#18: The revenue insights hiding in your S&OP process – and how to find them

Søren Hammer (00:11):

Hello everybody. Warm welcome to this S&OP MasterClass from Roima. My name is Søren Hammer and I’ll be your host for this podcast here today. The purpose of these masterclasses is that we dive into hot and trending topics within supply chain planning and hopefully give you our perspective and something that you can use in your daily planning. Today’s topic is no difference. We’ll go a bit higher up in the helicopter, talking about the S&OP process, but on an angle where we talk about how can we get the supply chain officer a seat at the table in terms of strategy, in terms of finance within the company. And as always, I’m not alone in the studio . I have my good colleague, Benjamin here today to give you his perspective of this exciting topic. Welcome Benjamin.

Benjamin Obling (00:58):

Thank you.

Søren Hammer (00:59):

We have to do it. There might be a few people that don’t know Benjamin Obling, so let’s start by you introducing a bit on your background and how you can see this topic.

Benjamin Obling (01:09):

Yeah, so my name’s Benjamin Obling. Thank you for having me here. Been working in Roima with the integrated business planning, working with the PERITO IBP product for the last 16 years or so. Also have a financial background earlier, but working in demand planning, inventory planning, capacity planning and the link to the financial.

Søren Hammer (01:30):

Perfect. Thank you for that. But let’s dive into it, Benjamin. I think the first question that we should dive in is basically why should we care about this link to financial and strategy in terms of the S&OP process? How do you see this? Why should people care and why is this an important area?

Benjamin Obling (01:45):

Yeah, because we don’t need to get the supply chain. I see that the table if it doesn’t help the value creation of the company, but you could say, first of all, of course the supply chain is a pretty big cost element in total. So that’s one part that’s driving a lot of OPEX. It’s also driving cost of capital, working capital, of course as the inventories, but also a part of accounts, accounts payable. So what are the terms a bit into the strategic sourcing, etc., but also because there are some hidden elements where it’s also very important things like stuck out costs and the revenue.

(02:21):

So how do we support the revenue? It would be when we look at the revenue, you would turn to sales and marketing, and so okay, we need to increase the revenue, but if the goods aren’t available, if we have a lousy service level in some areas , that’s actually going to reduce our revenue and then also our gross profit and at the end of the day, our [inaudible 00:02:42]. So that’s why it’s actually strategic decisions that are being made in supply chain without always aligning that across the organization and vice versa.

Søren Hammer (02:50):

Yeah, so what you’re saying also is that it’s especially the alignment that’s missing because devil’s advocate would say here, yeah, but supply chain hugely important. We don’t run if we don’t... So it’s more of there’s something missing, you can say, in the planning or how do you see that?

Benjamin Obling (03:08):

Yeah, so to be more concrete, you could say there are some decisions made in supply chains that are actually have a strategic character. So things like, what is the service level that we want to provide to the customers that is being made quite often at a quite low level in the organization. It might even be an inventory planner, it might be a specific planner making decisions on what is the service, what is the target inventory or when do I purchase? Do I purchase a bit too early, a bit early on this specific SKU, on this specific supplier?

(03:41):

That actually ends up being, the result of that is, do we go stock out or don’t we go stock out? Do we have a overstock in this case? And you can say overall, when you lift that up into the helicopter and group all of that, that is the total working capital we’re talking about is the total revenue of the company that those single planners are actually impacting and quite often without a lot of guidance from the, let’s say, or link to the strategic level.

Søren Hammer (04:07):

Are there also something that has evolved you can say in recent years in terms of maybe increasing the need for this strategy and financial alignment in terms of the S&OP and the whole planning process?

Benjamin Obling (04:22):

Yeah, I would say the focus of course on working capital is a clear element and then you’re driving down the... The inventories you would have the CFO or the CEO pushing the CFO, et cetera for networking capital reductions. We’d rather want to spend our working capital on buying competitors or buying new machinery and et cetera, launching new markets and so on, instead of tying it up in goods that are just overstocked.

Søren Hammer (04:47):

Yeah.

