#19: Fremtidssikring af supply chains: Fra Excel til AI-drevet planlægning

Søren Hammer Pedersen (00:12):

Hello, everybody. Warm welcome to this S&OP MasterClass from Roima. My name is Søren Hammer Pedersen and I’ll be your host for today’s session. The purpose of these S&OP MasterClasses is that we dive into trending topics within supply chain planning. Could be on the operational, tactical, strategic levels, give you our input on these topic and hopefully give you something you can use in your daily supply chain planning life.

(00:39):

Today is no different. We are welcoming you to budget season now within supply chain planning. So we are taking a closer look at how can you future-proof your supply chain planning going into next year’s investment. Many of you are probably sitting out there looking to maybe develop a bit in your supply chain planning. How do we get that into the budgets in a good way? How do we have the right arguments in place and why is it really necessary? That is what we are looking into today.

(01:11):

And then this is a two-parter, so the next podcast in the budget season special, there, we’re going to look more at how do you do in the practical way. But as always, I’m not alone. Luckily here in the studio, I brought my good friend and colleague, Benjamin Obling into the studio. Welcome, Benjamin.

Benjamin Obling (01:28):

Thank you.

Søren Hammer Pedersen (01:30):

And before we dive into this budget season, Benjamin. Two words on who are Benjamin and what are your experience here. So if there are any new listeners out there.

Benjamin Obling (01:39):

Yes, so my name is Benjamin Obling. Happy to be here with you. I’ve been working within integrated business planning for the last 15 years or more. Looking at how we can improve that. I’m overall responsible for onboarding new clients and our continuous partnership with the clients in integrated business planning at Roima.

Søren Hammer Pedersen (01:59):

Perfect, thank you for that. But Benjamin, let’s just dive into today, future-proofing the supply chain planning. I think the first question out there, of course, is why should we care? We have done supply chain planning for ages, it’s worked fine or it worked. So why is now maybe the time to have a closer look at this?

Benjamin Obling (02:24):

I would say it has been the time for some time, I would say that, or has been a good idea. You could say it’s, of course, a raise for the investments for the funds of the company for the resources to, because it does have a cost to implement or to increase the capability of the supply chain planning, of course, so it should have a solid business case for it. I think that business case, it’s improving and that’s the reason why it’s even more relevant I would say now because of the changing environment. And then you could say, ”Okay, that’s just consulting talk.” We’ve been saying that for 10, 20 years I guess that the world is getting more and more complicated and complex, and it’s changing and so on, but I guess we all agree that it is changing quite a lot if you’re working with tariffs in the US or you have the Suez Canal that’s back in time, but you could say a lot of different things that are changing.

(03:16):

That means you need to do very specific changes in the supply chain to re-engineer your supply chain quite often and you need to be able to see the consequences in doing that, which you can do in Excel, but it’s just the likelihood that you’ll make errors if that’s your tool and you don’t have any integrated business planning tools, then Excel would be the way. But you say it takes a lot of time, a lot of manual work, a lot of extracts and so on, and the result is often not very good and it’s very difficult to repeat. Again, takes up all of your key resources instead of being able to do that more or less off the bat.

Søren Hammer Pedersen (03:56):

Yeah, but I think it’s interesting to say, and it has been time for a while. Wouldn’t you say it would be fair to say now we are maybe also at the point where we are moving away from consultants saying now it’s time actually to see it hitting the performance in the company? The companies that we talk to all of a sudden see competitors improving, seeing in their sales, in their supply chain that things are changing, things are actually happening now and you might get left behind.

Benjamin Obling (04:28):

Yeah, absolutely. You could say that there is a change that it is being more and more professional in the supply chain planning in the companies, I would say, as where we were 5, 10 years ago when we’re meeting new potential clients. The alternative was Excel almost all the time.

(04:43):

And now, we are also quite often meeting challenges where we are replacing existing solutions. That is where there is a gap and it’s not really doing the business case or fulfilling the business case. So you could say companies are being more professional in this area, they are getting the tools and changing the processes to have a more smooth process. So, yes, you could say absolutely the competitors might be doing it. And if they are, they’ll be able to be quicker on their feet and they’ll be able to change and adapt and take those, grab those potential upsides faster and then you’ll be losing out on that if you don’t have-

Søren Hammer Pedersen (05:19):

So the practical example here is, basically, your competitor all of a sudden can deliver something that you can’t on the product side or the lead time or whatever that actually hit the planning, but you can see it in real time now that, ”Oh, oops, it used to be four weeks, now it’s two weeks, what happened there?”

