Clients are struggling to keep up with customer’s changing requests. Order backlogs remain relatively high (depending on the industry), but customers are pushing orders out at the last minute, pulling orders in without notice, adding future potential orders, and changing requirements on the fly. Production is scrambling to keep up.

80%+ of manufacturers simply do not have enough skilled production and support resources to keep up with the volumes, let alone with the volatility of the order backlog and changing forecasts. Not surprisingly, executives do not want to hire more resources than absolutely necessary as they are concerned about rising input costs and the uncertainty of their order backlog. To add fuel to the fire, the supply chain has been volatile as well with global unrest, strikes, and other disruptions as well as supply chains on the move. Read our recent article on how supply chains are changing. The production resources cannot keep up with changing conditions, and triage must occur.

Our best consulting clients are engaging in proactive business processes to get ahead of changing customer conditions and sales forecasts and the impact on capacity, production and replenishment plans as well as the reallocation of critical resources. SIOP (Sales Inventory Operations Planning) is a key process and toolset for successfully navigating this volatility while maximizing output and production capacity to support revenue growth.

An Industrial Manufacturer Case Study

An industrial manufacturer struggled to meet customer requirements. Order deliveries were lagging, capacity wasn’t allocated evenly across its ten production facilities and production at a critical site had almost 1000 hours of change overs per month for nine months in a row to try to keep up with urgent customer requirements. Several large customer jobs pushed out and others pulled in, keeping Operations scrambling.

We rolled out a SIOP process, starting by getting a handle on the sales orders and potential sales orders. A weekly meeting with Sales and Project Management helped to solidify the priorities of the demand plan (sales forecast). Although customers continued to request push outs and pull-in’s, when the requests were proactively worked with the team and the ERP system was maintained, better clarity emerged.

The demand was run through a capacity model, showing available capacity vs. operational requirements by production facility. The operational requirements were bucketed in categories of firmed sales orders, sales orders waiting on Engineering release, sales quotes that were better defined, and sales quotes. By evaluating near-term capacity, priorities could be established with Engineering, short-term capacity actions could be taken (overtime, supplementing production at additional sites, etc.), and proactive customer communications could take place.

More importantly, by evaluating medium and long-term capacity, the appropriate strategic decisions came to light. For example, the critical site showed as overloaded months in advance so that Operations could reallocate customer orders among production facilities within the same region to mitigate impacts on freight cost. The model could be evaluated with multiple what if scenarios so that Sales and Operations could address the bottlenecks proactively. Guidelines were set to reprioritize and set pricing for key customers, capacity could be reallocated, additional capacity could be planned, and capacity offload options explored.

The key is the connection between Sales, Project Management, and Operations and Engineering. As customer requirements change, capacity scenarios need to be reevaluated and impacts reviewed. Proactive communication and collaboration is a critical piece of SIOP to keep demand and supply aligned and optimized.

SIOP Maximized Production Output & Capacity

By seeing the demand and capacity picture in advance with SIOP, the executive team could maximize production output and capacity. They could do this by proactively addressing bottlenecks to level load the plants so that the scheduling teams could optimize the production schedules to increase efficiencies and reduce waste. By running like items, sizes, and material types together, changeovers are minimized. And by seeing the final assembly schedule requirements, labor and resource plans could be optimized.

Also by reviewing the full capacity requirements across all North America sites, capacity could be reallocated to maximize output, thereby minimizing the need for offload capacity. Each plant’s strength could be maximized and planned in advance while minimizing transfers between plants, freight to customers, and material price differences.

By addressing these supply plans proactively, materials contracts could be addressed in advance ensuring material availability which positively impacts manufacturing planning and output. It also typically provides opportunities for more favorable contracts and pricing. In addition to maximizing production and capacity output, SIOP improved the customer delivery performance, resulting in happier customers and additional revenue possibilities.

SIOP: A Look Forward

In our book, “SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth“, we discuss how SIOP can support these types of improved results. As companies navigate the exaggerated volatility of the global environment and try to keep up with changing customer needs, SIOP becomes an essential tool in the toolkit to survive, let alone thrive. Our best clients are utilizing SIOP as a way to take control of their future and manage their options instead of letting their situation manage them. In fact, they are taking SIOP to the next level with advanced technologies and by connecting SIOP to their customers and suppliers to gain an end-to-end supply chain view.

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Optimizing Business Decision Tradeoffs with SIOP

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In the last month, clients have been proving the critical importance of SIOP (Sales Inventory Operations Planning), also known as S&OP or IBP (Integrated Business Planning) time and again. From process (such as food & beverage), job shop (such as aerospace) and ETO (engineered-to-order such as windows & doors) manufacturers to value-add distributors (such as lawn & garden tools), the SIOP process brings focus to the appropriate areas to align demand with supply and ensure execution success. SIOP spans the end-to-end supply chain and includes resources from Sales & Marketing to Manufacturing, Engineering and Supply Chain to Finance & Accounting.

How Does the SIOP Process Work?

The SIOP process facilitates a monthly cadence that starts with the sales forecast and demand planning process, translates those requirements into a manufacturing and supply chain plans, and highlights critical decisions and actions that need to be taken to support the successful execution of those plans. The process results in a predictable revenue plan, a reliable operations and supply chain plan, and a resulting inventory and profitability forecast. The process enables customer and product profitability reviews, make vs buy decisions, and it facilitates the assessment and actions surrounding supply chain risk. To learn more about how to use the process to achieve profitable growth, read our book, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue & EBITDA Growth.