Benjamin Obling (04:47):

Of course. So how do we do that in a way where we also balance what is then the service level that we are providing to our customers? Because if you’re just addressing the working capital, you can reduce that. That’s fairly easy. You just remove or reduce the target service levels. You just hunt the planners to not purchase anything earlier than what is expected and then you’ll lose some revenue. And that’s pretty hard to quantify if you don’t measure it. And quite often that’s not measured when you have a customer service, you have a new customer calling or customer calling, ”I would like this product.” ”Ah, we would don’t have it on stock.”

(05:25):

Okay, they’ll go to the next store, next company to purchase it. Rarely locked and then you don’t have an estimate of that, but you can actually, we can quantify that and quantify the lost revenue that you have and then start to, instead of just reducing one element, one part of the equation, now we can balance that. So we say, okay, what is financially optimal for the company based on the strategy that we want? What is the customer service level that we want? What is the working capital we have? What is the optimal level?

Søren Hammer (05:55):

Yeah. So actually, supply chain here can provide vital input into the strategy and the financial of the company that instead of just being the ones providing product A, B, and C at relevant location and getting yelled at, if that doesn’t happen.

Benjamin Obling (06:11):

Yeah. Yeah, and then you could say another, agree, and then another element of that is that in supply chain you quite often have, that’s where you see that the forecast, the demand planning is being driven from because they are the ones who get hurt the most when you don’t have the goods available because sales will, customers will call them and so on. When you go stock out, that’s a huge problem. You’ll have the CFO complaining when the working capital is too high, et cetera, or when we have too many man hours, over time, et cetera. So supply chain really relies on a very good demand forecast and that means they are typically the ones who are actually driving the improvement in demand forecast. And that also means that you actually have a capability in supply chain very often, which is able to forecast the future revenue if you do it in the right way.

(07:00):

And if you actually expand it from just being sales and operation planning to integrated business planning, then you actually already have your revenue forecast. You even have at a very detailed level. So you could look at different segments and geographies and items and product groups and brands, and all of that. So you could lift it up into the helicopter, but you actually have the detailed foundation already in supply chain, something you would then otherwise be building in financial department as the budgets and then you might do it at a aggregated level. You don’t have the link and the alignment to what is the operational forecast that you have. And actually you can combine those two and you’ll remove a lot of manual work that is already being done and you actually get a better forecast and a better prediction of that, and you get a much more detailed level.

Søren Hammer (07:50):

So what you’re also saying of course is that, in many cases there are job to be done here for the supply chain organization, the supply chain officer, in terms of maybe breaking out of that, being that operational guy only that makes things run, but also taking the next steps into having a more strategic role. But maybe let’s have a look at the S&OP process because one of the things you’re saying is that, in many companies, I guess you’re saying that it needs to evolve a bit here. Do you see a lot of companies who has this, let’s just focus on the daily operations and know strategic or how do you see these, many of these S&OP processes?

Benjamin Obling (08:31):

Yeah, I think I, more or less, see the same amount of silos that we saw 10 years ago or something like that.

Søren Hammer (08:37):

Okay.

Benjamin Obling (08:38):

I don’t see a huge change, unfortunately. I think there is a lot of work to be done here and I think there is a lot of double work that is being done because you have the, as a concrete example, the demand planning being done in supply chain because they don’t rely on the forecast they get from sales. They can’t use the forecast they get from finance, the budget, because it’s not updated frequently enough, it’s not detailed enough, et cetera. And then you suddenly have three different departments doing exactly the same work at different levels that are not aligned. Sometimes you’ll have alignment processes and so on. Again, a lot of time being wasted. And then you can say, okay. Why don’t you just take one of those free plans or good work and then lift it up to be that one plan, which is something that has been going on as an ambition for a very long time?

(09:27):

And you can say that doesn’t necessarily need to reside in supply chain. It actually could reside, you could say, in general, you would say sales and operation planning. It should be the CEO being at the end of the table, but it almost never is because it’s also too detailed a process for the CEO to be managing, to be managing that. But basically you could say, doesn’t really matter where it’s done. The important part is, why do three different forecasts at different levels when we talk about revenue, when we already have the forecasts ready? The only thing we need to do and say only thing we need to do is just to take our quantity forecast at the detailed level that we already do in supply chain because we need to do it and we get punished if it doesn’t fly, and then turn that into financial terms. Let’s work with finance to find the right revenue. How do we convert the quantities to revenue? That means prices, that means cost of goods sold, et cetera, discount rebates and so on.

