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ASCM Insights

Episode 44: Supply Chain Planning’s Next Act?

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Bob Trebilcock: Welcome to The Rebound where we'll explore the issues facing supply chain managers as our industry gets back up and running in a post-COVID world. This podcast is hosted by Abe Eshkenazi, CEO of the Association for Supply Chain Management, and Bob Trebilcock, Editorial Director of Supply Chain Management Review. Remember that Abe and Bob welcome your comments. Now to today's episode. Welcome to today's episode of The Rebound Planning's Next Act. I'm Bob Trebilcock.

Abe Eshkenazi: I'm Abe Eshkenazi.

Bob: Joining us today as Fazlur Rahman. Fazlur is the GCOE, Global Lead of Demand Planning and Process Integration at Kraft Heinz. Faz, welcome.

Fazlur Rahman: Thank you. Thank you. Happy to be here. It has been a while, Abe, since we last connected, so glad to see you.

Bob: We're thrilled to have you as well. One of the themes Abe and I have explored on The Rebound is the impact of two years of supply chain disruptions on forecasting, planning, and S&OP after all the end of the day, your ability to execute is only as good as the accuracy of your plan. Our question is, well, what's planning's next act? In other words, what are the factors impacting planning today and how will the process and planning professionals adapt to this new environment? Fazlur is the perfect guest for that discussion.

Along with owning the demand planning function on a global basis at Kraft Heinz, he's also involved in digital transformation of the company, which includes the challenges of getting value from AI and machine learning. Technologies that promise to transform all of our processes, including planning. Faz, first question, why don't you describe the current environment for us as a planner for a global supply chain, what have the last two years been like for you?

Fazlur: I would say the last two years have been challenging when it comes to planning and especially when it comes to execution of that plan. I would say planning is actually more dependent upon external factors, external intelligence, market intelligence than ever before at this point. What our customers are planning to do to offset pressure of inflation, price increase to the consumers, what our suppliers are facing challenges on it, this intelligence which typically exists in unstructured data points or even sometimes highly dependent upon supplier and customer collaboration, that has become more important ever than before to run our S&OP or IBP process.

Also, I would say material shortages, higher operational cost, labor and demand volatility are the biggest concerns for the supply chains at this moment, especially when it comes to planning. I would also say one thing. I think in the last two years there has been tremendous effort to consider more leading indicators to predict consumer demand. For example, in our case, in food and beverages business and also macroeconomic factors are seeing larger variation than a market or any economist forecast. We can talk about inflation numbers, which have been volatile against the forecast coming from the inflation predictions.

That also has increased our need to go more and more towards scenario-based planning. It's no longer about one or two different likelihoods. In planning, we are seeing the need of more and more different scenarios and different likelihoods. In a nutshell yes, challenging two years learning from it, but things are improving.

Bob: One of the things you just mentioned was unstructured data, and I know I've had conversations with a very, very large wine and spirits distributor who said that their historical records no longer did what they did. They were no longer valid. They started doing things like subscribing to Nielsen data because they needed to get data from other sources that they would not traditionally have turned to. You mentioned unstructured data. Can you just talk a little bit about the data sources you're looking to now and then we'll turn it back over to Abe?

Fazlur: Oh, great question. I would say when it comes to specific things around our assumption on price elasticity, for example, it's one of the biggest drivers in today's world for specific businesses where we have higher price, for example, and consumers are very sensitive to price. Those elasticity assumptions come from different analytics. It's not a straightforward transactional data point or point of sales data. There has to be an analytics model which is driving that leading indicator input into our models. That has been more volatile and where you're going to get it, it's not through a simple integration, you have to rely on specific analyst forecast.

Even companies like Nielsen and IRI providing that insight to us. How to make it structured and make it part of our process has been a challenge. One example. Then second reason, if you think about how during COVID and even now, consumer behavior especially related to food has changed. People are eating more inside. Now there's a whole switch on going back to the restaurants and we have a business of food service for that we have to rely on let's say, mobility data, but how good is that mobility data, like where we are going to get it from? Of course, we have partnered with certain vendors who are providing that. How we are going to make it part of your IBP process and planning process has been a challenge.

