#23: Get chaos or get the first weeks right

Benjamin Obling:

Worst case scenario was a company where they just cut all minimum stocks in two. So they just divided it by two. Or even worse is just to remove it, just wipe it out. You can compare this by sitting in your airplane at 10,000 meters, and then you basically turn off the engines. This will work perfect for the first seven...

Søren Hammer Pedersen:

The working capital would drop like a rock.

Benjamin Obling:

Absolutely. Kinds of the terrible cases is also where you have a regional sales manager who just had a status meeting with one of the customers. He would call the purchaser or the planner directly after the meeting, then saying, "Oh, but we need to have a minimum of 100." And he would just grab a number which is high and he would say maybe 30 would be perfectly fine, but 20, which it is now, for example, is not enough. Okay, but then you oversteer and then you go with 100. And who is then going to review that next time?

Søren Hammer Pedersen:

So now we flip it around. Now we meet reality. Now we need to make sure that we are able to deliver. So we go into the inventory and the supply side. What happens then when this hits the supply side of things? Hello everybody. Warm welcome to this S&OP MasterClass from Roima. My name is Søren Hammer Pedersen, and in my daily life, I work with supply chain planning, supply chain transformation within the Roima family using the IBP tool that we have at hand. The purpose of these S&OP masterclasses is as always that we dive into trending, interesting topics within supply chain planning, give you an overview, give you our perspective on this matter, and hopefully give you something that you can use in your daily supply chain planning working life in your own company. And today's topic is of course no different. We are stepping a bit up in the helicopter here today where we normally dive into many of the topics that are quite detailed and within the data and the actual planning solution. Today we look at the more on the process side of things. So we will try to give you our overview and perspective on the S&OP process, the sales and operation planning process, the integrated business planning process, as is also called in many companies. And really try to give you that perspective where, from our customers, where is it that things really work well, where is it that there could be improvements, and how can we get those improvements into it? But as always, I'm not alone in here and you are in luck: I brought my good colleague, Benjamin Obling into the room again. And Benjamin, just to get us started here, a few words on Benjamin so people know who they're talking to.

Benjamin Obling:

Yeah. So Benjamin Obling, and great to be here again. So I've been working with the sales and operation planning for the last 16 years, focusing entirely on that, inventory planning, demand planning, supply planning, a lot of different industries and clients, but always in that space.

Søren Hammer Pedersen:

Perfect. And just for you out there again, what we will do here today is of course we will focus on the whole process and try to give you that. But it is actually a two-parter. So in the sense that today we'll focus on the initial steps of the processes, and in a later podcast, we will dive into later stages about the balancing and the validation and the commitment into the plan. But more on that later. But Benjamin, let's start by talking about the process in general. Why is this, the sales and operation planning process, even relevant for people? Why is it interesting?

Benjamin Obling:

Yeah. So you could say, if you really go into the helicopter, it's actually about aligning the strategy with the operations. So making sure that what we want strategy-wise as a company, we align that with our operations. So what materials are we purchasing? What are we producing? Which factories, production lines, et cetera. Which customers are we servicing and with which service levels, and so on, in order to make sure that we get the highest profit possible, so the highest gross profit at the lowest possible costs. And that we are aligned across the organization on that.

Søren Hammer Pedersen:

Okay. But that of course sounds very obvious. That is something that of course every company has in check. Probably not. But maybe just for the fun of it, what are the worst examples you see on this out there that maybe could indicate that there are some work to do still in many companies?

Benjamin Obling:

I would say the obvious one would be there is no process. So of course, all companies are doing this to some extent. They're purchasing products, they're placing it in inventories, they're selling it. And in order to purchase something or produce something, you need some type of forecast. That could be an email, et cetera, or just an Excel, or it can be very advanced using IBP tools instead. So you could say the worst is really not having one. Another one is to say you have a process set up, so you've focused a lot on the process side, but you actually don't have any content. So you have the meetings, you have the agendas, you know all the stakeholders, you know what you should go through, et cetera, but you don't have the tools and the data to support it. And then you can say, "So what are you going to use the meetings for?" And you could say equally worst case would be you have a fantastic tool that can do everything and anything in the world, but you don't have the process. So people don't meet up. You have some few specialists sitting around, they're working with the tools, making fantastic forecasts, and so on. But if that forecast is not really used in manufacturing, in purchasing, et cetera, what good does it do?