(10:23):

Let’s merge that good work and then actually have one plan. Of course, that plan can have different scenarios. We can also have a target, which was a budget because we want to drive sales and so on to have a slightly biased plan for sales in order to motivate them, for example. And then we sort of adjust that slightly when we do the purchase and actual planning. But again, why not do that in the same tool with the same capabilities and have that completely aligned so we know how much of the future revenue do we already know? Because that comes from the demand plan we have. How many new product introductions do we need to do? How much additional organic growth do we need to do? If we align those processes, then we can actually quantify that completely and say, ”Okay. We have 80% of the revenue next year. We already know that from existing products. May be 60, may be 90, depending on the industry. But anyway, there’ll be a lion’s share of it, which we already know. Let’s focus on what we don’t know and work on that.”

Søren Hammer (11:28):

Yeah. Yeah. Might be a leading question, but when you talk about this, it makes me think of, you mentioned the silos and a lot of companies they stay in the silos. Is this getting... Some of the metrics you just mentioned, the financial also a bit of the strategy into the planning, also a way of actually breaking some of those silos. I guess we need the C-suite here if we were to break the silos.

Benjamin Obling (11:57):

Yeah, yeah.

Søren Hammer (11:57):

Yeah.

Benjamin Obling (11:58):

Absolutely, absolutely. And that is, of course, a journey and so on. But you would say the combined resources, when you really start to make the scenarios, the budgets based on the same plan, you also release a lot of resources, a lot of the redundant work, and you align at the same time. So what’s not to like? You actually increase the accuracy. You’ll make it more detailed because you could say, one of the reasons why it hasn’t been aligned, I believe, is that when you look in finance, they need to be very precise, obviously on the revenue, on the cost of goods sold, et cetera. Supply chain, they basically don’t care about that. They want the quantities on the item level and location to be as correct as possible, as one example.

(12:46):

So they work at two different levels. Maybe finance is not really able to break down the different financial figures to that very detailed level and drive that, and they don’t really care about whether it’s product A or B, where they have the revenue. They just want the total budget for the revenue. They also want it at a different cadence. They want it at a quarterly basis, for example. So they have their yearly budget, they have their estimates throughout the year, free times, et cetera. So that’s a different cadence. But again, why not just have the same, so that it’s actually the same plan you’re working on, use the finance as input on the revenue, on the cost of goods sold, et cetera, and then have that one plan. Yeah.

Søren Hammer (13:30):

And yeah, the one plan, but also, I guess a common, this going to be a big word, but a common vision or at least an agreed end state across your organization on where you want to end up, how is our planning going...? Because if we don’t have the communication and the storytelling part of it, in my experience, then we might still end up where the financial, the strategic is just annoying to supply chain. It’s just another parameter to coming in, in the planning that they don’t need. It’s so nice just to stay on the volume. So I guess we need that story as well or at least some money backing that story that we actually want that one plan in the organization.

Benjamin Obling (14:10):

Yeah, yeah.

Søren Hammer (14:11):

Yeah.

Benjamin Obling (14:11):

Yeah, absolutely, absolutely. And you could say, so having the senior management behind this, otherwise it obviously won’t, it obviously won’t fly, but it’s also important that you are able then to have that say when we say a one plan, that also means it’s a plan that we can separate into different elements because they might not be completely the same. So if we have a budget, there’ll be some targets in that budget or if it’s a sales target, et cetera, we might actually want to add something on top because we want to drive the growth, but we don’t want to do the purchasing based on that yet. We want to see it first before we start doing it.

(14:52):

So it’s also important to be able to or have the capability of when we say one plan, that plan is, okay, this is what we are pretty sure about in terms of level, let’s say quantities, et cetera, down to different products. Now we have this gap, which is to our strategic towards our strategic target. We want to add that, but we don’t want us to just put that on top of everything we have and just increase because then we’ll just buy too much. That should come from new products. It will come from organic growth. We don’t know where it’s coming from yet, but now we quantify it’s going to be in these areas, basically, let’s say be concrete, make some dummy objects that you can use or you could also distribute it down to the lower levels if you know it’s organic and so on.

