#24: Balancing and Executive Review: How to Stop Strategic Decisions Being Made on the Warehouse Floor

Benjamin Obling:

You do a lot of very good planning and put a lot of efforts into the demand plan, into the minimum stocks, into the MOQs. It's all the planning parameters and that is aligned with strategy. And we have all the meetings and everything is perfect. But in reality, the purchaser and the production planner are actually just following their own Excel sheets. And when they get guidance, at one occasion, it would be the CFO saying, "Okay, now we need to reduce the inventories." Okay, then we'll do that. Another occasion, it will be the CEO saying, "We really need to boost the profit." And then you would have the CCO saying, "Okay, we really need to boost the revenue now because that's really our focus." Okay, but how do we balance that when we need to decide on, so is it the Dutch market or the German market? Because otherwise you're just hoping for the best. I mean, you're uploading a demand plan, which we basically don't know if that's feasible or not.

In the MRP and the ERP system, it will start to purchase things. We need to produce something we cannot produce because we don't have the capacity. That's what you're doing in reality, when you don't simulate it beforehand.

Søren Hammer Pedersen:

Reality is that this doesn't happen in that many companies. How do we motivate the C level to be part of this project?

Hello, everybody. Warm welcome to this S&OP MasterClass from Roima. My name is Søren Hammer Pedersen, and in my daily working life, I work with supply chain planning and supply chain transformation using the Perito IBPs tool that is within the Roima family. The purpose of these S&OP masterclasses is that we dive into trending, interesting topics within supply chain planning, try to give you an overview why this is relevant for you, our perspective on things, and most importantly, hopefully give you some input that you can use in your daily supply chain planning life. And today's topic is around the S&OP process. And just to recap a bit, this is part of a two-parter in the sense that the last podcast we had talked about the first steps of the sales and operation planning process, and today we will dive into even more. But before we go into that, as always, I am here with my good colleague, Benjamin Obling, that will help us shed a light on this exciting topic. So welcome, Benjamin.

Benjamin Obling:

Thank you.

Søren Hammer Pedersen:

And as always, a short introduction of who is Benjamin?

Benjamin Obling:

Yeah. So Benjamin Obling, great to be here. Been working with the sales and operation planning, integrated business planning for the last 16 years, different industries, different clients, but always in demand planning, inventory planning, supply planning, S&OP, integrated business planning.

Søren Hammer Pedersen:

Yeah. Perfect. And maybe just to start with the recap, and again, for you out there, if you didn't hear the first episode of this series, jump back and have that, because we're going to have, of course, have some references back to that, but we'll try to keep it so everybody can stay on also in this episode. But Benjamin, a bit of recapping first, we talked about the sales operation planning process and the integrated business planning process. We talked about the four key elements or steps maybe symbolized as different weeks in a planning process. Could you just give us the brief highlight of these different weeks?

Benjamin Obling:

Yeah. So we're starting the S&OP process thinking it's a monthly process, assuming it's a monthly process, starting with the demand planning. So setting the best possible, highest possible forecast, the forecast accuracy, aligning that between sales operations and supply chain, making sure it's as automated as possible, but make sure we have the right reviews, the right process. We have the meetings scheduled as recurring meetings, et cetera. So we know that they are happening in the process. We have a clear agenda. We have clear inputs on what are we going to review during the different demand review meetings.

Then moving on to inventory and supply planning, first inventory, looking at the inventories, balancing those. What are the target requirements in terms of target service levels? What are the strategic considerations in terms of strategic customers, could be markets, et cetera? What is the working capital targets that we have? So that part of the process, again, making sure there is a clear responsibility, we'll update it. Of course, again, make it as automated as possible using advanced APP, but then also having the process around discussing what should be the different scenarios we'll take to the next phase.

Then as a second part of that phase is the supply side. So simulating what is going to be the material requirements in the future, the inventory projection, the capacity in terms of manning and machinery. Already they are starting to prepare the scenarios that we'll then use in the week that we are at now in this, where we are then looking at the balancing. So balancing demand and supply in terms of manning machinery and components, et cetera. And then the last step is the executive S&OP where we lift up the biggest issues and then we assign some proposals and suggestions and scenarios to that for senior management.