SIOP Results

Clients gain substantial results by staying committed to a SIOP process. We frequently hear “we already discuss these topics”. However, the organizations that follow a strict cadence in demand and supply reviews, involve executives in the process and communicate across the organization find opportunities and pivot to what’s coming long before those clients that do not follow a SIOP process. The bottom line is they change from reactive to proactive, and bottom line results follow (profitable growth, accelerated cash flow, high customer service levels, operational efficiencies, etc.).

If you are interested in reading more on this topic:
Predictable Revenue & Resilient Operations for Manufacturing Success

The post The Power of SIOP / S&OP in Fueling Profitable Growth appeared first on LMA-Consulting Group, a supply chain consulting firm.

Global supply chains are on the move. Executives have been hit with the harsh reality that the risk (supply chain, geopolitical, cyber, IP, etc.) is far higher than they realized when they outsourced with an eye to cost. In addition to that 80 pound gorilla, they also have suffered with delays, disruptions, and uncertainty in serving customers due to lengthy distances and logistical risk. Thus, supply chains are on the move. Strategies need to be rethought, the end-to-end supply chain assessed, and future customer needs evaluated to get in front of this changing landscape. SIOP (Sales Inventory Operations Planning) is a key process and toolset for successfully navigating this transition with profitable growth fueling the process.

Risks Abound in the Global Supply Chain

Risks abound in the global supply chain. From Russia-Ukraine to China’s extreme risk including threats to Taiwan to the increasing cyber risk, executives are struggling to navigate the global supply chain. A few critical points that “tell the story” of risk include:

• Russia-Ukraine war: The war has disrupted the critical commodities of oil and natural gas. Europe put sanctions on Russia which left them in a bad situation in getting enough energy to power their current lifestyle as well as critical manufacturing, logistics and infrastructure needs. Thus, Europe has been scrambling to address backup sources of supply. In the interim, Russia sold oil and natural gas to China and India. The end result is price escalation in addition to “supply on the move”. Oil and natural gas is used in countless products from medical devices to glasses to phones, thus impacting the global supply chain.
• The China risk factor: China is simply a mountain of risk. China is the number one manufacturer in the world and accounts for almost 30% of the world’s output. Thus, from internal issues (severe water and energy shortages with “solutions” of permitting two coal plants a week) to threatening Taiwan (putting 90% of the world’s advanced computer chips and 60% of the world’s standard computer chips at risk) to monopolizing rare earths (produces 60% and processes 85% of the world’s rare earths) to buying up critical infrastructure around the world (such as controlling both ends of the Panama Canal) and controlling the South China Seas, China wants to control the world’s supply chains.
• Talent & Technology: Resources are limited around the world. For example, according to EY and an iMocha report, 81% of organizations are experiencing a shortage in skilled tech workers. Similarly, the risk of cyber attacks and supply chain security issues increase with each passing day. For example, according to Deloitte’s report 2023 Global Future of Cyber Survey 2023, 91% of organizations report experiencing one or more cyber incidents or breaches.

And now Israel is at war. Volatility, uncertainty, complexity and ambiguity (VUCA) is at an all-time high in recent history. The bottom line is that risks have reached a level that is unacceptable to many executives.

SIOP to Devise a New Path Forward

SIOP (Sales Inventory Operations Planning), also known as S&OP is a process that will help you navigate changing business conditions (such as these extreme risks). SIOP starts with a view into your future customer demand (sales forecast, customer orders, quotes, CRM) and translates that into manufacturing and supply chain requirements. The process will highlight capacity constraints (production, storage, resource), upcoming bottlenecks, forecasts for investment (equipment, inventory, resources), make vs buy decisions, and customer/ product profitability opportunities.

For example, when consulting with an industrial manufacturer that was concerned about risks in the end-to-end supply chain, and so used the SIOP process to visualize what should be done. Based on their demand plan, they were able to see impacts to their supply plans and where risks were in their current manufacturing and supply chain. Thus, they assessed and took action to transition to backup sources of supply, expand their supply base into India, pre-purchase critical commodities to give them time to assess their future needs, and they expanded regional manufacturing by sourcing offload suppliers. By taking these actions, they were able to secure supply to meet their aggressive growth plans.

Assessing Strategies

In our book, “SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth“, we discuss how SIOP will fuel transformative strategies for growth while mitigating risk.