(15:36):

Just a bit technical, but you could say that means you can separate it. So you can say, ”Okay, this is our operational plan. That’s what we use for our S&OP. That’s what we’ll actually upload to the MRP, run the material requirement and so on. We won’t put in the strategic or might not put in the strategic targets and sales targets.” But then we quantify it, then we know, okay, 7% on top is actually unknown right now. We know it’s a target, we’ll follow it, we’ll follow up on sales, et cetera. We’ll not purchase it yet. We want to see it first because then we can make one plan.

Søren Hammer (16:09):

Yeah.

Benjamin Obling (16:09):

Because I don’t really believe in the one plan, one plan. I mean, so it’s just one figure for that because then it will be biased.

Søren Hammer (16:16):

Yeah. And speaking of that, I think maybe one extra element here that supply chain can really offer to the C-suite and to the simulation and scenario capabilities here. So we can really push in power into the strategic decision process here as well.

Benjamin Obling (16:35):

Yeah, yeah. Absolutely, absolutely. And you can say the one example is, of course, in balancing the inventories as you can say, straightforward example. But again, something that is in many companies actually, decisions being taken on target inventories down to the SKU level at very low level, as I mentioned in the beginning, and it’s actually a strategic decision. How well do we want to serve our clients? What is the working capital we have available? Can we actually optimize that based on our gross profits, our revenue, and the discounts and the cost of goods sold? Because the example could be if we have one item number where we have a very loud key account, key account manager, I think I mentioned in another podcast, but so bear with me.

(17:19):

But you could say, there, the planner might say, ”Okay, I want to actually want to purchase this earlier. I want to buffer up a bit more than the target because I don’t want that screaming again and this key account manager being very loud.” On the other hand, there is another SKU, hugely profitable, high margins, et cetera. The customers there have alternatives, so they’ll just go somewhere else. So we just silently lose that very profitable sales figures. We don’t want that decision on where do we put the inventory? Where do we put the working capital and deploy our resources? We don’t want that to be down at this very, very low level in the organization, very detailed level based on feelings on behavior, you could say. We want that to be a strategic decision on top.

Søren Hammer (18:07):

Yeah. So I hope that it’s quite clear that this is something that you should look at and if you find yourself in those silos, maybe this is something that you should evolve into, but maybe then get into a bit more of the detail of this missing link of finance and strategy in your S&OP planning. How will one get started with this? If we want to introduce more financial, more strategy into our planning, where would you start?

Benjamin Obling (18:37):

We’ve mentioned or worked on the inventory optimization and certainly one super important area. The other part could be in the demand planning, so how much can we get out of that very good demand planning we’re already doing? If we’re using advanced AI algorithms, we have a process already for market intelligence phase in phase out, et cetera. All of that that we’re using in the S&OP process, why don’t we use that also to add on the revenue, for example. So basically what we need there is to look at, okay, what are the average sales prices that we have that needs to go some attention into that.

(19:12):

We need to involve finance. Obviously, they need to own those sales prices or sales does, but need to establish is that our gross sales? Is it the net sales? Do we need to have that transparency in the reporting? But we already have all the quantities down to the single SKUs, single customers and so on, so we basically just need to add the prices, calculating the prices. There’ll be a bit of complexity into that, but we need that anyway in the budget process. So adding the prices could be a step.

(19:41):

Then we have the revenue. Okay, that also means that in the sales and operation planning, we can now ask our sales managers not just to review the quantities that they might have a difficulty relating to. Now they can actually convert that into, what is the revenue impact of this? What is your revenue expectation? So now we can talk the same language and then instantly convert that to quantities down to the item level. And then we can go further and say, ”Okay, what about the cost of goods sold?” Because we also want to have, or the cost price of the product, we also want to have the gross profit level of the company.

(20:14):

So when we see an increase in Germany on this certain brand in revenue, what is the gross profit of that? And we’ll then actually be able to calculate that right away. Again, aligned with finance because is it standard cost? Is it the last average price? Is it blah, blah, blah? Okay, let’s find out and let’s make sure that it’s can be reconciled to the profit and loss statement. Because then you actually have your gross profit level in the profit and loss for your budget and for your estimates, which is a huge thing in finance. It takes a lot of time to do, and now you can actually drill all the way down to this very detailed level and understand how much comes from the existing business, what is new business that we don’t know yet.