Søren Hammer Pedersen:

Perfect. So really basically sum up first week we do the demand plan. Second, we do the supply inventory planning. Now we look at the next two weeks in this simplified plan, which is the balancing and the S&OP. Perfect. But before we go in, and I think of course starting with the whole balancing week, let's ... Up in the helicopter again, why should people care about these two last week? We have our demand plan. We have a supply plan. Why should we care? Why does people struggle with this?

Benjamin Obling:

Yeah, we say basically because we are not aligned yet. So we have a demand plan. Sales have been signing off on that demand plan. We have had the supply operations. They have been using that as input to create the capacity overview, the stock projection, et cetera, doing the balancing there, or you could say doing the simulations. And then we know, okay, what are going to be the bottlenecks? And the next step is then actually to balance that. So what do we do with that information? Now we know that we have some demand, unconstrained demand that we are not going to be able to fulfill because we don't have the production line for it. We have a bottleneck, for example, or we have a huge demand in, let's say, three months from now on a certain material, but we need components and they have a nine-month lead time, for example.

So are we going to fly that in or how are we going to do that? Are we going to expand over time? So basically how do we solve it and balance it? Can we supply more? So can we increase the capacity, which would be our first step of course, or do we actually need to constrain the demand? And if we constrain the demand, how will we do that? And that's the alignment.

Søren Hammer Pedersen:

Yeah. And why do you see that missing in many companies?

Benjamin Obling:

Yeah, tough question. Why? Because it's super important. And in many companies, you do have some sort of demand process. It can be very manual. It can have lousy accuracy and so on. It can also be okay, but it doesn't reveal the bottlenecks you'll see. But then it requires the capability of then simulating how will the outlook be, how will the capacity requirement be? And to simulate that before you upload it to the ERP system. And we say that is a technical capability you need to be able to do. It will take a lot of time if you do it manually. So one could be that basically the tool capability isn't there.

It can also be the process is not in place. So the horror example would be that you actually have a fantastic tool in place. You have experts in operations. They are using the demand plan they get from sales. They are pinpointing all of the different problems, but it's not aligned. It's not surfaced. So it's not aligned between sales operations and the CEO on how do we then actually handle that. And that requires the tools, the capabilities, the analytical capabilities, and setting up the process. And yeah, many cases, companies fall short on that process.

Søren Hammer Pedersen:

Yeah. I think that's an excellent illustration and picture on it. And maybe I'll just tap into one of my favorite, not favorite topics, that sounds wrong, but something that I talk to many companies about is that they are in that situation where the end of the process, and now we'll of course go into detail with the process. They end up not really committing to a tactical plan into the future, instead ending up in this firefighting situation where we actually just try to serve operational very, very short-term needs instead of really like sticking to the plan and having that picture.

Benjamin Obling:

Yeah.

Søren Hammer Pedersen:

Yeah.

Benjamin Obling:

Because you could say that is the impact when you don't have it. When you don't have that alignment, then you could say at some point, let's say you have a demand plan which is not possible to fulfill given the capacity you have, at some point someone in operations, and that will be in operations, they will need to make that call on, so do we produce A or B in a very simple example? We can't produce both. So which one is it going to be? Then you could say, ideally that would be based on our priority, it would be based on our market, on the strategy of the company, where do we want to go? Of course, this would not be one product, but you could say a range of products, but anyway, that should be aligned with the strategy. And if it's not, then it would be, say in the worst cases, then it's like the regional sales manager who shouts the loudest, he will get it. It can be things like that.

The customer who's making the most noise again will then be instead of actually being aligned with the strategy of, I mean, is this going for our German market where we are really having our target strategy that is to go there or does it go to the Dutch customer who's really annoying? So we'll just produce that product. And that is a big risk that is going to be the outcome, that it's actually going to ... That strategic decision will be taken at a much lower level in the organization without any assistance on priority.

Søren Hammer Pedersen: Yeah. Good point. Good. But then we agree it's relevant. We should. It's our topic, but of course, let's dive into more detail with the week three and the whole, you can call it end to end balancing act. Because now we take the input from the first two planning weeks from our demand and our inventory supply planning. We had made some scenarios we have there, but what are the key elements as you see it in this week three, this balancing week?

