In this discussion recorded live at SCM 2014 in Las Vegas, Keynote Presenter Hans Thalbauer of SAP shared his thoughts on the state of the supply chain and insight on SAP's roadmap for SCM, cloud, Ariba and procurement.
View the video or read our edited transcript here.
Lauren Bonneau, SAPinsider: Hi, I’m Lauren Bonneau with SAPinsider, and I’m sitting down at the SCM 2014 conference with Hans Thalbauer, SAP Senior Vice President of Supply Chain Management.
Hi Hans, thanks for joining me.
Hans Thalbauer, SAP: Hi, good morning!
Lauren Bonneau: Good morning! So, yesterday was your keynote here. How did that go?
Hans Thalbauer: It was good! I had a lot of fun.
Lauren Bonneau: Can you kind of give me a little bit of an overview: The title of the keynote presentation was about the global changes in the supply chain. Can you explain what you see as the state of the supply chain for 2014?
Hans Thalbauer: Yesterday we really announced a new strategy for supply chain. The big thing was we know that the world is changing. We know that many business realities are kicking in and they’re changing the way our supply chains need to be set up in the future. We talk with thousands of companies across the world and we see that the companies are transforming their supply chains. They are transforming their supply chains from supply chain to demand networks.
What it really means, what it comes down to, is this: We need to put the customer into the center of everything, and it’s all about speed. So the big topic was how can we now actually take this knowledge, knowing what’s going on in the market, and create a new supply chain strategy?
This is what we did in the keynote: We announced that we have a new strategy, and our strategy is very simple, we want to enable customers, companies around the world, to transform their supply chain from supply chain to demand networks.
Lauren Bonneau: I’ve even been noticing in the conversations here that people are using the term “demand networks” more and more. Do you see the term “supply chain” going away? Or is that going a little too far?
Hans Thalbauer: I don’t know if I would go that far, but right, “supply chain” is a term which was used, I don’t know, 30, 40 years or so. It’s a term which is there and will stay there. However, there is a real transition. And the transition is not just in consumer products. There was a lot of talk already five years ago, seven years ago, when terms like demand-driven supply networks and so on have been introduced. Now we go one step further, we actually bring it one level up and say it’s not just demand-driven supply networks, it’s actually demand networks.
So what are the real ingredients of such a demand network?
First we need to have a real-time monitoring environment, visibility into the supply chain, visibility in real-time into demand, into supply, into inventory. This really enables the supply chain professionals to answer the issues and questions they have day-in, day-out. So this is one major aspect of this strategy.
Second, we need to build integrated business planning. It’s not just “Here is technical planning, and then there’s operational planning.” It needs to be an integrated business planning environment. It needs to include the financial information, because decisions are being made much more based on financial information.
The third one—it’s all about orchestration. It’s a network, there are companies, they’re working with the suppliers, with the carriers, they’re working with their customers in a very collaborative way, in a very fast way in order to fill the customer demands. So, third one is about supply chain orchestration.
The fourth one is really about the execution, and the physical movement of goods, it’s about the distribution of the product through the warehouses, through transportation, in order to please the customers. So, the four elements: monitoring, planning, orchestration or a network, and execution.
Lauren Bonneau:Great. This global shift that we’ve been discussing seemed to take place in two dimensions - one was described as geographic and the other, demographic. Can you expand on that a little bit more?
Hans Thalbauer: Absolutely. The business realities which are there - and this is not just future talk, they are really there - are three. There’s the volatility in the markets, there is innovative technologies, and there is growing logistics complexity.
When we think about the volatility in the market, then we talk about these two dimensions; we understand that there are demographic shifts and there are geographic shifts.
From a geographic perspective, we have seen for the past years, especially in Asia, the rise of the middle class. We know in the last couple of years about 2, 3 million people were coming into the middle class. This actually shifts the buying power, so companies try to, of course, offer their products in these areas, in these regions. This by itself already shows the impact on the supply chain; how to put the distribution network in place which supports this new middle class and helps the companies to be successful in this market. So, it’s a geographic change.
The second one is the demographic change. We know that the millennial generation buys things differently; they are informed, they know what the products are about, and they are connected with their friends, are connected with everyone. So this provides a huge change of how you sell your products, how you promote your products, and it is a real challenge to cope with how to replenish material and products to the right spots.
We need to come to a situation where forecasting is not just done on an aggregated level. These shifts of demographics, buying power, to the millennial generation as well as these geographical shifts require that we stay at the most granular level.
Only when you know that, for example, a product gets really good feedback from people in San Francisco, then you know that “OK, maybe this is an impact. I need to increase the forecast there and replenish there” versus that in Los Angeles that’s not the case, right?
So, it goes down to this granular level, and this by itself means that we need to change the supply chain. We always need to have the customer in the center to really make sure that we understand the market demand, and then build the supply chain around it.