Søren Hammer (20:59):

Yeah. Excellent example of where it really brings new exciting information into the process, also in other areas of the company. But as a supply chain planning professional, how do I know basically where to start, which metrics, things like that? I guess there are both operational and strategic plans that we need to translate a bit here. So there’s a bit of work also to be done here to find out what is the right thing to bring in for our company.

Benjamin Obling (21:31):

Yeah, yeah.

Søren Hammer (21:32):

Yeah.

Benjamin Obling (21:32):

Yeah, and that’s where, Søren, I mean, it needs to be a combined and joint effort and might not be driven from supply chain. This could also be a, let’s say a call out, shout out to the other departments in sales, in finance, the CEO and so on. Let’s make this a joint process instead. Let’s elevate the S&OP into being a strategic planning process and tool instead of having that as separate. Because in supply chain you can say, if you look very narrowly at how you measure them, okay, don’t go stock out, have a slow working capital and have a low operating expenses. I mean, if we look at the bonus that the supply chain will get, the supply chain executives, so they basically don’t have an incentive to go further at that point in time-

Søren Hammer (22:17):

No.

Benjamin Obling (22:17):

... in a classical setup, you could say. So let’s look across and then see, okay, we actually have a lot of very good work and capability there. Whether it’s in supply chain or in finance, it doesn’t matter, but it should be one process.

Søren Hammer (22:34):

Yeah. But I guess that also means then we have to invite other people into our processes and accept that.

Benjamin Obling (22:40):

Absolutely.

Søren Hammer (22:41):

Yeah.

Benjamin Obling (22:41):

Yeah, yeah.

Søren Hammer (22:41):

And having finance in there, having maybe the executive team in there, inviting them into the process. Then maybe stopping shortly on that. One thing that I see, and maybe you can give your perspective of that is, when we invite, one thing is finance, that might be, but when we invite the executive team and maybe have what many companies call executive S&OP processes, in my experience, we still end up being very short-sighted. We end up having that discussion around what do we do the next two to four weeks? And then we get the C-suites buy-in of yes, you made the right decision. But I guess that’s not what we’re talking about here. It is a further perspective you need to have in these, if you want to really bring in the value.

Benjamin Obling (23:33):

Yeah. This is certainly the longer output and that’s also where you’ll start to get the attention of the other departments and from the CEO when we make that longer outlook. So making three, four year scenarios into the future looking at, okay, how is our demand going to be in the future? Where do we have the growth? And then the very interesting part on doing that, based on this detailed, detailed information that we already have, the detailed demand plan is that we also, in the integrated business planning, already have the full bill of material. We have the sourcing flows, we have the lead times across, et cetera. So we have a lot of information that you would need in order to do this full simulation also into the future. Of course, it’s not super important if the lead time is three or four weeks, two years from now. That’s not really important.

(24:24):

But what is important is, when we make a demand forecast four years into the future and we start to make overall growth rates on different industries, different client segments and so on, revenue wise, so okay, now we are in the strategic helicopter. What we can do in the integrated business planning is to convert that right away into, okay, what is then the capacity that we need on our seven different production facilities? What are the different production lines? Do we have the capacity at all? Do we need additional capacity? Does our vendors, do they have the capacity that we need? Something that you’ll be able to actually to show and calculate right after that you’ve made these adjustments on plus 20% in Germany on this in four years from now.

Søren Hammer (25:13):

Yeah.

Benjamin Obling (25:13):

Something that would otherwise be, take a lot of time and in most cases, wouldn’t be done. And then we’ll wait until... Now, we don’t have capacity in our factory in Czech Republic, so what do we do?

Søren Hammer (25:23):

Yeah.

Benjamin Obling (25:24):

Let’s simulate that right away because we actually have the capability.

Søren Hammer (25:27):

Yeah. So make sure that, and this is going to sound wrong, but how do we lure the management team into the S&OP room? I guess, we do that by having, of course, relevant information, relevant decisions for them. You mentioned some of them, they’re having of course things they are not accessible for them. Things that have been very interesting, but also maybe, from my perspective anyway, hanging onto the business case that we made starting or many companies made because in my experience, when we implement a new system or change a process, there’s typically some sort of on investment around that.