Benjamin Obling: Yeah. So it is to highlight, where do we have issues? That's step number one. And in doing that, you could say visualizations are super important to make it easy to find out where do we have problems because you can say speed is of the essence and time is of the essence here because we have a limited time for preparing this in many companies. So we need to be able quite fast to see based on the different scenarios, the simulations, where do we have problems? So that's step number one. Where do we have a problem? That could be like a bottleneck on a certain production line, or it could be component groups we are missing or target service levels we're not going to meet because of different lead times, et cetera.

And then next step in that, after we have identified the problems is suggestions on how can we mitigate it. And that can then be in saying, okay, we can increase from two to three shifts, we can use third party like subcontractors, et cetera, or we can reduce or constrain the demand.

Søren Hammer Pedersen: Maybe to dive a bit deeper on the visualization part that you just mentioned here, could you give some examples of what are some good useful visualizations? I know companies are different or something, but maybe on a more generic side, which are some of the visualizations that can really be helpful and might be missing in many processes?

Benjamin Obling: Yeah, to be very concrete, and if you take the capacity, for example, so we have the demand plan, we have the current inventory situation, we have customer orders, we have inbound orders we have already planned and so on. We know the bill of material, the routing, the sourcing flow between factories. This is just the model set up actually in order to calculate what will be the utilization on different production lines on the different factories we have. And then converting that into a visualization saying, "Okay, we have the different factories, different production lines as rows and as columns, we would have the future month or weeks, and then we have a utilization percentage." If that one goes above say 80 or 90, something like that, then it becomes red. That would be a super simple visualization.

And of course you could say, okay, I mean, that's easy, but you could say it's not so easy to be able to say, "Okay, what if we change the demand picture on revenue on a certain brand in Germany. If we increase that by 10%, how will that impact the utilization on production line 4 in our Czech factory, for example, and be able to do that within some minutes, for example." So that's the kind of, you could say simulation, scenario and visualization capability that can really empower this.

Other examples could be the stock projection so that you can see, okay, how is the stock going to look in the future? So basically a chart of the inventory. You can then have a chart saying, "Okay, this is how it will look." If we take the raw MRP projection, that's going to be a bit too low because we know it's always a bit above the theoretical level. So then we can add on some non-compliance that we know will always be there. Suppliers will deliver too late or too early, et cetera. So we can have that. We can also add like a high demand scenario to that. So again, basically three, four different stock projection lines compared to the historical. And then we can quite fast on that see, okay, how is our inventory going to look in terms of working capital? Where will we end the year in these different scenarios?

Søren Hammer Pedersen:

Yeah.

Benjamin Obling:

And you could say, yeah, of course you have the full dataset and so on, but you could say visualizing in a good way. A chart, for example, is good and powerful-

Søren Hammer Pedersen:

Yes. And maybe on a more fun side note to that, if we are to help improve people's work life out there, the stock projection, one of the keys is it also frees up time for all those questions on working capital, how would things look if we make this decision? So if you had that visualization and know what the stock's going to develop, then you will have less questions from the CFO. That is just how life is today. But I think a key element, what you said is that easy visualization because you can have a thousand alerts, a hundred alerts, whatever, but it's really about simplicity here, I guess.

Benjamin Obling:

Yeah, absolutely. Remove all of my ... I mean, it shouldn't look like a cockpit where you can ... So flying a jumbo jet. So it's really about, okay, what is key? What is super important in this area? So where do we have the red utilizations? Okay. Then you can very far see, okay, that's in this specific month or week. We have a utilization of 120, that's a problem on that production line. We can see that the month just before or just after, we actually have it on down to 80, 70. Okay, well, we can handle. We don't need to solve that specific month. It's three months out and so on, and you can see that right away. And the same in terms of could be inventory as we discussed, it can be the demand. Demand plan, for example, again, being able to visualize how's the demand looking into the future in terms of quantities or revenue, et cetera.

Søren Hammer Pedersen:

Yeah. And I guess also making sure you have the right input for those visualizations. I mean, you talked about having, of course, we still have a close cooperation partner with the ERP system, but we are not interested in, I guess, only to have that in the sense we need to be able to simulate before it hits it. So also simulating the MRP run is something that you need to consider in your process. Do we have that input?