Benjamin Obling (05:36):

Yeah. And you can say your customers will be looking at what is the lead time that they have from you as a vendor. If it’s a B2B or the B2C examples, they will basically go a different place if you have a stock out for example. So if there are any errors in your planning, which there will be, if you have a very manual planning process, then you are going to be stuck out, or you’re going to have a lot of overstock is the opposite. You can save it by having a lot of ton of overstock, but of course, then you’ll have your stakeholders, the equity owners saying, ”Okay, can’t we deploy that money in a better way? Couldn’t we build by competitors instead and so on?” So if you reduce the working capital tied up in inventories, let’s use it for production lines instead or something. And again, then you’re losing out on the competitors.

Søren Hammer Pedersen (06:21):

Yeah, okay. So definitely a case for why people should care on this and so let’s paint the picture. We are a company looking to develop our supply chain planning. Of course, our listeners, very different companies, so many different, but if we are to look into areas that needs future proofing in supply chain planning, which are some of the areas that you would start to have a look at on a more generic approach, of course?

Benjamin Obling (06:55):

Yeah. So you could say there are some basic capabilities where you need to be good. So demand planning, inventory supply planning. So you could say you need to be able to make a good demand plan. If you do that more manually, do that with a lot of inputs from the sales department puts them up in that way. You don’t use AI as example, you’re quite likely to have a pretty poor forecast accuracy. That can be improved fairly easy. So those are let’s say basic capabilities I would say.

(07:23):

And then you have the inventory planning, balancing the inventories. What is it you actually want to want to provide as a company with goods and so on? And in the same with supply chain planning, supply planning. So that would be when you purchase, are you making sure that when it’s Chinese New Year, for example, your vendors will shut down? Did you take that into account automatically? Or do you rely on that purchase on knowing and that purchase and knowing that, ”Okay, now it’s going to be Chinese New year and so on?” Or do you actually have that in your system? So if that planner is not there for a reason, then you are in trouble.

(08:03):

Those are the quite changeable things that will improve. And then you could say there are the more ... Let’s say the ones that are more difficult to quantify and that’s about being more agile in the planning. So when we change vendors or when we make scenarios, so what happens if we consolidate to warehouses? What if we change the sourcing flows, et cetera? How is our gross profit going to look in the future if we sell more in Germany or more of that brand and so on? So the more analytical capabilities, that is important to future-proof.

Søren Hammer Pedersen (08:38):

Yeah, very interesting point to think about because the agile part, again going back to, that has been in many PowerPoint presentations for many years now. But could we try to give a few practical example on that agility? If we talk about the supply chain planning and the supply chain footprint, one example maybe that I have talked to customers about they struggle with is within the footprint they have bought up different type of production sites or company or whatever. How do you get that agility if we go forward that we want to be one company going forward, one planning going forward? I think many companies struggle with that. Have you seen some example of that, that could be interesting for people?

Benjamin Obling (09:24):

Yeah. Certainly, whenever something is changing and as you say we have new companies coming in and then you can say we want to consolidate maybe some warehouses, we want to consolidate some sourcing flows, et cetera, and can see the benefits, huge benefits of that, but how do we do that if we have a landscape with four different ERP systems, for example?

(09:44):

Okay, then you can enhance your agility by having integrated business planning tool on top of that so you can actually see the full end-to-end flow and you can model that and say, ”Okay, if we change it, how is that going to impact our working capital, our OTIF, on-time, in-full, et cetera?” Then you can actually implement that back into the four different ERP systems. So you don’t necessarily need to have a new one ERP system for all four companies because that would be one. I would say that would be the old way.

(10:15):

Say okay, we need all to be on the same. We all have to be on SAP, but the issue is it’s going to take a ton of time. And when you reach that point in time, you have bought another company or maybe you need to sell off and so on. So instead, have the platform on top of it where you can be agile and then you push the changes back into the different ERP systems. And you can say more concretely that would be you have two different warehouses, you want to consolidate those. It’s across two different ERP systems.

(10:43):

Okay, what do you need to do? First, simulate, okay, what happens if we consolidate it? How is the demand going to flow? How is the inventory going to flow? What is the working capital, et cetera, with the service levels we want? Now, we know we have a good business case there. That’s one step, the analytical capabilities.