Søren Hammer Pedersen:

And I think also from my perspective, a very, very tangible result of having issues within this process is delivery performance, or basically not being able to have the right things on shelf for the customers when they want it at a much too high cost. So there's also, I guess, a monetary side to this that we see actually quite a lot in some companies.

Benjamin Obling:

Yeah, absolutely. Absolutely. It is like lost sales. So you have a lot of stock out. If you're in a poor shape, you don't even lock that. So you don't actually know how much lost sales you have because when customer service, they are contacted and the customer wants to purchase something, you don't lock that. If you don't have it on stock, for example, you don't know how big the problem actually is. You know that the inventories, how big they are, but are they at the right level? That depends on whether they are right sized, so whether they're balanced correctly. And that's what we should do in the S&OP process.

Søren Hammer Pedersen:

Yeah. So first recommendation, of course, being you need to have an idea on the process side of this. It's not enough with the planning tool, you also need to know who does what at what time, and make sure we end up with a common plan for the whole company. But let's then dive into, we all agree that we need this process and people probably know that they should. So maybe we should try and just for high level, give an overview on what are the main steps. Maybe for the arc of the example here, let's take a month's example for, not that uncommon, in many companies. I know that we talked about the four main steps in the process. How would you describe each step high level?

Benjamin Obling:

Yeah. So you could say starting with the demand step, creating the demand, because that is the whole... Our best expectation of what can we sell unconstrained. So what could we sell if we had all the goods available? So as being the first step, the next step is to check that plan with the reality. That means that's the supply side of it. So that's the split into the inventory part and to the supply part. So balancing the inventory, what are the service levels that we want to have to give our customers? On the other hand, how much working capital can we deploy for that task? And then checking that in with the supply plan. So see, do we actually have the components available? Do we have the machine capacity, et cetera, available as next step? And then you're balancing that. So saying, okay, so how can we balance it? If we don't have the capacity, do we then need to make a constraint forecast? So we need to reduce the demand, or can we increase using over time, increase the supply? And then the final step, maybe put a bit of too many words on it, sorry for that, but the final step would be the executive S&OP where you say, okay, now we've done the simulations, we have our demand forecast, we have the inventory, et cetera. We have four different suggestions to senior management to solve these constraints. So we have an aligned plan, and then you commit to it, and then we go out and execute it during the following month.

Søren Hammer Pedersen:

Yeah. And actually maybe also with the additional point that, or at least we need these four steps, because I think one of the pitfalls that we sometimes see out there is that we have number one and two, which we're going to focus on today. So they're highly relevant, but we may miss the end of it. So we have silo planning in the company doing something and then we end up with like a plan that is not connected and not committed and no real stakeholders within the company.

Benjamin Obling:

No. No, that's right. That's right. And you can also see if you do a poor job on step number one and two, so the demand planning, inventory, and supply planning, then three and four is going to be chaos, and it's going to be firefighting, and it's going to be emotional, and so on, instead of being data driven with a solid foundation. So the first steps are really where you make the foundation for the decisions you do in the balancing and the executive S&OP.

Søren Hammer Pedersen:

Sounds good. Then Benjamin, if we agree on the four steps, let's dive into the more detail and start with the first step into this, which would, in a month's perspective, be the first week we are working on typically the demand planning side of things, the forecasting, et cetera. Let's, for the sake of argument here, say that we now have a baseline forecast in. That is, of course, in the beginning of the week, here we get that ready to go. What are the steps that you would recommend in a validation process within this week after that?

Benjamin Obling:

Yeah. So then you would also look through. The different steps would be looking at the accuracy of the previous month. So make sure that how are we doing, how are the algorithms helping us, how are the manual overrides that we have from sales, if we imagine we have a sales involvement, which would typically be the case. Is there a tendency there in the buyers? So looking not only at the forecast accuracy, but certainly also at the buyers. So do we have an overestimation of the forecast or do we have an underestimation? Because overestimation will build up stock, underestimation will result in stockouts. So that is very critical looking at the forecast accuracy. Then you would have the automatic calculation of the future forecast. This can be a very manual process. It is in some companies, could even be Excel. Then you need to have a manual process to update the forecast, to extract the sales, and so on. If you have advanced IBP tools, then all of that would be automated. Then you should have alerts around it. So reviewing the demand plan. So that means you have very detailed alerts on SKUs, markets, et cetera, that are declining, increasing way. So you ask questions to sales and you involve sales only where they can really give a, let's say, valuable input. So that's the alert and exception based review at the detail level. And then you also have the total review on the total outlook. So that could be, for example, in revenue, you convert your unit forecast that at item level or sales channel and so on, into a total revenue forecast. And then you can compare that with the budgets or sales targets to see how are we aligned. And that again could be something that happens in sales, or it could be operation or central, a sales and operation planning department that could then challenge sales and reach out to sales a bit depending on the organization and the capabilities.

Søren Hammer Pedersen:

And I guess all those micro steps that you are talking about here, just to make clear, what we recommend would be that you actually get that into a quite formal process, or at least task lists with roles and responsibilities, so we know that we go through these steps and how we do it and who to involve in this. Just to make it clear, of course, it's not enough just to have a catalog of ideas that we would go through. It's really about getting into a monthly structure around this.

Benjamin Obling:

Yeah, absolutely. We're not talking PowerPoint here. It's getting the meeting into Outlook and having the right stakeholders there, having the agenda ready. Be sure to know, okay, who needs to do what input before, et cetera. So who will prepare the demand review that you would have in the different business units, for example. Who would do that? Is that like an analyst in sales? Is it someone in the central S&OP department? But anyway, someone needs with a clear responsibility to prepare that so that when you start the meeting, it's prepared and you can do that. You can say in a strong IBP tool, then you can do that off the bat directly in the tool. So you don't need a lot of preparation actually, but you need someone to drive that, of course.

Søren Hammer Pedersen:

Yeah. And we need to know who does it,-

Benjamin Obling:

Absolutely.

Søren Hammer Pedersen:

... Because it can easily come in between different responsibilities. But all these steps that you have here, where do you normally see that if things are missing or go wrong for customers or companies?

Benjamin Obling:

Yeah. I would say if you're not using advanced tools to create your forecast, then automatically, then you're missing out on a lot. You could quite easily improve your forecast accuracy by using a strong IBP tool. Then you can actually jump. You could even in many cases that the client cases that we have, we actually see that going from a manual forecast and then to using the IBP tool, you would actually jump up in accuracy and then remove all of the manual overrides. So all manual adjusting and market intelligence, if we remove that and just do it completely automated, you would increase accuracy by 25%, 30%, something like that, and you can remove the manual process. So that is certainly a good place to, or good place to start when you have that.

Søren Hammer Pedersen:

Yeah. And also maybe just to add on to that, one of the, I think what I experienced anyway, where it goes wrong for some reason, or you can say we find it difficult as supply chain professionals working with maybe a structured process, is also a cultural side of things. When we invite other areas, you mentioned a bit about other areas of the organization into the planning, that can be really hard because we have different objectives. How do you see that in some of the cases that you have been working with?

Benjamin Obling:

Yeah, I could say in demand planning, the risk is really overestimation in many aspects. So when you invite sales to provide market intelligence, we touched a bit upon it, then you have the incentive structure. Of course, they don't want to harm the company, but they have the incentive structure that they want to have the goods on stock because they are measured on that availability and on the revenue. So they might have a tendency to overestimate. So that's really important to measure. And that's something we see that to say, okay, in the governance process, if you, in the process outlined in the beginning, say, but sales should be responsible and the governance model is that they are responsible, they should sign off on the demand forecast, which is true and is good and correct, but there is a risk that they will overestimate. And if we don't follow up on buyers, then we might risk that we'll have a consistent overestimation, which is very, very easy to see if you have a process, you have a monthly meeting where you can save just 15 minutes or something like that during that meeting, you would have a walkthrough of accuracy and bias. And then you could see, okay, so are we overestimating the forecast? Yes, we are. Is that, let's say the sales organization in Germany, again, yes it is. Okay. So we need to have that discussion during the domain review. That's a very common error. And then you actually get... You spend a lot of time or you risk spending a lot of time doing a lot of adjustments to the automated forecast, which is what we, when we split it into, and that's quite interesting, when we split it, all the adjustments, all the overrides of the forecast, when you split that into minor adjustments or major adjustments, then when we look at all the minor adjustments and look at the forecast difference between the auto forecast and then the final forecast, it actually doesn't make a difference in many cases. So it's just a waste of time. The forecast is 122, and you change it to 120. Waste of time, complete waste of time. And then when you have the major increases, we see that it's overestimated. And on average, when you have major decreases in override, then it's actually improving the accuracy. And that feedback loop is super important, and actually fairly simple when you have the reports and so on. But you need the reports, you need the people who are responsible for it, and you need the process in Outlook, the meeting and the agenda. And of course the tool so you can go into the tool and check the bias without having to do a lot of manual work. So we can close that loop just off the bat.