Benjamin Obling:

Yeah, exactly. Because otherwise you're just hoping for the best. I mean, you're uploading a demand plan, which we basically don't know if that's feasible or not. You're going to see that and you might not even see that. You'll just see it. In the MRP and the ERP system, it will just turn out into different manufacturing proposals, purchase proposals and so on. It will start to purchase things we need to produce something we cannot produce because we don't have the capacity. I mean, that's what you're doing in reality when you don't simulate it beforehand. And if we simulate it, then we can say, okay, then we need to constrain the demand or we can see, it's a problem, but it's so far out that it will probably be solved when we get there, or we can solve it, mitigate it when we get there, or this is really a big problem and we have a consistently high utilization on that production line. We need to do something about that. We need to get a new production line.

Søren Hammer Pedersen:

I guess it's also about highlighting issues within your supply chain footprint. I mean, if you go up and downstream in the supply chain, but always starting already with your own suppliers as well, you need to have that attention. And one thing is our production capabilities, but also looking into what's coming in the footprint. It could be the raw materials or depending on the business, the finished goods or whatever you're getting. But I guess also visualization in that direction is critical and something people struggle with.

Benjamin Obling:

Yeah. Yeah. And you could say in many cases, then you have suppliers where they have a capacity that you need to ... I mean, you can get 1,000 or 2,000 per month or something like that. You cannot purchase more and you need to purchase according to that. And again, you could just expand your capacity. And in this respect, you can expand your capacity. So when you look at the capacity overview and the red and green colors and so on and the utilization, different month into the future, different factories, there you can basically add your suppliers.

So you can actually see, okay, how is the suppliers ... Are we going to have problems with the suppliers as well? And if we have problems with those suppliers and then have a different visualization in terms of the bill of material and the sourcing flow, say, okay, if I'm going to have problems with this component, for example, exactly where will that hit us in terms of finished goods and which markets, so where is it that we need to constrain? So going back and forth in the supply chain, which you can do when you map the full supply chain and you can do that even across ERP systems.

Søren Hammer Pedersen:

So even though we talk about, of course, we talk about simplicity, but it's of course highly complex things. So there is some groundwork you need to do here, but of course I guess the aim is still that when we bring people together and here we bring in what we did in the first two weeks. So we bring in the demand and we bring in the inventory supply into the same room and now we need to figure out which of these scenarios are we going to recommend, how we're going to work and how can we mitigate to be ready to make some decisions here. But what I mean by the groundwork is that you need to get all that in so it becomes simple to work with this on a monthly basis. So it's just there basically-

Benjamin Obling:

And you could say that's where the tools will help us to make that in a very short timeframe and also be able to simulate different scenarios so that we actually have that material.

And then the next step is then to take that and have the process around it and the people around it so that we actually have a meeting, both could be internal in supply chain first where we are identifying this in the balancing. We are making different proposals in supply chain on how we could solve this or how much can we solve it overtime and so on. We don't need to involve sales yet in that because that's a pure supply chain. We don't want to bore sales with that.

Then once we have made, okay, we can mitigate it to this extent, but we actually have some demand here that we need to constraint or we need to prioritize somehow.

Then you have the meeting or the process with sales then to say, "Okay, so given that we can sell, say 1,000 less here, should we prioritize Germany or should we prioritize Holland, our Dutch customers, for example?" And that's then back to the process, making sure that that is in our Outlook calendar, we can see, okay, who will prepare that? We will have supply chain preparing a part of it and then they will hand it over to sales and they will assist in prioritizing it so that we can prepare a decision for the last phase, the executive S&OP.

Søren Hammer Pedersen:

Yeah. And I think also a point from me, one thing that is missing is we have all the process, maybe we're not clear on the, you can call it the rule of delegation in the sense that, because in this week three, we want to mitigate some things already or make the decision and some larger decisions scenarios. Is it A, B, or C on big decisions we want to bring into week four and the executive S&OP meeting? So how do you find that balance on what to mitigate now and what to bring in?