• Supply chain footprint: SIOP looks forward to future customer requirements and determines how to reallocate manufacturing and change the supply chain footprint (reshoring, nearshoring, regional manufacturing, additive manufacturing) to support key customers and grow the business while mitigating risk in how product is manufactured, distributed, transported and delivered in the order fulfillment process. Vast changes are occurring. For example, Apple is moving from China to India, Dell is moving from China to Vietnam, HP is moving from China to Mexico, and Intel is building a ‘mega’ factory in Germany and expanding capacity in the U.S. with its first new manufacturing facility in 40 years.
• Supply chains on the move: As the supply chain footprint evolves, the global logistics landscape must change to support it. Thus, as I said at the IMUI international conference, shipping routes will change and evolve with changing business conditions and risks. For example, in addition to keeping up with manufacturing changes, as China becomes risk laden and the South China Seas becomes uncertain at best, companies will continue to move manufacturing and/or change shipping routes. As delays consume shipping routes such as the Panama Canal, companies will find alternatives, and as strike risks impact supply chains such as the West Coast ports, shipping routes move (and the East Coast gains in this example).
• Examining links: SIOP opens the door to examine every link in the chain. From enabling margin analysis by product groupings, customers, markets and regions to examining the customer experience, the SIOP provides for holistic as well as departmental strategies.
• Margin vs risk: SIOP also provides the data and process for evaluating cost reduction opportunities, pricing strategies, sales channel and marketing options, operations and supply chain alternatives, and inventory and capacity fulfillment options while assessing customer value-add business risk.
• Talent & Technology roadmap: Last but not least, SIOP translates demand and supply plans into talent and technology requirements. More importantly, the resource requirements can will be impacted by the technology roadmap, and so the best SIOP strategies proactively address talent and technology to optimize, digitize and thrive. There are simply not enough resources at any company. Only those that automate, utilize technology and innovate will survive, let along thrive.

As risks abound, the best in class will utilize the proven process of SIOP to proactively navigate changing conditions in a manner that is not only supportive of profitable growth but is also focused on critical risks and long-term success.

Innovation: A Forward Take on Risk

Beyond the uncommon common sense strategies to ensure predictable revenue and EBITDA growth, executives must develop a culture of innovation. The world has become not only complex and convoluted, but also a maze of geopolitical risk dependent on advanced technologies. These advanced technologies escalate risk further as they are dependent on commodities in risk abundant regions of the world and carry the threat of cyber attacks. Thus, the smart are innovating. Only forward-thinking innovators willing to do what most executives will not do (such as invest when everyone else panics) while remaining calm, resilient and strong will thrive for decades to come.

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SIOP/ S&OP Playbook: Creating Predictability & EBITDA Growth

The post Supply Chains are on the Move appeared first on LMA-Consulting Group, a supply chain consulting firm.

Originally published in Brushware, July-August 2023

Manufacturing is in a state of flux. After seven straight months of contraction in manufacturing, it is not surprising manufacturers are thinking about cutting back. On the other hand, in many industries, manufacturers continue to have a robust backlog and are growing faster than their capacity. Simultaneously, there is significant transition and movement around the globe including dual source suppliers, reshoring, nearshoring, consolidation, and other changes. In this volatile environment, opportunities will abound for those manufacturers focused on creating predictable revenue and resilient operations.

How to create predictable revenue?

Smart manufacturers are getting ahead of customer demand instead of waiting to respond to changing conditions. A few of the best practices in addition to reviewing historical trends and growth patterns include getting on top of sales quotes, getting in sync with key customers, bringing market and industry conditions into the mix, and asking your customer facing team members for input.  proactively and aggressively managing inventory. These factors roll up into the demand planning and sales forecasting process within your SIOP (Sales Inventory Operations Planning), also known as S&OP process. Once you establish a sales forecast, you cannot rest. Depending on your situation, you must review exceptions and changes on a monthly if not weekly cadence.

For example, in working with an aerospace and defense manufacturer, the team was unsure if the demand was predictable enough to order materials and hire resources. Thus, we analyzed data, collaborated with sales and marketing, reviewed customer portals, and evaluated historical trends with contracts. Although the team was uncomfortable, we didn’t enable analysis paralysis. Instead, we took the plunge and piloted forecasts with 70% confidence. The team’s success seemed in direct opposition to their discomfort as their forecast accuracy was one of the highest in almost 20 years of consulting. Most importantly, by creating predictable revenue, Operations had time to prepare. Customer service rates (OTD, on-time-in-full) shot up and costs went down. Margins improved by 5%.  

How to create resilient operations?

Although having a directionally correct demand plan will provide an automatic boost in operational performance with solid leadership, it is no longer enough. To navigate volatility and prepare to take advantage of opportunities, manufacturers must be ready to scale on a dime or pull back without losing momentum. Creating resilient operations is key to success. SIOP remains integral to evaluating alternate strategies to fulfill demand such as make vs buy, dual source suppliers, reallocating production among sites, etc. Adding flexibility into operations is also important by cross-training, utilizing temporary employees, evaluating contract resources, outsourcing support functions such as maintenance, evaluating shift configurations and overtime strategies, and much more. Utilizing technology with automation, robotics, 3D printing/ additive manufacturing, and other strategies can provide quick scalability while maintaining profitability.  

For example, a food and beverage manufacturer invested heavily in cross-training and advanced skills development so that critical resources could respond quickly, and they developed strong relationships with temporary resource partners to be prepared to fill in rapidly when needed or scale back without losing meaningful critical talent. They also focused attention on automation, technology, and labor scheduling to ensure efficiency and scalability, and they were able to take advantage of opportunities to substantially grow the business.

The bottom line

Smart manufacturers will prioritize key customers’ needs and monitor quotes, sales orders, changing market conditions, and forecast closely. From an operations perspective, they will create flexibility, resilience, scalability, and utilize technology to not only save money and create a superior customer experience but also to ensure rapid scalability and flexibility. Leverage SIOP, best practice demand planning processes and uncommon common sense operational programs to ensure manufacturing success.

