every factory you have production lines that have to be scheduled. So execution actually means being a lot closer to the actual physical world and the intricacies that are required to actually get things done. That is what we call execution. So in on the production side, we had a solution and have a solution at SAP, which is called production planning and detailed scheduling. What that does is it's essentially opening the factory door and look at the 30 different production lines that are out there, the jobs that have to be scheduled. The labour that is required to actually get these jobs completed. It looks at the warehouse to pick the material and issue it to the line. So it's essentially every little transaction that happens in order to get from. I want to produce. 500 pallets on this day from the start to actually finish it and everything that is required. So that is the execution. Environment planning traditionally has been somewhat abstract from this. So it just looked at how much do I want to sell? And on a high level, how much can I produce? How much do I have an inventory? More on a kind of high level. And what we're doing now and see that amplified with the trends that we're seeing is connecting these two worlds in a much more real time fashion and also connecting it by directly. That means back to the example. I want to ship 500 pallets next Monday. I'm putting that down to the factory. I'm loading the lines. Can I accomplish this? What does that mean in terms of potentially change over maybe these lines are already running some jobs still from last week and getting that feedback back and say, is it possible to produce the 500? Or do I have to adjust? Because if I do have to adjust, I have to adjust my customer commitments. I have to change potentially my transportation plants, because if I now have to produce this over two days, well, then that means I have to reschedule the trucks that pick in the subway. So it it shows you how this is all actually connected. And this is what we're accomplishing. In SAP products speak, it's connecting integrated business planning, which is in the cloud that accomplishes this, this demand and supply matching and inventory planning to production planning, for example. And we've released this recently with our August release to have this bi directional connexion and also harmonise this in one user experience. So it brings up the new topic also of different organisational roles. Okay, now that we have the ability to have a demand planner that looks more at high level volumes across the portfolio, across a region, for example, to connect this to actually what's happening in the factory brings the ability to actually have some level of supply chain convergence. Now, I can introduce, for example, a production planner that schedules the lines across multiple factories. Because now technology allows me to do this and I can rebalance if I'm producing the same products across multiple factories. I can make the decision to produce it here versus here. So it introduces a new level of efficiency. It also enables companies to run more sustainably. Because in the end, you're not wasting resources unnecessarily.Tom Raftery:
Nice, okay. Are there any industries that this kind of thing suits more than others?David Vallejo:
Yeah, that's a great question. There are certainly for industries that also own the execution part, meaning, for example, companies that still they are doing their own manufacturing. So consumer product companies, chemical companies, oil and gas companies, they're highly connected with the discrete products that they're selling with the manufacturing process, which sometimes is actually very process oriented. So you have that convergence from from Prosser's manufacturing into discrete goods that I'm selling. There are other industries where this applies, not so much or in a different way. High tech is a good example there. Most high tech companies today are 100 percent outsource their manufacturing with contract manufacturers that have the ability to produce for a lot of high tech firms. So they have that efficiency. So high tech companies have resorted to be more of a brand owner. So our customers that we have, like Hewlett Packard, Microsoft, they're building devices, but they're not building it themselves. They use outsource partners to do this. So their linkage to execution is not to connect their boardroom with their own shop floor. What they require is a business network to collaborate intimately with their with their trading partners that are doing the manufacturing on their behalf. And how easy is it to link them in? Yeah. It used to be actually a complicated undertaking to connect your trading partners. So things like EDI, I have been out there for a long time, but it is a huge investment to actually do that peer to peer plumbing to connect a brand owner with their contract manufacturer. Often time requires like 30, 40, 50 different data objects that need to be that need to be connected from forecasting, manufacturing, visibility, work and processes in transit orders. Sometimes orders are executed in the multi tier way, meaning, for example, we have Microsoft using our integrated business planning environment and they have they own sometimes the relationship of the second tier supplier. And I think, for example, of the camera lens that are in in the laptop, they own that relation. That's a very strategic component. So they're buying this and then essentially guide that buying process. They own that relationship and then have that dropship to the contract manufacturer. So it brings in a new way to do that. Real-Time orchestration. And what we're doing here, Tom, is is connecting integrated business planning with the business network. Ariba has innovated their business network to actually take on payload for supply chain. These objects that I mentioned like forecast inventory, manufacturing, logistics. These processes are now modelled in Ariba, so I can now onboard my contract manufacturer on the Ariba Network and that natively integrates with integrated business planning. So now my trading partner comes to the planning table, if you will, just like an internal stakeholder. So that synchronises that aspect, which used to be kind of arm's length away. I may share a spreadsheet over email and then wait for response in a in a week. That doesn't work anymore. It needs to be real time. So that's part of the synchronised planning is the business network that we're harnessing for this. David, you mentioned earlier, when you're talking with, as you mentioned, the user interface then that it was the same user interface across. How how does that work? And why is that important?Speaker:
Yeah, great question. I think it is really important because user roles are now starting to converge, because now I have access to planning and execution information. I may not need 10 different roles that interact with. Different technologies. I can actually bring this information together and the same user experiences and innovation that we call the planners workspace, the planners workspace is essentially one single screen. Think of it the morning when you open up your Outlook. This is the the window to interact with your professional business environment. One screen that shows you here, the emails of everything that has has come up. You can click on one and then see the context of this. You can open attachments. You have essentially one experience. Right. And in this planet's workspace aims to do the exact same thing. I see my long term plan, my midterm plan, my short term plan. And I see exceptions. I see things that I need to react to that the machine hasn't already taken care of. And and now I can say, all right, here I have, for example, a sales order from a customer that exceeds what I'm currently planning on producing. OK, how is the situation? I want to I want to get this business. I don't have it in inventory. I'm currently not scheduling to produce this. Typical example. It's a large amount of revenue. By the way, this is a very important customer. And they say, hey, we have this emergency order. We need more of your goods. So how can I react to this and get back to that customer in like ten minutes? So this requires a completely new way of organising the user experience. I cannot afford to have him go through a labyrinth to understand. OK, what is the service level that I have for the customer? How much is he ordering? Do I have it in inventory? Do I not have it in inventory? Can I rebalance the inventory, for example, from other customers? I need this all in one place to immediately make a call. OK, I can potentially. Add this to another job in a current production line. This is how I'm going to ship it to this customer so that the freight aspect and transportation resource aspect comes into play. Do I have the transportation resources to actually deliver this on time? All of this now comes together in one environment to make these sort of decisions in a very ad hoc way. And we call this the the planners workspace very, very exciting. We've shown prototypes to two companies that were like, hey, this is a game changer for us that enables new ways of doing businesses. And we have very large companies that we're doing conservation on that front, very large consumer products companies. If I would tell you, you would immediately know, because I think they're at the forefront of innovating new business models. I mentioned direct to consumer models. They're on the forefront of more sustainable ways to deliver the goods of providing more efficiencies, but also improve actually the ultimate customer experience with more kind of the... I love the other podcast that you did with Coca-Cola. "The speed to need" to ride the speed to actually service customers when it is needed. And that may be in the here and now today. So it is that what we're actually catering to with our technology? Super, super. We of gone over the 20 minute mark, David. So we're in kind of the wind down period of the podcast now. Is there anything I've not asked you that do you think I should have asked? Are there any points we've not brought up that you think it's important for people to be aware of? Yeah, I think just the clarification I talked about some because this question will come up for especially for customers that for, for example, have been SAP customers for a long time. They may be familiar with integrated business planning. They may be familiar with production planning and detailed scheduling. Will this become one? Will this be integrated somehow? Will this be on premise? Will this be cloud? I just want to clarify. Integrated business planning is is will be our go forward solution for doing supply chain planning at SAP. That is where the the user experience will surface all the information necessary to make decisions because ultimately supply chain planning is a framework of decision making. I need to make decisions as things are changing. I need to decide what to do next. And so integrated business planning will bring the Real-Time visibility will bring essentially the finance aspect. Does it make sense to stick to the example? Does it make sense for me to service this customer orders that just came in unexpected? Does that make sense to me financially? Is it still profitable? Right. If I if I have to put it into an aeroplane to send it over and with overnight freight that burns away, all the profit perhaps doesn't make sense. Perhaps it's OK for the customer to wait another day. And these types of decisions have to be made. Our go forward solution for that is Integrated Business Planning in the cloud. The synchronised planning aspect means that we're integrating into auxiliary assets from an SAP perspective to seamlessly support that decision process. So there will still be things like transportation management, production planning. These are all supporting aspects for a cohesive supply chain planning. But the good news is I don't have to guess where to go to to make a decision. That will it be happening in IBP how we call it an abbreviated.Tom Raftery:
Super Dave if people want to know more about yourself. David Valejo, or about synchronised planning or about IBP or any of the other things we talked about on the podcast today, where would you have me direct them?David Vallejo:
Oh, very easy. SAP is always a big fan of three letter acronyms, so SAP dot com slash IBP. Very simple to remember where you can find more information about IBP. We have an extremely active community that is not just technology, but we have a partner network of system integrators and management consulting firms that all are informed about IBP best practises. It's a rich community that we have. You can look myself up on LinkedIn, on Twitter, and I'm very active. That community as well. Very happy for for somebody who wants to learn more.Tom Raftery:
Superb. Superb. David, that's been great. Thanks a million for coming on the show today.David Vallejo:
Thank you very much, Tom, for having me. And you have a great rest of your day. Thank you, everyone.Speaker:
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 S.A.P.. 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.