Benjamin Obling:

Yeah, you could say it's important that when we get to the executive S&OP, that it's really the big tickets, it's the big decisions at the end. So we're not discussing SKUs, we're not discussing single customers unless they are really big. And then also that we deliver a problem together with a solution to make sure that there are X, Y, Z, A, B, C as options, and we lay out that and we can see what the impact is. So really the groundwork would be in that balancing here meeting that you would then do between operations, supply chain and sales. And then also making sure that it's again, the bigger things also in that meeting.

And then when we talk about very nitty-gritty priorities, because there will also be a lot of different problems that we cannot solve in this because there are basically too many. Let's say imagine we have 8,000 SKUs and we have 10 different markets and so on. So there's going to be a ton of different problems. But then you could say what we could highlight in this balancing and also get sign off in the executive S&OP are the general priority guidelines. So to say, okay, should we prioritize to get gross profit? For example, is that the most important or do we have a classification of our clients saying, okay, now we are prioritizing the German market, for example, even though the gross profit is slightly higher on the Dutch market, for example.

So what are the overall ... So it can also be a set of very specific issues and recommendations, and it can be some general guidelines to operations because we need to take day-to-day decisions, which are actually strategic decisions in supply chain, and that's actually the supply chain planners doing that, it's purchase managers, it's production planners and so on who will make that call. So it needs to be aligned.

Søren Hammer Pedersen:

Yeah. And I think also a huge benefit that, again, if we were to underline a bit why you need this week in your planning process is it also has that added benefit that people know this is where we meet and make decisions to this level. And if there's something that needs a bigger decision or needs to be escalated because this is a cheat decision, this is how we do it. That has that benefit, in my opinion, that at least we can never come to a point where it never happens, but it limits that planning process that is basically, we have done all the plans and then the sales director calls the CEO and says, "This is critical," and then we do something else, then we've been working for four months. It will never go away. And of course that is also fair to some point that it's in the business of a company, but I see the huge benefit of people know this is where the forms we take these decisions in.

Benjamin Obling:

Yeah. Yeah. And you could say that in that area, it will make a lot of sense to make one pages of each of these different meetings, stating, "Okay, when are we going to have the meetings? Who are the participants? What is the agenda? Who will prepare what for the meetings? What are the KPIs? We are looking at what are the outcomes and next steps? Who is the meeting leader who will make sure to note down what have we decided? Who will follow up and so on during the next meeting?" So you say basic good deeds in terms of having a meeting, but really just stating that on a one pager for each of these four steps here would be very valuable.

Søren Hammer Pedersen:

Yeah. Good. So maybe before we work into the executive S&OP part of it, just to sum up maybe, what are the outputs of this week? What are the critical outputs that we need to have before we move on to the next?

Benjamin Obling:

Yeah. So that would be the identified issues and of course the visualizations to support it. So we can also, again, fast explain and show to executive management where do we have a problem. So we have this red utilization month on this capacity line. Okay, that's clear. We can see it. We've seen that before and that is due to exactly this situation here. So that's what we have analyzed. This is the situation, like one slider on that or show it directly in the IBP tool and then the suggestions. "We can do A, B, C on this, it will have this impact if we do this. Our suggestion is to do B because we now have Germany as a target country, for example." So you could say the concrete issues and then the suggestions and then the material to support it.

Søren Hammer Pedersen:

Yeah. So really a firm plan and suggested and asking for decisions, not showing the world of alerts and issues and things like that. So it needs to be very focused there. Okay.

Benjamin Obling:

Yeah.

Søren Hammer Pedersen:

But then that is the output. Then next recommendation for us is that, of course, some companies could say, "Okay, now we have that. Then we make a decision or we commit a plan, we figure it out." Why do you see that we need this executive S&OP process or week or how we want to call it in the end of this before we commit anything?

Benjamin Obling:

Yeah, I would say it is really about getting from ... I mean, this can be very nitty-gritty because we are starting at a material number or a sales organization making a demand plan or for this material number, we'll have a minimum stock of 120 and here we'll have an MOQ of this. And so it's very nitty-gritty things that turns out to be the total, you could say, making the operational plan of the strategy. So we need to be able to have these meetings first so that we can say, okay, after we've cleared out all the nitty-gritty things, we have a good demand plan, we have balanced the inventories, but we need guidelines from the executive management and saying, how should we balance the inventories for example? What is the important part? What are the target service levels? What is the working capital that we need there?