(10:59):

And the next is because the integrated business planning tool will do that bottom up, so it would do it per SKU or item number per location. So this new warehouse, okay, then we know exactly where to put, let’s say, the new sourcing flows back into the ERP systems. So that means changing the primary vendor in one ERP system, changing the lead time in the other, changing the safety stocks, et cetera. And where do we upload the forecast, we also need to change that. And you can actually get that agility without consolidating all the ERP systems. So still be agile and then whenever you get a new company, you’ll still be able to do that.

Søren Hammer Pedersen (11:39):

So a key word here is scalability in the sense when we talk future-proofing that every company has a growth plan for next year, or at least that’s something wrong.

Benjamin Obling (11:51):

They should.

Søren Hammer Pedersen (11:53):

So something will come in. Of course, there’s organic growth and we just grow within our existing setup, but a lot of companies will acquire something. We’ll get a new production site, we’ll take in a whole new product area, something like that. And we as supply chain professionals need to think ahead on that. How can we adapt that into the setup and can we adapt that into ... I think it’s an interesting fault experience for everybody out there to just, without knowing it, just say, ”Okay, the setup I have now in my planning, what happens if a new entity comes into with a different ERP system? MIP are running in a different way, people are different. Can we really hit the ground running, or will we have three years of pain in front of us?” So scalability.

Benjamin Obling (12:46):

Yeah, absolutely. And you could also take another concrete example. It could be if you are merging a different product area into your company, so you buy another company or you get the right to produce or sell something and you have all the sales history in another system, so you actually do put it into your own ERP, you’re still one ERP, but that doesn’t solve the problem because you need to be able to create a new demand forecast, but all of your historical sales that you need to create the new demand forecast isn’t the old ERP system.

(13:18):

Again here, you could spend a lot of time then migrating all of your history into the new ERPs or into your existing ERP system, or you could just put the IPP solution on top and then you’ll just migrate. That’s a one-time thing. You’ll migrate or extract all the historical sales from that or the historical vendor performance, whatever metrics we want or data that we need in order to set it up in the right way, put that into the IPP solution. Then you’ll have your safety stocks, your demand plan, your supply plan, sourcing flow, bill of material, et cetera. And then you can start to put it into your existing ERP system, and then you hit the ground running.

Søren Hammer Pedersen (13:56):

Yeah. Then it’s too much to say you click on the new entity, but figuratively speaking, within a reasonable time, you can actually get them up quite fast if that’s the case.

Benjamin Obling (14:09):

That is something that would take a day or two I would say. I mean just to have an idea.

Søren Hammer Pedersen (14:13):

So really important point about the scalability. And I think another point about scalability is also the people dependency. Because if we stay in the mindset that we are scaling and we want to improve next year, we want to do more, then we can’t have that. It’s crazy people dependent on the individual that how we do things within the different planning disciplines. So I guess it’s systems and people. You need to think about how do we scale the people also, how do we make it easier for them as well.

Benjamin Obling (14:44):

Yeah, yeah. And that is really true to try to empty the head of the people of the planners, et cetera, and get that structured and get it into an IPP solution or into the ERP system depending on what type of data it is. But in many cases, then those adjustments that the different planners do or decisions that they make is then based on information that they know because they know this vendor and here we need to do it a bit earlier because they always deliver a bit late, et cetera.

(15:16):

Yeah, okay. But instead, we could actually measure if they do deliver late, are they still delivering late? If that is the case, okay, how do we then adapt the safety stock to be concrete or how do we change the master data in the ERP system either automatically or with alerts so it’s still controlled? Then you have actually emptied the mind of that planner and making that planner’s task more easy or you’re freeing up time for the people working in supply chain planning to do more advanced tasks.

(15:47):

So instead of looking at making sure that the different lead times are correct and different demo queues and so on, all of that could be automated or a lot of it can be automated. And then that analytical power could be used that shouldn’t we consolidate our two warehouses. Or why don’t we source some of the things from China? Why don’t we have dual sourcing? Because we have different reasons that we don’t want to put all our eggs in one basket, et cetera. So a lot more fun and interesting tasks and analytical demanding instead of spending time at taking out data from an ERP system, doing manual checks and so on. So it’s also about liberating the analytical power and then freeing it up, spending it more wisely. Because normally, the people doing this is a rare resource in the company. There’s always not enough analytical power. It never will be.