(26:06):

We make a business case, we prove the return on investment and then we forget about it and nobody sees it again. But I guess holding onto that business case in your executive S&OP process, would really allow you also to get that foot or seat at the table, but also allow you to have that strategic relevance. So we made this plan, we’re following up as this and adapting to that. I think, do you agree that that is a crucial element to stay on?

Benjamin Obling (26:33):

Yeah, absolutely. Continue to measure the business case and the different impacts and so on. You could say again, the difference from, you could say, you also have... We have the finance department to do that, follow up on the business cases, do that every month, et cetera. They do that very good. But again, what they can’t do is, they can’t sort of go down to the very detailed level and say, ”Okay, if our inventories are too high or sales is dropping in a certain region and so on.”

(27:00):

Why is that? Is that because we were purchasing too early? Is it because we don’t have the capacity? Is it because we are losing sales, et cetera? And that’s all those very detailed data foundations that we actually do have already in the integrated business planning. So that means the drill-down capability is a lot bigger when you do that across or could say, using that as a tool, so being able for finance to actually go into the engine room and understand what is going on.

Søren Hammer (27:31):

Yeah. Is there also something about when we invite all these people into, but looking maybe at our own supply chain [organising]. It’s a shift in mindset here also that we need to be aware of. I guess, we need to give off some power or at least that could be the feeling.

Benjamin Obling (27:50):

Yeah. Yeah, yeah. Because of course, alignment is also losing power and you’ll have someone now looking into that demand plan and okay-

Søren Hammer (27:56):

Exactly. Yeah.

Benjamin Obling (27:56):

... why is that I want to have an increase here and there and so on. And maybe you could say supply chain don’t want that because okay, now we have a pretty good plan, it’s actually working and so on. But again, if we are able to separate the different elements in the plan, then we can separate, okay, what is then this add-on that we are applying? I mean, just to be very concrete, it could be, okay. Now we’re expecting this additional sale in Germany, revenue wise, but we’ll put it into a specific element in our data model here when we model all of this. So that means we can actually take it out again when we do the actual planning of purchasing short-term. So then we can bridge it, one plan, but that one plan is made of different elements that we can use, sort of turn on and off.

Søren Hammer (28:42):

Yeah.

Benjamin Obling (28:43):

I think that’s really the key for inviting the different stakeholders, is that we can separate these different inputs as different elements so that we can follow up on it because then we can also see the accuracy. Okay, so that input from sales or that strategic input, did that improve the accuracy? Yes, it did on the long term, but it didn’t on the short-term. Okay, then use it. Let’s use accordingly, for example.

Søren Hammer (29:07):

Yeah. Okay. But in conclusion, maybe I think you highlighted very well Benjamin, that this is something that you should look into and that many companies don’t, basically, are still on that very operational level in the supply chain. But maybe as a last point on the practical steps and how would you start this journey if moving forward? What I hear you say is that you need to do your homework. It’s not about just inviting people for a meeting.

Benjamin Obling (29:40):

No, no, no. And you can say, I mean, this podcast can also be like a teaser for finance or for the CEO. I mean, inviting them into the room because it should come from supply chain to open the door to finance to sales to the CEO and say, ”Okay, here we actually have some capabilities that are pretty strong, so let’s use it across the company and let’s align it instead of being siloed here.” But it could also come from finance saying, ”Okay, finance, let’s open the door into supply chain and then see, okay, they’re actually doing some pretty good stuff over there. Can’t we use that in what we are doing?” 

Søren Hammer (30:14):

Yeah.

Benjamin Obling (30:15):

Because it could really remove a lot of work and also, make that alignment and that simulation capability that you can instantly convert into something that finance can understand because it’s turned into the profit and loss and the balance sheet and so on. If supply chain will understand it because it’s all the way down to, okay, so how much do I need to produce a production line X, Y, Z, different capacities and different factories and so on. And all the different single items or sales, what are the sales targets in terms of revenue and revenue increase? Then we’re starting to talk the same language.

Søren Hammer (30:50):

Yeah.