So it is really to make sure that we escalate it. And then at the end here, we get at the really big decisions. So make sure that we involve senior management in those big decisions without dragging them through all of the different nitty-gritty processes and data processing and meetings and so on where we discuss things that we can actually just handle in other parts of the organization.

Søren Hammer Pedersen:

Yeah. So how do you get then, because it sounds very logical what you say.

Benjamin Obling:

Thank you.

Søren Hammer Pedersen:

But reality is that this doesn't happen in that many companies. So how do we motivate the C level, the top management to be part of this project process?

Benjamin Obling:

Yeah. One could be highlighting, you could say highlighting what are the things that we see, what are the problems we see as a consequence of not having this? So the firefighting, what could be examples of quite strategic decisions being taken, let's say sporadically at lower levels of the organization, which really belongs to the C level or really belongs to executive senior management. So like saying, okay, we're not servicing the German customers as we want and it's a strategy for us, it's a strategic theme. So why is that not aligned with how we are actually running our operation? And when we are constraining demand, we are doing that at hoc different places in the organization because people basically don't get any guidance from senior management on where to focus. And when they get guidance, at one occasion, it would be the CFO saying, "Okay, now we need to reduce the inventories." Okay, then we'll do that.

Another occasion, it will be the CEO saying, "We really need to boost the profit." And then you would have the CCO saying, "Okay, we really need to boost the revenue now because that's really our focus." Okay, but how do we balance that when we need to decide on, so is it the Dutch market or the German market? How do we prioritize? And what will be our service level? Is it 99 or is it 95? How do I prioritize? And that's really what these two meetings are for.

Søren Hammer Pedersen:

So really about showcasing the benefit, and also maybe striking a bit of fear into a decision making process in the sense that this can go quite far without C level noticing with extremely high cost in either sales or in production or manufacturing before they notice. So this is also about getting the right priorities.

Benjamin Obling:

And you could say, actually making transparency on how the actual decision process is in the company, that very strategic decisions are being made in very different places in uncoordinated ways.

Søren Hammer Pedersen:

Yeah. So this is very, very easy. We just need to book an hour or two a month with C level and then we're ready to go. Or maybe the point being here, we also need structure there really. We need to be very, very crisp in terms of this meeting with how do we structure that meeting so we don't end up in a two a day session. Yeah.

Benjamin Obling:

Yeah. And then of course you have the problem on showcasing that it's really relevant starting that the first executive S&OP where you maybe haven't had the full process is not really up and running. You haven't been escalating. You don't know exactly yet how to escalate which problems are really necessary to escalate. So it might seem a bit off in the beginning with the things that you're suggesting that senior management should decide. So they'll say, "Okay, this is way too nitty-gritty. Just fix it." And so on. And the others, they would say, "Oh, why wasn't I told this is super important and strategic." So of course there is an alignment where everybody needs to say, "Okay, first we'll try it out and we'll test it and then see how it works."

And then I think it's also, again, important to be pragmatic here because this is the full process, which is sort of the textbook, okay, how we should do with demand, inventory, supply, balancing, and executive S&OP, which makes sense in many cases, but there can also be cases where you could say, "Well, that can actually be handled in different places of the organization. It doesn't require a full alignment." And then we don't need to build it. So we shouldn't force everything into this format just because that's the textbook.

Søren Hammer Pedersen:

Yeah. And then I guess that's also a clear link back, we talked about visualization just before. The stock projection, again, the most simple example here when we get that question in the meeting, we can say, "Okay, if we do this scenario, then the inventory will develop as such the capital or the production or whatever it might be." So they come, they were useful before, they're still useful in this setting, I guess.

Benjamin Obling:

Yeah, absolutely.

Søren Hammer Pedersen:

Yeah.

Benjamin Obling:

Yeah.

Søren Hammer Pedersen:

So having this meeting here, so the structure, in my opinion, of course, for this meeting would be around, again, keep it as simple, but given the state of the union, what is the situation going into the dashboard showing a few key KPIs, I guess, and then the middle part of the meeting before all the output is be very clear on the scenarios we are presenting and which decisions we want to make.