Abe: Faz, you're bringing up a couple of really interesting points. You brought up the ideas of the macro factors impacting a lot of the internal planning - unstructured data, having an impact on your forecast as well as your pricing for the organization. Prior to the pandemic, we were an extremely efficient supply chain. Just in time, your planning forecast we're fairly close to accuracy. Now we're dealing in an almost-- The variability is now challenging everybody at almost every step along the way. As you're evaluating not only unstructured data but internal data, does it require you to work differently with your partners in the organization or much more collaboratively with the sales side?

Give me a sense of how that's changed your planning horizon as well as your relationships with your teammates.

Fazlur: Actually, I will first start with the planning horizon here. When we talk about a typical planning process, it's of course based upon the industry. You're talking about short-term planning, midterm planning, long-term planning, three-month plan, six-month plan, two-year plan. With the challenges, especially on the supplier side, there has been more and more emphasis on midterm planning because we would like to secure the capacity at our co-factors also materials from our suppliers and also would like to understand their challenges.

Industry has been too much customer-facing, which we should be consumer-facing, which we should be, but the supplier-facing side has been ignored. Typically, procurement is not used to have that much of a voice in the IBP process. Now there's more and more engagement even with the procurement teams, materials planning teams, that how we can actually understand what we will be able to actually commit to our customers. On the other side, of course, that's the internal scope that I mentioned one of the one which has been very interesting is if you think about especially the businesses which are very much heavily focused on trade spend.

They give the trade to the customers. There are a lot of assumptions around revenue management. They have different models. Previously it was just an input to the process. Now it actually rarely there's S&OP organizations going in and challenging revenue management models, there's more and more collaboration needed. I can even give one very concrete example on it. If you think about food business, we also have the responsibility from the ESG perspective. We don't want to waste food. If the food products which are short shelf life, like cheese and dairy and meat products, we really have to be very precise about planning.

If our assumptions on the consumer price elasticity side actually goes wrong, sometimes we have too much stock and we have to throw it out or donate. If we actually underproduce then we have on-shelf availability issues and those products our consumers actually consume daily. The hot dogs and all that. The collaboration, not just with the procurement, but also with the revenue management has improved, and of course as a journey. There's a lot of challenge coming from our demand planning organization, S&OP to the internal stockholders that how we can actually build a good plan and also execute against it.

Bob: One of the things that you talked about when you, and I did the planning for this, and you touched on it in one of your earlier answers is your portfolio at Kraft Heinz, I described as bifurcated, meaning, on the one hand, you have some high-end products. On the other hand, you have more price-conscious products, and now you're trying to balance those two in an inflationary environment where there might be less demand for the higher-end products, more demand for the consumer-cost products than is traditional. How do you balance all of that? How do you figure out what to do with the high-end, and what to do with the cost-conscious?

Fazlur: I would say, of course, we are still in the learning journey on this one, but there are certain basics in the foundations which the need of actually applying them in the processes has even increased. One is really clear, customer and portfolio segmentation - it is not an easy thing to put in practice, requires detailed analysis, strong assumptions, and also behaviors around following that. How you would like to segment your consumer-based, customer-based portfolio and assumptions on when-- actually, this is one interesting thing I think I can say to a degree, we actually learn even before pandemic, big challenge from private label when it comes to food products.

You have a portfolio where you have a pressure from the private label and you also have a pressure from the premium brands. We have certain premium brands, we have regular brands, and of course, we are used to having competition from all sides. A portfolio actually has evolved over time and during pandemic due to capacity constraints, of course, caused the complexity, skew rationalization were the things which actually drove us to really have more clarity on which segment we would like to focus on.

That's one way of managing this, but it is super complex. It varies market by market, country by country, region by region, brand by brand. Certain brands we want to be on the premium, certain brands, we want to actually go and compete with private label and to be interesting on certain products. Latest there were a lot of assumptions around that we will see softness because of private label being very low price. We didn't see that. I think people are also getting used to inflation and the consumer behavior also-- consumer preferences are also getting normalized to a degree, not fully there.

At this point, I can say it the whole situation around planning has become more and more towards more of an economist job at this point.

Abe: The interesting point that you make, the economist is always right on the back end, never on the front end. Using that analogy, what surprised you about the implementation of your S&OP processes, you indicated before your IBP process? What surprised you as you started to expand not only the engagement of your customers and your suppliers in your integrated planning? Was it on the data side, on the people side, on the trust side? Give me a sense of where you experienced most of your challenges.