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Business Decision Tradeoffs Run Amok

Optimizing business decisions will make or break success. Executives get paid the big bucks to make these decisions. Unfortunately, one poor decision can outweigh thousands of good ones rapidly. SIOP (Sales Inventory Operations Planning), also known as S&OP, is a tool that will optimize these tradeoffs for effective decision making. You could simply call it “uncommon common sense decision making” where you look across the full spectrum for business impacts and determine the best path forward.

Several companies such as Anheuser-Busch and Target have lost significant business value recently after making decisions that cooled revenue. On the other hand, artificial intelligence (AI) has sparked vast growth in other companies such as Nvidia. This topic popped to mind as I see more and more clients struggling with key decisions in such an uncertain environment. For example:

• Should they invest in additional facilities to support projected future growth or find a way to staff up third shift with an uninterested workforce? If they choose the shorter term outlook, will they miss the wave of economic boom? On the other hand, if they take “too long” to make and execute decisions will they miss the opportunity?
• If they choose to reallocate orders among production plants to deliver on time, will the cost be overwhelming? However, if they delay shipment to mitigate substantial freight costs, will their customer go somewhere else with the next order?
• Should organizations transition away from China due to the elevated risk levels on multiple fronts? If so, should they move manufacturing closer to customers or to a lower labor cost country that is in a friendly region? Or should they simply diversify suppliers?

And, from a macro point-of-view, will growth be hindered by the rise in interest rates and potential recessions or will what looks like unrelenting economic growth continue?

How SIOP Will Optimize Business Decisions

SIOP (Sales Inventory Operations Planning) is a business process that organically brings tradeoffs to the forefront to align demand and supply (Sales and Operations) and enhance business decision making. To learn more about how the process works and keys to implementing it successfully, read our book, SIOP: Creating Predictable Revenue and EBITDA Growth.

From a decision making point-of-view, SIOP surfaces critical tradeoffs through the process. For example, although an industrial equipment manufacturer had plenty of capacity to meet their overall demand plan, they did not have enough manufacturing capacity to meet customer backlog for their large size products. Once they rolled out a SIOP process, they put together a consensus demand plan and translated that plan into a manufacturing and logistics capacity plan.

The manufacturing plan showed that there was not enough welders with the appropriate specialized skills for this product, and the logistics plan showed that there was not enough space to store these larger products in the building with the higher bay to keep up with the demand plan. Thus, the operations leaders evaluated the potential to offload / outsource. Because they had a unique differentiator on this product, it would slash their margin to unacceptable levels. Thus, they evaluated order policy tradeoffs of pricing and lead time to best support profitable growth while they evaluated long-term strategies to address this product line. SIOP brought the issue to light and provided a process to evaluate demand, capacity, and customer and product profitability to optimize their business decision making process.

As business tradeoffs build up, ensure you have a SIOP process to support your growth and success. There will be more opportunities to surpass the competition and shoot up to the market leader position in the next several years than there has been since the Great Depression. Be prepared to navigate these waters with effective decision making to set your company up for success for decades to come.

Please contact us with your tradeoff and decision-making stories, issues, and opportunities and what you’re doing to succeed. And, please keep us in the loop of your situation and how we can help your organization get in a position to thrive for years to come. Learn more about these topics in our blog and download your complimentary copy of our recently released special report: The Road Ahead: Business, Supply Chain & The World Order

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Globalization is no longer working

Globalization is not working. Geopolitics abound. For example, the war in Russia and Ukraine ravages on. There are concerns around the nuclear power plant in Ukraine, occupied by Russia. And that is aside from the impact on oil, food, commodities and much more. China continues to threaten Taiwan and has already changed Hong Kong. It is no longer the same for business. There are countless risks throughout the world. Read our recent article on geopolitics, natural resources, and the supply chain to learn about the larger scope of these risks. The bottom line is that globalization is no longer working. Use SIOP to devise a new path forward.

SIOP to Devise a New Path Forward

SIOP (Sales Inventory Operations Planning), also known as S&OP is a process that will help you navigate changing business conditions (such as the fall of globalization). It provides a proactive view into your demand plan (sales forecast) so that executives can evaluate changes required to your manufacturing and supply chain footprint to successfully and profitably supply the revenue forecast. If you are dependent on China, Russia, Ukraine or other risky countries for manufacturing or anywhere in your supply chain (ie. your suppliers’ suppliers’ supplier) or if your customers are dependent, you should reevaluate. SIOP is a process/ tool that will help you with this process.

Will reshoring and nearshoring suffice?

In our recently released special report, “The Road Ahead: Business, Supply Chain & the World Order“, reshoring, nearshoring and friend shoring are discussed. Every executive should be evaluating these strategies to regionalize your supply chain if you want to have a sustainable business for the long term. A few of the key points include:

• Reshore: Certainly, smart companies are moving manufacturing closer to customers (which typically is bringing it back to its country of origin if that is where the customer base is located). Extended lead times and delays were unacceptable during the pandemic; however, much worse than that is the fact that executives can no longer “count” on reliable sources of supply in today’s risk ladden environment.
• Nearshore: If your product requires a significant amount of labor to produce, you might want to nearshore, meaning move manufacturing to a country close to your customers. For example, Mexico has a lower labor rate than the U.S. yet is close (and doesn’t require a container ship to transport), and so several companies are producing in Mexico if they have a high labor content in their products.
• Friendly shoring: Friendly shoring, also known as friend-shoring, is the same as nearshoring except that you have to be careful about where you are locating manufacturing. Is it a friendly nation to your ‘home’ location with the bulk of your customers? If not, if global conflict arises, you will be left with the same geopolitical risks.