Søren Hammer Pedersen (16:44):

Yeah. And that comes back to what will these people do in five years’ time? But I come back to that now staying with the fruit. So definitely a point around scalability. Can you adapt to what’s coming in from your own growth, your own company? Will we be able to have the performance we want?

(17:00):

Another thing I want to ask you about is maybe out in, you can say the footprint, the supply chain footprint or the world we live in, where of course, again, something we have said in a long time, there’s a lot of uncertainty. But what I have seen in recent dialogues with companies that has started looking into how could they update or improve their supply chain planning has around the scenario planning.

(17:30):

It seems to be there is an increasing need for us to be able to simulate more on our supply chain footprint on things that we can’t control. Tariffs is maybe a good example of it. It could also be things in the logistics of the supply chain, but it seems like that it’s an increasing need to be able to simulate to have scenarios within the supply chain planning going forward. How do you see that in the dialogues you have at the moment?

Benjamin Obling (18:01):

Yeah, absolutely, and I see that in most cases it is when we meet potential clients, it is a very manual process and it’s very labor-intensive because if you want to say, ”Okay, what happens if our demand falls by 30% on the US market, for example? Or what happens if we can’t use the Chinese vendors anymore or we need to split it, for example? Or what happens if we have an increase in the lead time because we need to go South of Africa because of the Houthis, et cetera?” All of those type of shocks that we get into the supply chain.

(18:36):

And then you would ask, if you have 10 different factories and you have 20 different markets, different regions, you have 4,000 different SKUs and X thousand customers, okay, how is that going to impact? You have a deep sourcing flow, so you would source it at a local warehouse, that’s where you sell it. That local warehouse would source it from regional warehouse. That regional, we get it from a factory. That factory could have a semi-finished production that comes from a different factory. So you might have a multi-tier level also on the bill of material and the sourcing flow in that.

(19:12):

So how do you then say, ”Okay, so how does that impact this change in our US demand, for example, and change in the lead time?” It’s almost impossible to do as a manual task because you actually need to do ... You need to model the demand. So exactly, that shocked us. It hit all of our products in US. Probably not because some of them are coming from Europe, others are coming from India. That would be if the tariffs are going up to India, that would be hit a lot, not so much with US and so on. So you need to balance that. Okay, it’s already there, just modeling the demand on the US market is tricky, but again, something you can do in the IPP solution.

(19:52):

Say, okay, look at the sourcing flow, look at our expectations, put that in, drill that down to the lowest level. Then looking at what is then the sourcing flows to the different factories. We have that in the ERP systems. That’s mapped into the IPP solution. Again through the bill of material, lead times, et cetera, those are changing. We have a scenario A, scenario B, before and after.

(20:15):

And then you’ll actually there, in the integrated business plan be able to see, ”Okay, what is then the capacity utilization in month 1, 2, 3, 4, 5 in year 1, 2, 3, 4, 5?” How long you want to go into the future, of course, being more and more, let’s say, bet. It’s more and more risky, but that is actually possible and something that would be almost impossible to do otherwise.

(20:42):

And the desire, or you could say the need for doing those simulations are there certainly now has been for some time, it’s then been a very manual process, but the need is increasing and you can say when you can do it, why not? I mean, why wouldn’t you get that certainty and be able to? Because the important part is, okay, if that means we need to scale down on this production side, we need to scale us up on this production side and we need to do that in one and a half years from now if we have this impact in the scenario. Okay, that’s super important information, of course, in selecting the budget for next year, whether we should have an additional production line in China or in Slovakia, for example.

Søren Hammer Pedersen (21:23):

Yeah. Interesting. So that’s definitely a case for going forward to have these simulation capabilities. But linking to that, isn’t there also a need for a greater dynamics over throughout the years in our planning? It’s not about making a scenario in January, okay, that is making the bet and then we go with that. We need to revisit this in an easy way many times.

Benjamin Obling (21:54):

Yes, absolutely. Absolutely.

Søren Hammer Pedersen (21:56):

Yeah, because why I hear also in terms of all the way to the down to the lowest level in the planning, because we’ve been used to just giving one crazy example. Okay, we are setting the safety stocks once a year and then we go with that. Maybe we need to do that eight times or allow the systems or the automations to actually do it as we go along, trust the data, and make sure that we hit, otherwise, we just end up losing too much money with the pace we are looking into.