Fazlur: Yes, surprises are on, of course, all fronts, but one of the biggest surprises was that how siloed certain functions are when it comes to collaborative planning. It opened eyes because there were certain things around, especially I mentioned, like a good example on the materials planning and collaboration with the suppliers. You would assume that would be part of your overall IBP process. Like we saw bigger gaps there and this came as a bigger surprise. If we think about how the overall shortage of materials in the industry, yes, I think that was the big gap overall. Not in just one company or two companies - overall in the industry.

There's a broad, bigger, and bigger need to bring suppliers and also internal procurement teams on the table when it comes to planning processes. From my perspective, that was a bigger surprise. That is the gap which needs to be closed to actually get out of these ongoing shortages, which we have been seeing - be more collaborative with the suppliers.

Bob : You're involved in digital transformation and that generally means technology. You talked about some of the changes you're looking at earlier, like more scenario-based planning. As you think about going forward, what role is technology going to play in the future of planning and what capabilities are you looking for that maybe aren't in your legacy systems?

Fazlur: Yes, I would say like anytime we would like to, of course, be more advanced from the technology perspective, there's a maturity journey. Adoption takes time. People take time to digest the new functionalities and all that, but for us, the biggest one to start with is more visibility to the drivers of demand, to the leading indicators. That's the first step in the maturity. A lot of that information, basic things like point of sales data, doesn't typically flow in your legacy planning systems. Like having the visibility to point of sales is one of the biggest wins.

Having the visibility of your future-looking orders, which have already been placed by the customers, having the visibility of the customer replenishment plans, the mature ones, big ones, large ones like Walmart, they actually do share. Having that visibility is the starting point. Then next of course is like more advanced modeling techniques to actually remove the bias in the planning. We know there will always be a bias of course, but how can we be more statistic-driven, more advanced modeling techniques driven data, science-driven way to drive our planning at least the baseline plan so that that is the future.

Of course, over time we would like to have to upscale the organization so that planners can actually digest this enormous amount of dataset in the most efficient way, exception-based way, without getting overburdened by 10 different variables versus they were used to 2 variables to look at in the past.

Abe: Faz, I'm glad you brought up that last point, and that's that integration of your technology with the competent individuals that you have in the organization. Give me a sense of some of the challenges that you're having. Not only finding, but developing the talent within the supply chain. We know that there's been a dearth of supply chain talent for years. This does not start with the pandemic, it's been historic. How are you addressing some of the talent gaps so that you can take advantage of the technology, and some of the different processes that you're implementing?

Fazlur: I think one area we definitely, I wouldn't say it's not fully successful, but something making good progress is to really look into what other value-added activities. I think that exercise should happen in any organization on a continuous basis. What way we can free up people's time? Especially supply chain folks have gone through a lot of challenges, a lot of burn out in the last two years, and it's not going to end. We know that it's not going to end soon. That's the area, of course, I've been focused.

How can we actually make this function, not go through this continuous churn and free up their time and also develop the capabilities from the skill set perspective, make them more equipped, enroll them into programs like ASCM certification to have them do decision making in the right way rather than getting stuck into the details also? This one of the key skills because supply chain is complex, you can get into it and you can just go into the rabbit hole. You have to be really about making quick decisions. One example I give - like I think a lot of people, especially who have the background in forecasting, forecast is always going to be wrong. You can spend literally ten years and it still won't be 100% accurate.

You need to be really much spot about and also play the art piece, not just the science and math piece when it comes to certain processes. That's how it has been. Market has been very challenging. We have to be more connected with the people, build relationships. It shouldn't be a job. It should be a career. People should feel the belonging. There has been a lot of focus on engagement.

Abe: Faz, thank you so much. Quite a bit to take away. We could continue this conversation on for another hour at least. That is all the time that we have today. A special thanks to our guest, Faz Rahman from Kraft Heinz. Finally, a special thanks to you for joining us today for this episode of The Rebound. We hope we'll be back for the next episode. For The Rebound, I'm Abe Eshkenazi.

Bob: I'm Bob Trebilcock.

Abe: All the best everyone. Thanks again, Faz.

Fazlur: Thank you.

Bob: The Rebound is a joint production of the Association for Supply Chain Management and Supply Chain Management Review. For more information, be sure to visit ascm.org and scmr.com We hope you'll join us again.

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