Read more about these strategies in our blog category reshoring/ nearshoring. Although reshoring and nearshoring are important strategies, they will not suffice. China produces at scale. There is no way companies can move enough manufacturing to suffice by itself. Many executives think that they will be OK because they diversified to other southeastern Asia countries. That is not enough. Additionally, according to the Economist, China has expanded its influence throughout southeastern Asia, making these manufacturing havens such as Vietnam riskier. The other big powerhouse and hot spot is India. As discussed in our special report, India offers promise; however, it also comes with infrastructure risks, water risks etc.

The bottom line: Reshoring/ nearshoring is not enough.

Expand Manufacturing Capabilities

Don’t just think about moving manufacturing. Why risk your current supply? If your outsourced company finds out you are reshoring/ nearshoring, you will go to the bottom of the priority list immediately. That will not help your service or viability. Why not expand your manufacturing capabilities near your customers so that you can make a seamless transition? Unfortunately, it is unlikely you will get your equipment and other assets out of China. You can always try that after you have sufficient capacity near your customers.

Whether you insource or outsource doesn’t matter. The key point is that you need to expand your manufacturing and supply chain capabilities ASAP. Start by thinking through several questions:

• Equipment capabilities: Do you have any manufacturing presence near your customers? If so, take an inventory of your equipment, assets and infrastructure.
• Talent capabilities: Take an inventory of your talent capabilities. What types of skills do you have? Where are they located? What risks are associated with your talent?
• Industry 5.0 (manufacturing and supply chain technologies): Take inventory of your capabilities, ease of transition to these new concepts, etc. A few of the top technology enablers include industrial blockchain, drones, exoskeleton robots, additive technology, 5G and beyond, and mixed reality to achieve a superior customer experience, hyper customization, a responsive and distributed supply chain, experience activated (interactive) products, and a return of manpower to factories.
• ERP system capabilities: Will your ERP system support your transition and expansion needs? Do you have a supplier that is investing heavily to keep up with the latest technologies and incorporating artificial intelligence (AI), internet of things (IoT), predictive analytics, e-commerce (B2C, B2C), WMS, advanced planning and more.
• Process capabilities: Do you have the appropriate processes to support both strategy and tactics that will be required to navigate the next 10+ years? From a strategy perspective, you should have a SIOP (Sales Inventory Operations Planning) process in place to determine how to best navigate changing conditions to be prepared to supply your ideal customers and achieve profitable growth. From a tactics point-of-view, you will need the execution capabilities to support SIOP which is known as S&OE (Sales & Operations Execution). These processes include demand planning, production planning, replenishment planning, capacity planning, material planning, production scheduling, logistics planning, labor scheduling,
• Innovation culture: The only way to succeed in the next decade is with innovation. Start creating a culture of innovation. It isn’t something you can dictate.
• Supply chain capabilities: In addition to demand and supply planning capabilities, you need to elevate to the SIOP process to make sure your logistics, distribution and transportation capabilities will support your changing circumstances.

There is no time to waste in building your manufacturing capabilities. By performing a quick assessment, you’ll know where to focus.

Innovation: Develop New Manufacturing Capabilities

Beyond simply expanding manufacturing capabilities, develop new manufacturing capabilities. Innovate. Create new technologies and advanced capabilities. The future will belong to those who can manufacture to scale while maintaining resiliency and profitability. When you develop new capabilities, choose to locate your manufacturing next to your customers. For example, additive manufacturing (3D printing) enables for on demand production near the point of use (customer, consumer). Innovate and find ways to utilize this technology, combine with other technologies and capabilities, develop new and you’ll surpass the competition and secure your market leadership position for decades to come.

Refer to our SIOP webpage for more information, our blog (SIOP category) for hundreds of articles and learn more about SIOP and what’s important for a successful implementation in our new release eBook, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth. If you are interested in talking about how to improve profitability, free up cash, and/or improve service, contact us.

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SIOP/ S&OP Playbook: Creating Predictability & EBITDA Growth

The post SIOP / S&OP: Don’t Reshore; Move Manufacturing Forward appeared first on LMA-Consulting Group, a supply chain consulting firm.

Why Balance Customer Orders, Inventory, & Profitability?

If you want to serve your key customers successfully (with high on-time-in-full (OTIF), short lead times, and proactive service) so that you can take advantage of the opportunities coming down the pike while addressing the hard realities of the current business environment (potential recessions, high interest rates, and less access to capital), you MUST balance sales, operations and inventory.

Otherwise, you will have one or more of the following issues arise:

• Inventory Overload: Too much inventory of the wrong products and WIP (work-in-process) in the wrong place at the wrong time.
• Slow Moving Inventory: Too much slow moving or obsolete inventory
• Production Schedule Disruptions: Not enough of the right inventory in the right place to keep production running smoothly.
• Weak Service: Not high enough service levels to ensure you can maintain and grow your business during turbulent times, let alone meet business plans
• Not Prepared for Growth: Not able to take on significant opportunities coming down the pike. For example, as companies expand manufacturing in North America, customer orders continue to increase down-the-line in the supply chain
• Skyrocketing costs: If you aren’t balanced, you have to spend more to meet customer objectives.
• Inflation cost increases: The only way to offset the massive cost increases related to inflation is to be able to get in front of what’s coming.