Benjamin Obling (22:27):

Yeah, absolutely. And knowing what happens if XYZ happens, because then we can prepare and then we can build the agility. Maybe we don’t know exactly where we know that something is likely to hit us. We don’t know exactly how it’s going to. Let’s take the tariffs again. So we know something is going to hit us, what can we do in advance when we don’t know which market it’s going to be on? Okay, maybe we need to buffer up on our inventories to free up capacity to produce this unknown that we don’t know.

(22:58):

Okay, so how do we do that? Let’s simulate it. Okay, what happens if different demand scenarios play out? So reduction in the US or increase. Okay, how is that going to play out? So where is it that we need to buffer up? So we do it in a clever way, and that’s really where you can use the scenario part to do that.

Søren Hammer Pedersen (23:18):

Okay, so really about the scenarios also. I have to ask you about AI, of course, also. We’re talking about future-proofing here. What should you on that? Of course, it’s an argument in many discussions in companies out there, should it be?

Benjamin Obling (23:35):

Yeah, absolutely. And companies should use AI more and they should be faster and absolutely. And we can see that in demand planning, but also in inventory and supply planning here that different AI capabilities can improve the performance of the planning. Absolutely, and it can take over some parts of the planning. The demand forecast is one obvious example that we can all understand. So incorporating that will increase the forecast accuracy. Again, it will reduce the need for manual input for sure.

(24:08):

Another element would be lead time or the expectation of when does an order come in. The prediction of that is another important element, but it can also be in the scenario part. So using the large language models like ChatGPT, Gemini, et cetera, to actually challenge you on which scenarios should we build. Now, we have this IPP tool where we’ve actually mapped out our full supply chain. We have all the sourcing flows, we have all the demand flows, we have the bill of materials, we have the resources, different capabilities on the different production lines and factories and so on.

(24:45):

So what are actually the different scenarios that we should play out? And that’s important to ensure that the IPP is the place where you structure your data that where you’re mapped out and modeled your full supply chain because then you can sort of feed that to the large language model, which can then help you to strategize and to make suggestions and ideas about, ”Okay, what could be the next scenario that we should look at? Where can we actually see a benefit?” And then you could start to model it and see it in the IPP tool.

Søren Hammer Pedersen (25:17):

Okay. I wasn’t that surprised that you said yes with the AI, but that’s of course ... But the interesting link here, and when we talk about future-proofing supply chain is, again, back to the people side because some of the things we are talking, AI is one of them, but other things as well. What will the planners do in five years? Are they doing the same thing as they’re doing today? Probably not.

Benjamin Obling (25:43):

Nope.

Søren Hammer Pedersen (25:44):

So I think it’s an important point that it’s not only technology when we talk the future-proofing, it’s also technology and automation, but it’s also looking ahead of say, ”Okay, the next demand planner I hire here, should they be Excel monsters and do forecasting, or should they have all the capabilities?” How do you see that transition? I know it’s a transition, it’s not a flick of a switch of course, but how do you see that?

Benjamin Obling (26:10):

I see that should be strong analytical minds. I think that’s the most important part. And then be ready and able to use AI wherever they can. So really always push yourself. I mean, we should all do that all the time, push ourselves to use it better and to use it more because it can really accelerate what we can do tremendously, and I think that goes for the planners. Absolutely.

(26:39):

And some of the tasks will be taken over completely. You could say on the demand planning part, in many cases, there is not a lot of reason to spend a lot of time doing that. The AI will do a pretty good job, at least with everything that continues. But of course, things like new products phase out, big market uplifts and so on, which is not in the data and that we can’t see, but we know because we know that we are going to introduce these new products or decommission others and so on. We need to provide that input or make the AI possible to get that input somehow. So using that input.

Søren Hammer Pedersen (27:22):

Okay, very good. Last point on the areas that I wanted to ask you about is of course the whole, we are going into the cloud scenario. How do you see that affecting and future-proofing the supply chain side as well? I guess supply chain planning is also going to the cloud along with everybody else.

Benjamin Obling (27:45):

Yeah, yeah, absolutely. Yeah. Fast answer speed that it will make it possible for new companies that are at let’s say manual planning level using a lot of Excel, they can improve their capabilities quite fast with cloud solutions. So make sure that they integrate their ERP systems with the IPP cloud tools. That will accelerate them, take them forward quite fast. That will improve demand planning inventory and supply planning quite rapidly within a short period of time.