Benjamin Obling (30:50):

And then actually on that capability, also another capability. Now we’ve discussed revenue, rebates, discounts, cost of goods sold, so now we at a gross profit level, but why not take it a step further and then say, okay, what about the OPEX planning? So what about the operating expenses we have in the company? So supply chain of cost being a huge part of that, but a lot of the activities that we have, especially in supply chain, is really tied up to the activity. The activities can be linked to different drivers. Those drivers can be linked to our demand forecast. So example, how many people do we need in the warehouse? What is the operating expenses of the warehouse? It’s salary, it’s trucks, it’s energy, et cetera. Okay, but how many people do we need? That depends on how much we need to drive around with the trucks in the warehouse, how much we need to drive around. That’s a matter of how many order lines, how many orders we get. That is driven from how much do we sell of different products.

(31:47):

What is the product mix in the future? But wait a minute, we already have that. We have that as our AI forecast, plus the market intelligence on top. So if we can establish that link and now we are into driver-based budgeting, establish that link back to the demand forecast, then our increase of 20% in Germany, revenue wise, that the sales manager there would look at how does the gross profit look? And then right after, we can actually also in finance and supply chain see, yeah, okay, but that’s actually on some products or some sales channel here that will really drive a lot of pick and packing in the warehouses. So how does that increase the cost and how does then the total profit for the company, how does that look with that initiative and something that you would be able to simulate and see right after?

Søren Hammer (32:34):

Yeah.

Benjamin Obling (32:35):

Again, something that would normally take quite a lot of time in finance to establish because you need to know the sales patterns in Germany, you need to know what is really driving the costs in supply chain, how is that link? How much of the costs are really variable so it can be reversed or not reversed and blah blah blah, a lot of finance stuff in the head. But basically, it’s about modeling the whole company driver-based, using that demand AI forecast, simulating it into the future, three, four years and then being able to see the full profit and loss, and full balance sheet with the different strategic initiatives.

Søren Hammer (33:14):

Yeah. I think that’s an excellent point. Also maybe, just to keep the transparency, because we talked a lot about process, just to invite people in and be open, I think, and that is a vital point, but this is also about data systems, having that thing in place because we need to prove things, be data-driven, what we do, which we really want to succeed with this.

Benjamin Obling (33:38):

Yeah, yeah.

Søren Hammer (33:38):

Yeah.

Benjamin Obling (33:39):

Absolutely, absolutely. And then you could say, now we are arguing that that could come from the supply chain side. It might as well come from finance, it could come from anywhere. One reason why it may be in practice would often come from supply chain is that they have gone furthest into the integrated business planning because they need to have the detailed planning foundation. So they already have that integrated planning set up or some of them, some of do. And that means the jump from there and then onto making a full simulation of the company, might be shorter than coming from the existing tools in finance or in sales, but it’s basically less important about the organization. Everybody needs to be around that table and have their different share and element in that combined plan.

Søren Hammer (34:32):

Yeah. And also I guess, maybe a final point is, so we don’t have the same process, same system, free places in the same company. I just recently talked with a company where they were not aware around what we were doing in supply chain planning. They were doing something with their production site and they were actually in the process of acquiring a system to combine two production site that were already combined in the supply chain planning. So a clear example of just wasting money because we don’t align across a company of different functions. So I think that’s a vital point and something that many listeners will probably recognize from their daily life.

Benjamin Obling (35:13):

Yeah, absolutely, absolutely. A lot of time going into making different plans and then reaching at a certain level where you need then to discuss which plan are actually good. They’re made at different levels, different units of measure. One is talking about finance of revenue, the other one is pieces, bits and pieces, et cetera. How do you align that instead of, let’s make a joint effort and you’ll go a lot further on the gallon in doing that.

Søren Hammer (35:38):

Yeah. Perfect. Perfect sum up, Benjamin. I think that is the key message from us today. Vital input, as always. Thank you so much for coming in the studio. You are more than welcome again another time.

Benjamin Obling (35:51):

Thank you.

Søren Hammer (35:52):

And also, thank you out there for you to, that listened here today. We hope you got some good input on this, maybe a bit further up in the helicopter than normal on supply chain, but still a vital area. If you are sitting out there in the car, in the office or anywhere else listening to this and thinking, why don’t they pick up this topic that could be so interesting to me, feel free to reach out to Benjamin and I will be happy to dive into things that could be of interest to you. So look us up. We’re easy to find on LinkedIn and websites and everywhere. Other than that, have a great day out there and thank you as always for listening in.