Lauren Bonneau: Great. So you mentioned forecasting and predictive demand planning, which I’ve been hearing aboyt a lot here. What would you say are the major hot topics?
Hans Thalbauer: That’s a very good one, right? It fits very well into what I just discussed. Because of the volatility in the markets, we need to introduce new ways of creating forecasts. We are very much used to statistical forecasting methods, and statistical forecasting methods tend to be very good, actually, when it comes to mid-term, long-term accuracy of the forecasts. But when it comes to the short term, to the next two weeks, to the next three, four weeks, then actually the accuracy is a real problem.
So what needs to be done is we need to analyze the past, we need to check what kind of patterns are there in the past and project these patterns into the future. And for this we talk about predictive analytics or demand sensing capabilities which need to be introduced. And it is proven, actually. There are many many examples out there in the world that this kind of method of using these pattern matching algorithms, predictive analytical algorithms, really increases the forecast accuracy in the short term and provides much more success for the companies.
Lauren Bonneau: So SAP, I would imagine, is providing solutions for those looking for innovative ways to meet these ends. Can you give me a couple examples of some solutions that are focused in this area?
Hans Thalbauer: We are investing a lot, right now. We see the shift coming and that’s why we also need to ensure that we provide the solutions customers need in this environment. So we’re talking about integrated business planning. That is one topic where you have sales and operations planning as the process which brings all the different organizational units together, making the decisions about the demand, the supply plan, but also about the revenue and the profitability plan.
Connecting these decisions directly with the operational plan is now the key, and the way to do it is in bringing into this environment inventory optimization, to reflect the safety stock levels for every product throughout the entire network, and feed these safety stock targets into the operational planning process. This makes a closed loop from technical to operational planning. It becomes a dynamic environment and it supports bringing the customer into the center and it supports the speed element which is required.
We will do that by introducing an integrated business planning solution, which includes all these elements in one harmonized data model, in one platform, and then also, based on the ERP data model, so that it’s really becoming a fast, smooth environment. We will provide this solution and introduce this solution in the cloud.
We started to do that already. We have already an application, Sales and Operations Planning, available for the last year and a half, which is adopted around the world by many, many customers. We know we need to build the demand, the inventory, the supply capabilities and the response capabilities on the same platform and have the control tower, the monitoring environment, embedded in this environment. So this is one major investment area, one major new solution.
The second one is around orchestration. It’s the network. For the network, we need to make it much easier for companies to onboard suppliers, to onboard carriers, into this environment. Therefore we will use the Ariba business network, we will connect it with the collaboration capabilities needed to run these processes for supplier collaboration, for supplier managed inventory, for purchase order collaboration, and so on. So the second area is supply chain orchestration.
The third one is really on the logistics side, with the introduction of the Supply Chain Execution Platform, with Warehouse Management, Transportation Management, and the Track and Trace element, which is necessary to always know where the products are from a geographical perspective and from a product genealogy perspective. This Supply Chain Execution Platform is already available. We introduced it three years ago and have extended the capability since then. We have huge adoption for Transportation Management and Warehouse Management solutions, again, around the world.
So the three areas: integrated business planning, supply chain orchestration, and the logistics area of the supply chain execution platform.
Lauren Bonneau: Is the second solution, the orchestration solution, available now as well?
Hans Thalbauer: We have available capabilities for running the purchase orders collaboration, the supplier managed inventory collaboration, also for outsourced manufacturing, also for the customer collaboration, so we do have these capabilities. We will bring that into a cloud environment, and connect it with the Ariba Network, and this combination will then be the so-called supply chain orchestration. We do have existing capabilities with the product we call Supply Network Collaboration, and we connect it with the Ariba Network.
Lauren Bonneau:That was going to be my next question! So to look at your keynote again, if you had to summarize one thought that you would like attendees to walk away with, what would it be?
Hans Thalbauer: It’s a very important transformation which is going on. Our strategy is very simple, we want to enable companies to transform their supply chains to demand networks. We have the four elements; monitoring, planning, the network orchestration, and the logistics area. We have built a roadmap, which is detailed, which shows the companies and all our customers actually when do we provide which kind of solutions. And we have created a roadmap for every customer on how can you actually adopt these new solutions, so that you can transform your supply chain to this new network, which includes your existing landscape, your existing solution,the next steps for you, and which brings value and adds the value you need to make this transformation into demand networks.
We work with supply chain partners all around the world - we have about 20 partners actually here at the event- who are supporting this strategy. We just had a summit with these partners, and we make sure that those partners know about our strategy in detail, so that they can also help customers around the world to support this transformation.
Lauren Bonneau: Thank you very much for sitting down with me, I appreciate it!
Hans Thalbauer: Thank you!