(28:18):

Configuration is needed, I think, in order to meet the different requirements. So you can’t have just open the box and then it all works. It would probably work for 80%, 90%, but you’ll still need to do some adjustments, but the speed will certainly ensure that. Another part is that you can scale. So that means when you buy new companies or if you have growth, et cetera, you can do that fairly fast. You just turn up the machine power of that solution and your vendor will do that for you given that you select that solution of a cloud vendor.

(28:54):

And that really means that you can build on more ERP systems more, you can buy new companies, new product areas and so on, and grow with that faster. And then you also get new capabilities faster. So that means you’ll have new features of that IPP vendor. So for example, with the AI area, you’ll move from let’s say a more statistical demand driven forecast, for example, and then into AI forecast automatically because that will be part of the vendor’s setup when it’s cloud, so that you get those upgrades et cetera, faster. So speed really and capability.

Søren Hammer Pedersen (29:32):

Yeah. Perfect.

Benjamin Obling (29:33):

And then maybe one note also on the AI part, because you could also say then if you’re challenged, really, then say, ”Okay, but then do you need the IPP? Couldn’t you just ask ChatGPT and give ChatGPT access to your ERP system and then you don’t need the planners and you don’t need management and whatever?” And it might be proven wrong, but I still believe here that the structure that you have in the IPP platforms is super critical. You need to know what is the service level, what is the offering that you want as a company, and you need to be able to control that. We can’t have hallucinations in that.

(30:10):

So if we imagined say all the way that the AI would basically look at your ERP system and it will make the proposals on purchases, for example. I still believe here that you need structure around your data. You need to know what is it we are forecasting. You need to be able to provide the inputs of that, and you need to know that it’s doing the same thing as you expect. So we have these sourcing flows, we are making that scenario and so on. And there, the AI models is they are very good at suggesting scenarios, very good at suggesting where you should look, et cetera, but making sure that a bill of material is the same.

(30:50):

Don’t use a large language model for that. Or making sure that, ”Okay, this is the target service level we have and this is the safety stock and so on that we have, because this is a critical component.” Don’t use, again, an AI, a large language model like ChatGPT for that. That wouldn’t fly because then you don’t know what happens basically. So just structure and being able to model it and then use the AI to build the scenarios, to make the alerts, to make the main forecast, et cetera, around that.

Søren Hammer Pedersen (31:21):

Perfect, excellent topics that you really need to look into if you want to present the arguments for the future development. And I think our listeners can of course relate these different topics to their own company and see where they are, but they will be facing, of course, executives fearing that, yes, of course, we need to develop here. We see the arguments within India, but how do we make sure that what we invest in today is not obsolete tomorrow? And I think the areas that you have illustrated here are excellent places to find those arguments to have that discussion.

(32:03):

However, I think it is still the case that when we have that discussion, should we invest in this, there are always that, ”Well, it works fine, worked for years, maybe let’s take it another year.” So maybe as a closing point and input for people, talk a bit about what are the costs of not doing something, because that is the other part of the coin that you need to argue when you come with an investment request for supply chain planning is, of course, we want to develop this, buy these reasons, we want to future-proof it. But what are the costs of not doing something?

Benjamin Obling (32:42):

Yeah, the clear cost would be in the stock out cost. You haven’t balanced your inventories, you’re not hitting your demand forecast. That means your forecast may be on the overall level is correct, but it’s not correctly split between the different regions. That means the product that you needed in the US, they are in Europe, et cetera.

(33:01):

The change, the uplift you saw in sales in China is then not reflected in the forecast, means the products are not there, you’re going to lose out on gross profit and then that will hit you directly on the bottom line. So I think the stuck out is really the major cost here, and one that is sometimes a bit difficult to quantify because it’s not often that when you have a sales request from a client that you actually lock that as a loss sales. So companies don’t always have that, and maybe it’s a web-based sales and so on, so you don’t know.

(33:37):

But even though, super important. If you have a service level of 95, if you can increase that to 97, if it’s actually lost sales or just half of that at lost sale, then it’s the gross profit of that that you’re losing, which goes all the way to the bottom line of your company. And then, of course, the working capital is also a clear value driver obviously. So when you have, let’s say, inefficient planning, you need to have a buffer which is bigger. So a poor forecast, poor master data, et cetera, poor planning in that means you need to buffer up.