Benjamin Obling:

And really, you could say the so what on every slide you show, if it's a slide deck, or when you go into a solution and show dashboards and so on, what is the purpose of showing that? Because okay, there's been a sales development in Germany or okay, so why is that? How is that compared to the budget or so is that because we need additional initiatives there or is that because we have stock out? That's why we're showing it. So our suggestion is to increase the target service level on our mins for the products going to Germany. So what we call a so what on a ... When you show something, I mean, what is the purpose of showing this and what is the problem and what is the suggested mitigating actions?

Søren Hammer Pedersen:

Yeah. And the output from this meeting, of course when we have this meeting in the process, typically within a few days or a short period of time, you need to have the plan we are going to commit for this month. So what are the desired output from this? Because you have to work quite fast afterward and you might not have decisions on everything in the meeting. You might have questions. So what are the last steps as you see before we end with the final plan here?

Benjamin Obling:

Yeah. Yeah. You could say the balancing meeting should, or hopefully will clear out as much as possible, but absolutely, of course, there can be feedback loops. And then you would have a follow-up meeting very, very fast. But it's very important that you could say from a tool and data point of view that the full process is supported by the tool because if we say that, okay, now we need to constrain the demand, for example, and we will constrain the demand in Holland because Germany is our target market now, that's the overall strategy. Then you need to be able ... Maybe you're selling 2,400 products across the 2 different markets, you need to be able to adjust the forecast right away and do that all the way down to SKU level so you can upload it, release it, upload it to the RP system and start to operate with that just after.

And you could say that is possible, but you need the tools to support that the mitigating actions here can be converted into very concrete figures and data that we send into the planning. And that will be, for example, an adjusted forecast. You need to do that at higher levels, push it down right away so that you can release that into the RP system. It can be the target service levels. We'll increase that on the German products warehouse, for example. Okay, that turns out that then the minimum stock for product A will turn from 120 to 130. Okay, you need to do that right away and then you can upload it so that we are at a granular level. But we are aggregating that to a full total level in the executive S&OP because when we do that and everything, the smallest atom in the tool and the data model behind, when that is really the planning object, so the item number and the warehouse and so on already, then we can also make it operational right after the meeting.

Søren Hammer Pedersen:

So the finals, you can say steps is easily of course implementing the decisions and mitigating that and then we have like the official sign-off of now this is what we are committed to. And I guess then the trick is once we do that, we send it into a ERP system, everything starts rolling. Last thing is, okay, two days later we're still firefight ... How do we avoid ... I guess there's also an element of like a transformation in some companies to getting used to ... We actually made this very concrete structural plan. Of course, things can happen, but not to continue the culture of firefighting and changing everything.

Benjamin Obling:

Yeah. Yeah. And that's really where we need to follow up on the actual planning behavior, or it can also be not key performance indicators, but key behavior indicators, you could call it. But basically looking at, okay, for the last ... And have that as part of both the balancing, also the executive S&OP, looking at, okay, how are we then actually planning during the last four weeks, for example. So have we been following the plan we had from the previous S&OP meeting? And if we haven't been following it, why is that? Are we purchasing more than we should? Are we purchasing bigger chunks? Are we selling less? Are we stocking up in a different way? Are we manufacturing in a different way and so on? And if we are doing that, why is that? Is that because we need to adjust something in the models? So the targets, so the strategic input we got about Germany and 95% service level, okay, actually the purchaser here or the production planner, they're actually planning to 100% service level.

Okay, but that was not what we agreed. So why is he doing that? He's doing that because he got a call from a regional sales manager in Germany and he was really angry because he had a stock-out situation and so on. So that's the behavioral part of it, really following up on are we actually following the plan because otherwise we're just looking ahead and we're just the caption on the bridge steering the ship, but there is actually no connection to the engine room. And that doesn't fly.

Søren Hammer Pedersen:

Yeah. So what you're saying is that we have been pragmatically about these four steps these four weeks, but that's actually a fifth step that is also a learning loop here and making sure we stick to the plan and the data date driven, because otherwise we could have been in a situation where we basically have done a lot of planning for nothing.