Instead of these dire consequences, the smart are proactively balancing customer orders, inventory and profitability.

How Do You Balance Sales, Inventory & Operations?

The good news and bad news is that balancing these factors does not require significant capital investments, the latest technologies like ChatGPT, and a mountain of resources. It simply requires rolling out the appropriate strategy and tactics that is uncommon common sense. Roll out the appropriate strategic processes largely encompassed with Sales Inventory & Operations Planning (SIOP), also known as S&OP, processes. Focus solely on achieving directional progress, and you’ll gain quick wins.

However, strategy alone will not “work”. It has to be accompanied with the appropriate tactics which is the execution of the fundamentals required to support Sales & Operations Execution (S&OE). If you aren’t familiar with S&OE, don’t fret. It is a common term in software circles, but in manufacturing and supply chain circles, it is known as supply chain planning and includes demand planning/ forecasting, supply planning (master scheduling, production planning, material planning, replenishment planning, inventory planning, production & labor scheduling, etc.), operational execution, shipping, receiving, etc.

Client Examples: Using SIOP / S&OP To Balance Sales, Inventory & Operations

The SIOP process is geared to aligning sales with operations, customers with suppliers, and demand with supply.

How SIOP Fueled Growth for a Biotech Manufacturer

For example, a biotech manufacturing client couldn’t meet aggressive sales goals with high enough service levels to ensure customer loyalty and future growth. Sales was frustrated and executives were concerned about how to support future growth goals. On the other hand, Operations didn’t have the information to prepare in advance to meet the service objectives with the aggressive goal goals. They were concerned about spending money until they knew the product wouldn’t go to waste, and management was concerned about hiring manufacturing employees until volumes were confirmed in enough detail to know the work centers and skills required. The bottom line: Sales was out of balance with Operations. Thus, the right inventory was not available in the right place at the right time.

After rolling out SIOP in combination with S&OE (as you cannot have one without the other), we developed a directionally correct sales forecast by geography, product and unit of measure that “added up” to the growth goals (in dollars) in a way that made sense when viewing by customer, product groupings and growth rates. Simultaneously, we focused attention on understanding capacity (production requirements vs. available capacity by key work area and equipment). It quickly became clear that we had to reallocate a few resources to the bottleneck operation, and we gained approval to hire a few people to support the growth plans. Once the bottleneck operation smoothed out, we gained efficiencies in down-the-line operations, and most importantly, customer service improved and customers gained confidence. Sales, Operations and Purchasing also had insights that enabled cost reductions, product rationalization plans, and key pricing decisions. Nice side benefits to the aggressive growth goals!

How SIOP Accelerated Cash Flow & Reduced Debt by Increasing Inventory Turns

In another example, an aerospace manufacturer had turned the company around following the 9/11 downturn and was interested in selling the business. Thus, they wanted to maintain their excellent service levels while maintaining/ improving profitability and reducing unnecessary debt. We had to balance sales with operations and inventory to reduce unnecessary inventory (not required to support service, spikes in sales and predictable disruptions in supply) while focusing on operational performance. Thus, we assigned executive leadership to the topic to emphasize the priority, clarified the sales plans, and focused attention on inventory planning processes (again, the combination of SIOP/ S&OP and S&OE).

In this case, we had to balance profitability/ margins by site with customer orders and inventory plans. We rolled out improved business processes, better utilized the ERP system, provided training and education to the inventory teams, and we aligned the goals of the Site Leaders with corporate objectives and the Inventory Leaders. Inventory levels came down by 30% in key product lines while maintaining/ improving service levels and growing the business. The company was also better positioned for sale and for continuing operations so that no matter which path was chosen, the company was in a healthy, robust position.

Path Forward

SIOP can be an important process in aligning people (within your organization and with your supply chain partners) and processes (demand and supply) to improve service, support growth, reduce debt, accelerate cash flow, and improve profitability. During times of volatility (inflation, recession, stagflation, technological advances, talent shortage), there will be more opportunities for those companies prepared for success. The winners will be separated from the losers and opportunities will abound. SIOP requires focus, but it doesn’t require capital intensive investments. There is no downside to becoming more profitable, having greater access to cash, and better serving customers and preparing for growth.

Refer to our SIOP webpage for more information, our blog (SIOP category) for hundreds of articles, and learn more about SIOP and what’s important for a successful implementation in our new release eBook, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth. If you are interested in talking about how to improve profitability, free up cash, and/or improve service, contact us.

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SIOP/ S&OP Playbook: Creating Predictability & EBITDA Growth

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CLAREMONT, Calif., March 21, 2023 /ExpertClick/ — Manufacturing and Supply Chain Expert Lisa Anderson, MBA, CSCP, CLTD, known as the Strongest Link in Your Supply Chain® and President of LMA Consulting Group Inc., predicts that establishing processes is critical to strengthening the supply chain during tumultuous times. LMA Consulting Group works with manufacturers and distributors on strategy and end-to-end supply chain transformation to maximize the customer experience and enable profitable, scalable, dramatic business growth.