Søren Hammer Pedersen:

So highly recommend, I hear you say, getting the KPIs in already in this step so you know which questions you're probably going to get later on.

Benjamin Obling:

Absolutely. Absolutely.

Søren Hammer Pedersen:

So the output, if we're closing week one here with a lot of structured process, everybody knows who they're doing, and all the elements that you had here. But I guess the output is the, you can say first draft recommendation for the demand plan for the whole company.

Benjamin Obling:

Yeah.

Søren Hammer Pedersen:

Yeah.

Benjamin Obling:

Yeah. And then really this is a step which is a very strong candidate for high level of automation. So really aim at that. And you could say the more overrides, manual overrides you have, the more you have failed in capturing the business logics in the demand plan. Because if the sales organization are repeatedly overriding things, then we should probably be able to find a rule and a logic that we can build into the automation, so that what we leave for the, let's say the process side of it, is really looking, evaluating the total demand, the exceptions, and so on, instead of doing the, let's say just the hard work.

Søren Hammer Pedersen:

Yeah. Good. But let's then, for the sake of this example, say we closed. We have a good, we think, plan for the...

Benjamin Obling:

We measure it so we know how good it is.

Søren Hammer Pedersen:

Yeah, that's right. We have the demand planning, we have the forecast in place. So now we flip it around and say, okay, now we meet reality. Now we need to make sure that we are able to deliver. So we go into the inventory and the supply side. How would you also describe this process in terms of stakeholders and key observation?

Benjamin Obling:

Yeah. And this is really where our plan and our wishful thinking here meets reality or meets physics. So do we have the goods on stock? Is it possible? Do we have the capacity available, the production lines, et cetera? So you can say in terms of stakeholders, then obviously operations, supply chain, is of course a key stakeholder because they are the ones who can evaluate the plan. But what is I think very, very interesting, especially for, as example in the inventory planning, is that there are actually very strategic decisions in that step that is taken by, you can say, by a very few number of, very low number of specialists in supply chain, in quite a lot of companies, but it's actually strategic decisions. And what I mean by that is when you balance the inventories, basically setting the minimums, the reorder points, et cetera, you could say that is in many cases left as a very nitty gritty specialist task. So please set this mins in the ERP system and then we'll use those. So we just need some of those and they need to be good and so on. But what is that in reality, that's actually our service or service policy, our service concept towards the...

Søren Hammer Pedersen:

Our stocking strategy, basically.

Benjamin Obling:

Our stocking strategy. So how do we want to service the clients? What kind of experience do we want? What is our strategy in terms of which clients, which customers do we really want to focus on? How does that align with the strategy? What are the working capital we can deploy? If we have a strong strategy, we need to reduce this, because we need to purchase other companies or new factories, et cetera. Okay, then we need to align that. So that really needs to be brought up as even though it's a nitty gritty exercise and very technical exercise, we need to bring it up to a strategic level.

Søren Hammer Pedersen:

Yeah, but I think that's really interesting. I think that it's the first pitfall, not the first, but a big pitfall that I experienced in many companies that we just... Of course we want the automation, and we also expect and deliver the automation within the, for instance, the inventory planning. But you really need to have a red flag if it's not linked to the strategy and what we want, as you say. I think that's highly important. And in my opinion anyway, where quite a number of companies fail or find it difficult in this. Because as you say, it is a matter of just getting some input and let's use that and hope for the best.