(34:11):

And you can do that and you can handle it by buffering up, but the cost of that is, of course, then you can’t buy that competitor with that working capital or you can’t pay it out to your shareholders, or you can’t buy that other production line or deploy the money in a better way. And then, of course, all the manual work and the stress in the organization of firefighting, because when we have a stock out, it’s not just, ”Ah, we had a stock out. What a shame.” Then you’ll put the whole thing on fire and you’ll be calling and the sales director will call the CEO, et cetera. And you’ll have a ton of stress in the organization and we’ll start to flying things around and so on and do a lot of things that is inoptimal, or produce smaller lot sizes in the production, which is also a very hidden cost. So then you have a lot of changeover costs suddenly. Maybe you don’t measure that completely. Okay, so then you have that cost additionally.

Søren Hammer Pedersen (35:03):

Yeah, I think that is an excellent argument. And also because sometimes this can be let’s save some costs. We always talk about, of course, reducing working capital. We want to do that. That’s not the question, but where you really get the power in terms of why do we need that, is that really low-key, practical example that illustrates that we can actually hinder growth in a company if we don’t get this right.

(35:30):

So we have these extremely pretty strategic visions for the company. We might have funding for it also, but if we don’t deliver, then basically, it’s just PowerPoints. So I think that is a very, very strong argument, moving a bit away from the cost side all towards our ability to actually grow as a company.

(35:55):

And I think also, very interesting point you have around, have you ever been in an organization where the supply chain fails for some reason or another, the sheer panic from the absolute top level of the company that comes into play when you don’t deliver? You don’t want to experience that again. And I think it’s just an example of let’s get it really tangible showing what happens if we don’t get this right. I think it’s one of the strongest arguments you can have when you’re going into the C level discussion around why should we do this, so I think that’s excellent point.

Benjamin Obling (36:33):

And you see it at the very detailed level. It’s quite interesting to see your stock profile just to be very nerdy and very low level. If you take one item number at one location, and then you have the stock profile over the different weeks or days for let’s say one year back, and you can see, okay, there was one situation here where we had three weeks with zero stock. The patient is dead, alarm clocks, et cetera, and then you can just see the lead time after or a bit less because we just did some flying in and so on of the goods. And then the inventories are just skyrocketing because the planet, it doesn’t want that to happen ever again.

(37:09):

And then you have that overreaction and you’ll have the CFO coming in and say, ”Oh, why is it so high? It needs to go down.” And then we’ll go down, and we’ll hit rock bottom and so on. And then we have the cycle, which is not really good. And actually, you could then improve the planning, be somewhere in the middle, and you can actually save a lot of money and have happier customers and happier employees. So, yeah, what’s not to like?

Søren Hammer Pedersen (37:32):

Yeah, exactly. Well, and that lead maybe because time is also ticking here into the last point is that it’s not enough here. If you want to future-proof your investment, your planning, yes, I think there’s a need for that, but you need to have your argument solid for this. Find the areas that’s important in your company, but it needs to be data driven. Just the example you have here, the arguments, it shouldn’t be, again, PowerPoints. It should be really showing in the data what needs to be improved and what could happen going forward. How do you those steps in this process?

Benjamin Obling (38:15):

Yeah, of course, really important to, again, build the business case and find out exactly where is it that we can do a positive change. Because when I say what is not to like, that is of course when everything goes fine. Because what is not to like is, of course, it’s the cost of the project. You need to implement it, and there is a cost with the IPP product having that. So that is what not to like. And then of course the risk that you’ll actually fail in the implementation.

(38:41):

So you could say maybe as a cliffhanger for our next looking at how do you then make that successful selection of the vendor, because I think that is super, super critical. Building the business case, finding out where is it really important or where can you really make a positive change, and how do we do that without over-complicating it, because then you might fail, and implementations do fail if you look at the surveys.

Søren Hammer Pedersen (39:07):

Yeah, perfect. I think that was a perfect exit towards this podcast in the sense that, as I said, it’s a two-parter. We will look into the more practical side of, okay now, you have gained the approval or you want to go out and future-proof your supply chain planning. What do you do then in practice? What are our best tricks for that? That is our next round, but I hope that you out there, listeners, you got some good input on where are the areas that we might want to look at in terms of where we need future-proofing of our supply chain planning and also some good arguments that you can use going forward on this because we really think, of course, there are some interesting things in many companies to look at here.

(39:56):

But as always, thank you so much for tuning in here today. We really appreciate your listening and your input going along the way. As always, if you have any questions, anything you want to touch upon, Benjamin and I are more available to reach out to us. Go into our website. Very easy to find. Otherwise, we hope you have a great day out there and see you again next time on our S&OP MasterClasses.