Benjamin Obling:

Yeah. Yeah. And that is certainly one of the big pitfalls in these steps also that you do a lot of very good planning and put a lot of efforts into the demand plan, into the minimum stocks, into the MOQs. It's all the planning parameters and that is aligned with strategy. And we have all the meetings and everything is perfect, but in reality, the purchaser and the production planner are actually just following their own Excel sheets and we need to follow up on that. It could be a whole podcast on its own, I guess, but it is really important to find out, do we actually adhere to the plan that we set out to?

Søren Hammer Pedersen:

Yeah. I think that this is highly interesting. And now we come to the end of the process – we have our plan going in. But I think at least for me summing up here, I think some of the critical, of course, we think also the two steps we have talked about today with the balancing and the sign-off with the executive management team is highly important to have and something that is missing in many companies. But I also could imagine that people listening to this podcast would say, "Well, the reason why this is not in our process is that this is not easy in my opinion," or the viewer's opinion. It's very hard and we talk about complex and we have given you some perspective here.

And maybe as a last point, I would like to challenge that a bit because if we agree on that this is critical, you can get a long way with the two steps we have here using some best practices. It can take you the first steps. You don't have to invent the wheel every time we go into this. We have best practices for the balancing. We know what good visualization is or how to identify bonding. We know how to structure the meeting. We know how to somewhat structure a process around the executive management team. So also maybe trying to take some of the magic away from this and saying, "Well, maybe we don't buy that argument that much." We actually think you can get a long way getting best practice advice and basically just getting started and getting structure around this.

Benjamin Obling:

Yeah, you could say, I mean, it is a set of very concrete tasks that needs to be done in a structured way. And you can also say, I mean, all companies are doing this in some way. They're just not maybe doing it in this structured way that we are talking about, but of course we make some companies look ... Sound very stupid and apologies for that, but it's more, you could say that all companies are doing this. So it's a matter of basically structuring what they're already doing as one part to make sure that we don't forget it and we do it in that structured way. So we pick up on what is really important to remember to do every time and then we do it every time. And then really also, of course, how they have the process on one side, but also have the tool on the other side to support that, that can really accelerate the process a lot and support the process because the process without data and the tool and simulation capabilities, then you're just talking.

On the other hand, having a fantastic tool where you have some experts sitting there and you don't align it, you don't surface it to senior management and so on, that is equally not valuable. So really combining those two, that can make a great process.

Søren Hammer Pedersen:

Yeah. And maybe as a final point is of course, be very aware also in your communication around the end goal of all this is that we end up with a common plan, an aligning common plan for the whole company. So it's not a demand plan, it's not a supply plan, it's really like the integrated business planning process. It's really about going across and ending up with something that actually has taken into account as much as we can across the company, ending up the best solution for the company. And that is the selling point of also having the two large steps, I think-

Benjamin Obling:

Yeah, absolutely. And it will help not only the senior management to have, you could say, to get that full steering, you could say in a structured way on how do we prioritize. So how do we take the strategy and make it operational. On one hand, that's of course their objective there. On the other hand, it's also helping the people who are actually executing the plan to know because now they have some clear guidelines to say, "Okay, yeah, we have 95% service level for the Dutch market because it's not a strategy. So it's okay to go stock out in 5%." It's very unfortunate and so on, but it's there for a good reason. That's because we want to focus on Germany. And right now we're just leaving them making that decision themselves or talking to that regional sales manager who is angry.

Søren Hammer Pedersen:

Yeah. Perfect. Time is running, Benjamin. And as always, we can talk forever about these very interesting topics, but I think, and I hope that people out there got some useful input. And I think the main message here is that if you're missing these elements in your process, you need to look into how to strengthen this because it will have great business value and it'll make more fun for you to go to work every day, basically. So Benjamin, thank you for your time here today and also thank you to everybody listening or watching out there.

Benjamin Obling:

Thank you.

Søren Hammer Pedersen:

Highly appreciate you turning into this podcast. As I started by saying, if you missed the first episode of this series, about demand and supply, dive back and have a look at that interesting stuff there as well and good recommendation. But other than that, if you find anything, what Benjamin and I said here today, interesting, want to know more, please just feel free to reach out to us. We'd be happy to talk about your specific situation. Go have a look at Roima's webpage. A lot of interesting stuff in there as well. Other than that, we hope to see you again next time in these S&OP MasterClass from Roima and we will see you there.