Benjamin Obling:

Yeah. And in many cases, it's very rarely updated. So in some companies, then it's like it's every two years or something like that, because there are so many logics on top of that. You're extracting a lot of data into Excel, making a huge exercise. Then you maybe start to realize, is this actually a strategic exercise we're doing here? Okay, we need to involve more people. We need to make sure that all of the things we took into account last time, are they taken into account now, and so on. It'll take a ton of time where it's actually, on the other hand, something again, you can automate to a high degree. But there you really need, again, the business logics into it. So you need to make sure that let's say it could be critical components or components or products that are targeted toward strategic customers, strategic targets. Okay, so we give them a higher service level, for example. And we have the handles for top management to change the target service levels to arrive at the working capital, which is optimal for the company. In many cases, just left out and/or even using very bad techniques. For example, a worst case scenario once I had some years back was a company where they, just so they had too much on stocks, so they just cut all minimum stocks in two. So they just divided it by two.

Søren Hammer Pedersen:

Yeah, okay.

Benjamin Obling:

Or even worse is just to remove it, just wipe it out. And I was just like saying, okay, but this is... You can compare this by sitting in your airplane at 10,000 meters, and then you basically turn off the engines. This will work perfect for the first seven...

Søren Hammer Pedersen:

Yeah, the working capital will drop like a rock.

Benjamin Obling:

Absolutely. But sometimes you're going to hit some rocks on the way back.

Søren Hammer Pedersen:

The CFO will be happy now. At least for a very short while.

Benjamin Obling:

Yeah.

Søren Hammer Pedersen:

Good. But as I hear you also, even though that this to some degree should run automatically within the system, it's still a step that we need in our process also in this week. We need to have it as a review on safety stocks, lead times, things like critical components that still need to be in there, even though we are not utilizing on at least a monthly basis, probably that much time on it.

Benjamin Obling:

No. Yeah, exactly. And then turning it from being a big ad hoc task where you're involving different stakeholders and so on, then turn it into this monthly step where we automate as much as possible so we can convert all of that time that we waste on pushing data around and finding models for it and so on. Instead, we use the tools. So we recalculate all of the minimum stocks, for example, at a certain frequency. And then that is of course, you can say that would often be in supply chain, in operations, that they would do that. But then we have the alignment in sales with the CEO and with senior management later to make a few scenarios to say, okay, if we increase service levels in these areas, if we decrease it in these areas, you could say, so there would be input needed to be input from senior management on what are the different scenarios we would like to look at. For example, targeting strategic customers, for example, or now we really want to make a push in German market, for example. So let's buffer up on some of the goods and let's arrive at 99.9% service level there, even though it will cost us a lot in working capital. So those inputs. And again, those are meetings, could be very short meetings where senior management will provide input on what are the interesting scenarios. Could also be from last S&OP meeting. And then you would have the specialists often in supply chain preparing the different scenarios, seeing, okay, we do ABC scenarios, that will give us this overall service level. It will meet the new target customers in Germany. It will cost us two million Euro more in inventory. This is the phase end, because we have the stock projection right out of the tool. So do we go with A, B, or C? And that's then the input for the next phase.

Søren Hammer Pedersen:

Yeah. Okay. I think that's very... What I hear is you also really making sure you have that data driven business case, basically. Even though it might be a small decision, then it's still important to be able to highlight the facts here. And I guess that's also-

Benjamin Obling:

Absolutely.

Søren Hammer Pedersen:

... Something that's missing many times.

Benjamin Obling:

And especially in this process actually, because this can get very emotional. Because if you ask sales organization, "So what should be the service level towards our customers?" Then they would say, "A hundred. We just, we cannot fail anything," and so on. And so okay, that sounds good. Of course, we don't want to disappoint anyone. On the other hand, you have the CFO saying we want to have the inventories as low as possible until he realizes, okay, that's going to cost a lot on gross profit when we start to lose sales. And of course he knows that to some extent, but what is the optimum in this? And we have the operations which are measured on the working capital and so on. So how do we balance that in the best possible way? And really putting data on that, making that A, B, C, scenario. That means that when you bring everybody together in the executive S&OP, then it's a lot easier to agree on it, because of course no one wants 100% service level on customers. Yes, they do if they don't know the cost for it. If they know the costs, okay, well, okay, that's maybe not a super idea. On the other hand, going down to 95% or 92% service level, and then we can reduce our inventories drastically, but we'll lose $10 million in gross profit. Okay, no, we don't want that either. Okay. So whether we want to be? 97%, I don't know, whatever. But then it's a lot easier, because they're data driven, and you remove the emotions.