“Between high inventory levels, increased pressure to improve customer service while maintaining profitability and recent challenges in the financial markets, manufacturers need to have a process in place to ensure that their supply chain is resilient. The pandemic forced companies to stockpile inventories. Now, it’s a different story. Customer demands have changed making those inventories obsolete or irrelevant. Yet, we find many companies struggling because not only is the wrong inventory in the wrong place at the wrong time, but sometimes they have no idea what inventory is needed where,” commented Ms. Anderson.

Optimizing the supply chain to withstand operations to improve efficiencies, reduce costs, maintain profitability and position for business growth requires communication at all levels. “It is critical that operations, sales, finance, IT and others understand the customer and their needs so that the company is in a position to react and respond. No matter the industry, competition is fierce these days. Manufacturers need to be flexible and nimble, have their supply chain in place and be ready to respond. That is why implementing a process like SIOP (Sales Inventory Operations Planning), also known as S&OP, establishes a protocol that requires communication between departments to focus on customer needs. Once in place, the process will allow for transparency which will lead to transformative strategies for growth,” she said.

Ms. Anderson and co-author Diane Garcia recently released the e-Book SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth. The book is complimentary on the LMA Website at: https://www.lma-consultinggroup.com/siop-book/, can also be found on Amazon digitally and on-demand print at: https://www.amazon.com/dp/0998823252?ref_=pe_3052080_397514860 and on iTunes: https://books.apple.com/us/book/siop-sales-inventory-operations-planning/id6445675614?ls=1.Ms. Anderson also provides supply chain updates through Supply Chain Chats, a series of short videos that address current topics, issues and challenges related to supply chains.

About LMA Consulting Group – Lisa Anderson, MBA, CSCP, CLTD

Lisa Anderson is the founder and president of LMA Consulting Group, Inc., specializing in manufacturing strategy and end-to-end supply chain transformation. She focuses on maximizing the customer experience and enabling profitable, scalable, dramatic business growth. Ms. Anderson is a recognized Supply Chain thought leader by SelectHub, named a Top 40 B2B Tech Influencer by arketi group, a Top 50 ERP Influencer by Washington-Frank, one of the most influential in Supply Chain by SAP and a woman leader in Supply Chain by RateLinx. She was recently interviewed on Fox News, in early 2021published a Special Report, Emerging Above & Beyond: 21 Insights from Manufacturing, Supply Chain & Technology Executives, the ebook, Future-Proofing Manufacturing & the Supply Chain Post COVID-19, and her primer, I’ve Been Thinking, strategies for creating bold customer promises and profits. A contributor on topics including a superior customer experience with SIOP, advancing innovation, and making the supply chain resilient, Ms. Anderson is regularly interviewed and quoted by publications such as Industry Week, Bloomberg, and the Wall Street Journal. For information, to sign up for her Profit Through People^TM Newsletter or for a copy of her book, visit LMA-ConsultingGroup.com.

As originally published on ExpertClick on March 21, 2023

The post Lisa Anderson, Manufacturing & Supply Chain Expert Sees SIOP Process Critical to Tumultuous Times appeared first on LMA-Consulting Group, a supply chain consulting firm.

Originally published on Interlinks, March 15, 2023.

In this episode, and the next, of Interlinks we talk to Lisa Anderson and Diane Garcia of LMA Consulting Group in Los Angeles, California who are co-authors of a new book titled SIOP: Creating Predictable Revenue and EBITDA Growth.

SIOP or Sales Inventory and Operations Planning is a management approach in which Lisa and Diane are expert and I look forward to finding out from them what it is, how it works, what its benefits are and what the pitfalls are to avoid in its implementation.

Between them Lisa and Diane have many years experience helping their clients to develop, set up and implement SIOP across multiple sectors. 

Listen to part 1

Listen to part 2

The post Interlinks: Sales, Inventory, and Operations Planning (SIOP) appeared first on LMA-Consulting Group, a supply chain consulting firm.

The “Solution” to Successfully Dealing with Shortages, Delays & Inflation

Supply Chains: There is No “Return to Normal”

There is no “return to normal”. Non-stop disruptions are the norm. Proactive clients are still struggling to hire the “right” talent in the “right” place at the “right” time. Material lead times are extended and shortages remain yet, in other situations, there is surplus supply. Unfortunately, the bullwhip effect ensured that companies went from scarcity to excess and experienced a whip saw effect.

There are countless examples. At the airport on the flight home from a client, the restaurant was out of several items. While at the client, we held several meetings about offload suppliers that were short on capacity for a variety of reasons related to labor, materials, changing requirements, and capabilities. In talking with another client on a Teams call, there were shortages of minor yet required items to keep customers orders flowing. In the interim, one of the parts for my car will take an extra week, delaying the entire job. And these were just in one week.

Inflation Is Real

In listening to the news, there is a lot of talk about how inflation is cooling. I guess it is all relative. My recent flights were less expensive than they were a year ago, but still higher than pre-pandemic. My car’s engine and surrounding parts are FAR higher than they were pre-pandemic. House maintenance and upgrades are steep. Building materials are cooling vs skyrocketing prices during the pandemic, yet they are MUCH higher than they were pre-pandemic. A few 10-20% price increases take a bite out of affordability! Even if the current prices are stagnant or 1-3% up, prices are a minimum of 30-50% higher than pre-pandemic.