Søren Hammer Pedersen:

Yeah. And maybe one example also just to align also with you say is that one thing is sales and over optimism and we want to use it as a purchasing system, but the other one we see quite a lot, I guess, is gut feeling, planning, basically. We know that this item needs, we need to have a certain amount to feel safe in the belly in the inventory. So that is what we're going to do. I'll go out. Do I have that amount? No? Okay, then I purchase. It's not data driven. So I think that's also something we see quite a lot and something you can work with.

Benjamin Obling:

Yeah. And some of the terrible cases is also where you have a regional sales manager who just had a status meeting with one of the customers and there were some issues in delivery performance, for example, and he would call the purchaser or the planner directly after the meeting, shouting, or hopefully being constructive. But he would say...anyway, then saying, "Oh, but we need to have a minimum of 100." And he would just grab a number which is high and you would say maybe 30 would be perfectly fine, but 20, which it is now, for example, is not enough. Okay, but then you oversteer and then you go with 100, and who is then going to review that next time? And this is real scenarios that happens out there.

Søren Hammer Pedersen:

Yes. Good. But let's say that was the inventory side, critical component that you need to have in this part of the process. The other part is the supply basically. And now it becomes interesting. We have all in place, we have our demand plan, we know what the inventory situation is and what we recommend. What happens then when this need hits the supply side of things?

Benjamin Obling:

Yeah, because in some companies, let's take some of these worst case, that's always fun to point fingers here. But when you say, okay, now we have a good demand plan, that's really good. We have the balanced inventories, it's aligned with the strategy. Our demand plan is aligned with our expectations in the future and our strategy for that and so on. And then we just go ahead and upload that to the ERP system, and then that will start to create purchase, proposals, manufacturing proposals, stock movements, et cetera. So we're basically hoping for the best here. And maybe putting in a plan which is completely infeasible, it's not possible at all. Instead, what we could do is then to simulate that plan before we upload it. So have an IBP tool to say, okay, let's upload or have the forecast, have the new inventories, the balanced inventories, target inventories, and then see with the current stock we have, with the current orders going out, in, et cetera. So basically our full demand picture, let's run a full MRP, but a MRP simulation so that we can see how are the material requirements going to develop into the future. When we have that, we know what the stock projection will be. So we know when are we going to arrive at those target inventories. We also know if we're going to have material shortages. So do we have some demand here which is not possible from a material point of view because we're having a demand in two months from now, but we have a lead time of seven months? Okay, so that's not going to fly. Or on the capacity side, so manning or machinery, looking at, okay, can we at all execute the plan that we have in terms of manufacturing? And that can be simulated so that we actually know what is going to happen. Where will we have problems?

Søren Hammer Pedersen:

Yeah. So all about identifying where is the bottleneck. And I think it's a quite common pitfall that we see is that we believe on our plan, so we just committed. But of course that is not always the case. Then let's say you identify these bottlenecks. Okay, we have our rough cost capacity shows that we, yes, sales want to sell X amount of good, but we can't produce it within the timeframe that the demand plan states. How do we mitigate? How do we work with these bottlenecks in a good process way?

Benjamin Obling:

Yeah. So you could say step one is, as you say, to simulate it, of course, again, automate and ensure that that simulation is as ready out of the box as possible, so we don't spend time preparing data and so on. So that's one, we have the data foundation around that. Making sure that governance wise, we know who is going to make these simulations. Are they going to make different scenarios? But anyway, make, of course update the baseline scenario, and then identify where do we have the bottlenecks. The next is then to take that to the balancing meeting, but including proposals on how do we solve it. And that should come from in this process because otherwise if we go to the balancing, if we get there without any proposals, then again, it's just chaos. So we just need here to find out, okay, if we have problems with bottlenecks, for example, in some of our production lines, can we change shifts over time, change speed, or et cetera? So of course, can we deliver more? Can we get new production lines? Probably not in the shorter horizon, of course, but then in the later horizon. And then, okay, if that is not possible, first we would like to see, can we do the plan? What will be the X additional cost in order to do that? If that is not possible, then it is the proposal back on how much should we constrain the demand.