When it comes to food items, 30-50% would be welcome. Eggs increased 70% in the last year. The media doesn’t even horrify us with the statistics in comparison to pre-pandemic. Milk is up over 40% since pre-pandemic. These prices will have a direct impact on hospitality, restaurants, etc.

Manufacturing clients are experiencing these same cost increases for materials, components, and outsourced products. It depends on the type of manufacturer; however, 100% of clients are experiencing these issues. The only question is whether the price increases have leveled off or continue at aggressive rate increases. For example, multiple clients had substantial material price increases that couldn’t be completely offset in customer price increases, thereby reducing margins. In one case, margins went down by 5-8%. That is not pocket change!

How Can SIOP / S&OP Help?

SIOP (Sales Inventory Operations Planning), also known as S&OP, is a process that starts by enabling clarity and predictability with the sales forecast (demand plan) and then determines the best way to fulfill that sales plan from an operations, supply chain, warehousing/ distribution, and transportation perspective. So what does that really mean?

How Does This Relate to Resolving Shortages & Delays?

In our first example, SIOP has proven effective in helping clients over the shortage and extended lead time scenario. Of course, SIOP is not a magical solution that solves “world peace”; however, as you improve the predictability of your revenue plan (sales forecast), the supply plan can be stabilized. For example, when we started working with a life sciences manufacturer, spikes in sales drove variability and volatility in manufacturing. This was especially challenging with the aggressive growth expected. Not only did they have issues in determining the appropriate number of people and skills required for specific timeframes, but they also had continual issues with long lead-time materials and equipment needs.

Once we built a collaborative forecast based on historical sales and growth rates, incorporated feedback from the Sales team, Product Managers, R&D, and customers (inventory agreements, etc.), we stabilized the demand plan. It was not perfect on an item by item or customer by customer basis; however, when looking at meaningful groups (such as a product line that required the same machinery, skills or materials), it was directionally correct, thereby stabilizing the supply plans.

From the opposite point-of-view, we had to get a better view of capacity in the base unit of measure so that we would know how many people are required for which work center. After converting the custom units of measure to a base unit of measure, we were able to visualize the required capacity. Similarly, we dug into available capacity. One would think that would be easy, but it is rarely easy. There are always many exceptions and nuances when it comes to skills, cross-training/ shared resource complications, etc.

As we gained clarity of capacity by work center and related to specific groups of products, we could see our gaps to the supply plan and address accordingly (hire, transfer, reallocate etc.). Now the supply plan was stabilized, which enabled stability in the demand plan. Similar to a teeter totter, it is never one-sided. Demand creates challenges for supply and vice-versa. SIOP helps to align the two sides on the same plan.

Once the two are aligned, shortages and delays are minimized. It will also help with supplier related shortages and delays because you can give your suppliers better notice and clarity about what is needed to support your sales plan. If they have issues, you can proactively address and build into your demand and supply plans. For example, you might be able to use a like-material or contact a backup supplier. On the other hand, you could also adjust your supply plans to account for issues or proactively prioritize customer orders, price changes, and take other actions to address until supply is rectified. The bottom line is that SIOP can create predictability in your revenue plan (and the fulfillment of that revenue plan).

How Does This Relate to Dealing with Inflation?

In our second example, SIOP can also help clients proactively address inflationary pressures. By better aligning demand and supply, you can provide forecasts to material and component suppliers. Many clients use those forecasts and better view into changing demand patterns to set up supplier agreements which can help offset inflationary price pressures. For example, an aerospace and defense manufacturer improved margins by 5% largely through material price reductions with supplier agreements after stabilizing demand.

A key part of SIOP is also to analyze customer and product profitability. This information will provide key insights into how to manage inflationary pressures. Every client has passed on price increases to customers. Some were quickly on top of changing conditions and were able to pass on price increases immediately. Others responded quickly although the price increases didn’t take effect immediately due to lead times.

Additional clients absorbed a portion of the price increases but not the full price increase depending on market conditions, margin impacts or other factors. In addition to price increases, clients re-evaluated low profitability products, deprioritized unprofitable customers (extended lead times or increased prices), added service level tiers, prioritized customers and/or suppliers to partner with to redesign, repackage, and streamline, and utilized other strategies to proactively address inflationary pressures. SIOP will support margins, profitability, and EBITDA growth.

Path Forward

SIOP can be an important process in aligning people (within your organization and with your supply chain partners) and processes (demand and supply) to address several issues such as supply chain disruptions and inflationary pressures. It also supports capital spending requirements, cash flow management, and several supporting items. The bottom line is to take control of your manufacturing and supply chain to support growth and profitability.

Refer to our SIOP webpage for more information, our blog for hundreds of articles and learn more about SIOP and what’s important for a successful implementation in our new release eBook, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth. If you are interested in talking about how to reshape your supply chain, get in front of it with a SIOP process, and successfully navigate these waters, contact us.

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Getting Ahead of Inflationary and Deflationary Pressures Using S&OP

The post SIOP/ S&OP Playbook: Creating Predictability & EBITDA Growth appeared first on LMA-Consulting Group, a supply chain consulting firm.