Søren Hammer Pedersen:

Would you recommend that we constrain already here to some degree? I know, and which I think is an excellent recommendation, that we should have different scenarios going into week three because that's where we really visualize the consequences of our planning, and we come back to that in the next podcast. But do you recommend in your supply week here that we already there go back to the demand planning side and mitigate some of the bottlenecks that we have found? And how would you make that distinction?

Benjamin Obling:

Yeah, that really depends on the horizon and the company and so on. Because what we want to avoid in this step is that we are trying to solve something which we don't know if it's going to be a problem yet. So if we are looking at a longer horizon and we can see, okay, we might have some problem there, we might be able to get by. But then it might be enough to highlight that we will maybe have a problem. If this demand really turns out as optimistic as we have in the demand plan, then we're going to have a problem. Then we could simulate, okay, what if we reduce that slightly by 10%, something like that? Okay, will we then not have a problem? Then that could be a okay scenario and then say, okay, then we will handle it when we get closer and we know if it is a problem. On the other hand, if we know that this is really a hard constraint, we are going to have to prioritize. Then it's a matter of finding out, are there some of these prioritizations we need to do already now? And so that could be, for example, if we can only do A or B in terms of demand, and that will have some consequences on which components we're purchasing and so on. So we'll purchase different components depending on whether we choose A or B, then you could say then the scenario and the feedback in terms of demand priority. But it's also, it's very easy to say here that we then should create a constraint demand plan using priorities and so on, and then rebalance the constraint forecast completely so that we have 100, 100, 100 utilization, everything is perfect. And then next month... Sorry. Everything will change, and it'll look completely different and it will take a ton of time. So this is also a pitfall here is also being too precise actually. It's the big red flags we want to find here.

Søren Hammer Pedersen:

So maybe to sum up the purpose of this week of planning is really to find out where are some of the issues, what can we basically do about it, or what it requires.. Getting the scenarios in place. So when you go into the next weeks of the planning here, we really know where it is that we need to work to mitigate or to otherwise make the strategic decisions.

Benjamin Obling:

Yeah. Yeah. I agree. Absolutely.

Søren Hammer Pedersen:

Yeah. Perfect. I think, Benjamin, we come around a lot in these two weeks. Maybe as a last point before we close off this part of it and go further, just a summary of the demand and supply side of the two first weeks, like the best free recommendations that you would give people to recap on.

Benjamin Obling:

Yeah. I could say data driven as one. Ensure that you have strong models and tools to support this process, because what we've talked about here is the ideal tool that will solve a ton of problems, but it will also take a ton of time if you don't have the right tools. So that's one. And the other one is really having the process for it. So knowing, okay, who is doing what, when. Having the meetings in Outlook, obviously, but ensuring that it's not ad hoc, because then you could say having the meetings in Outlook, yeah, okay, that's easy. But you can say in inventory, setting the minimum stocks, how many actually have that in Outlook? As a meeting, recurring meeting. No, they don't, that's ad hoc. So really having that strong process around it and making sure, okay, who is doing what, when, and having the strong tools to support it data wise, that will really accelerate this tremendously.

Søren Hammer Pedersen:

And make sure that you have the output from these two weeks are the strong recommendation on the demand plan, the recommendation on the supply side of things with all the things that we need to take into the next week, which is really about the real balancing, and also getting the right decisions to end up with the right plan.

Benjamin Obling:

Yeah. Yeah. Absolutely. Absolutely. And make sure that all the nitty-gritty things and so on, they are at material SKU levels and so on, they are sorted out now. We know that and so on. So it's only the big tickets we're surfacing here. What is really the major problems we have and what are the suggestions? Never come up with a problem without a suggestion, of course.

Søren Hammer Pedersen:

I think that's wise last words for this part of the segment. We could talk forever on this, but let's round it off here with this recommendation and take the next steps when we come back. And to you out there listening, maybe watching as well, thank you so much for tuning into this podcast. We are always happy to have you with us. And as always, if anything of the thing Benjamin and I had touched upon here today grabbed your interest, you want to know more, you're always more than welcome to reach out to Benjamin and me. Go into Roima's website, check out what it is, and we'll be more than happy to talk with you. Otherwise, thank you. And we hope to see you again next time where the exciting topic's going to be around the balancing and the XMP executive sign-offs. See you there.