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.

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

The post SIOP / S&OP: Balance Customer Orders, Inventory, & Profitability 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.

As originally published on CISION PR Newswire on February 16, 2023

CLAREMONT, Calif., February 16, 2023 /PRNewswire/ — 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., has published: SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth. 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.

“Supply Chains continue to be the cornerstone to success in the decades to come. And while the reasons are different than during the height of the pandemic, supply chains continue to be challenged with new obstacles occurring every day. As I look at the chaos over the last few years and its negative impact on service, growth and profitability, I see the need for a proven process. The SIOP (Sales Inventory Operations Planning) also known as S&OP, is the answer. It shines a light on what is needed, engages all departments across the organization and proactively aligns demand with supply to enable growth and profitability,” noted Lisa Anderson.

The SIOP process engages a proven methodology of integrating data, demand, supply, and communication to affect an exceptional customer experience that drives growth. “The beauty of the SIOP process is that it is organic. Once a company has employed the process, it continues to evolve with significant results. We have customers who have optimized service levels by improving forecasts, increased cash flow by reducing inventory levels while improving service, and improved the visibility of data for a more consistent and level-loaded production schedule leading to better efficiencies, reduced material costs, and improved productivity. It can be done, and it is being done with considerable success. And the best part is, once implemented, it will fuel transformative strategies for growth and improved margins,” she said.

Ms. Anderson and co-author Diane Garcia developed: SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth to help organizations understand the value of a proven process.  The book is complimentary on the LMA Website at: https://www.lma-consultinggroup.com/siop-book/. It can also be found on Amazon digitally and on-demand print at:  SIOP at amazon.com and on iTunes: Apple iTunes SIOP Book. 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.

The post Lisa Anderson, Manufacturing & Supply Chain Expert Publishes Book on SIOP Process appeared first on LMA-Consulting Group, a supply chain consulting firm.

I am thrilled to announce that I have published a book on SIOP (Sales Inventory Operations Planning), also known as S&OP and IBP (Integrated Business Planning).

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

As clients become interested in S&OP (Sales & Operations Planning), also known as SIOP (Sales, Inventory, and Operations Planning) to get in front of customer requirements while simultaneously increasing margins and profits, executives want to know if software is required to support S&OP success.

Is Software Required to Support SIOP Success?
Although the answer to this question is that “it depends”, after almost fifty successful SIOP projects with clients across multiple industries and sizes (from closely held businesses to private equity backed to large, global organizations), SIOP specific software has not been required for success.

With that said, there are benefits to using SIOP specific software products in certain situations. On a related note, ERP and related technologies are integral to success, and data is cornerstone to a successful SIOP process and results.

Is an ERP System Required to Support SIOP?
Almost every client has an ERP system. At their core, ERP systems perform the transactions required to support taking orders, purchasing materials, planning production, picking and shipping product, handling returns, and invoicing customers. As complexity and disruptions abound in the global supply chain, it is no longer sufficient to simply have an ERP system. To thrive during these volatile times, an increasing number of clients are upgrading to modern ERP systems to better support evolving customer requirements, increasing automation and efficiency needs, and predictive analytics capabilities.

In 98% of the client situations, having an ERP system is required to support SIOP success. The only reason we didn’t use 100% is that we worked with an innovative building products manufacturer still using QuickBooks Enterprise to successfully roll out a SIOP process. They were the exception to the rule as they had a CRM (customer relationship management) system and an Excel based forecasting system in place, were progressive in nature, had put process disciplines in place and were in process of selecting an ERP system. The main reason an ERP system is essential to SIOP is because you’ll need to capture demand and supply information to roll up into your SIOP process. Although at times it can prove valuable, it is NOT required (and sometimes not preferred) to use detailed transactional data. On the other hand, there is key demand and supply data stored in your ERP system that will be integral to your SIOP process.

Do You Need to Upgrade from an Outdated ERP System to a Modern ERP System to Implement SIOP?
No, you don’t need to upgrade to a modern ERP system to implement SIOP. Although you will likely improve upon your demand and supply data with a modern ERP system, we have worked with many clients with archaic systems to successfully implement SIOP and achieve results. In most of these situations, they had an ERP upgrade on their IT roadmap but didn’t want to delay progress in getting in front of their customer demand and EBITDA performance. From a SIOP point-of-view, so long as you can get data out of your ERP system, you will have what is needed to succeed.

Do You Need a CRM System to Support SIOP Success?
No, you don’t need a customer relationship management (CRM) system to support SIOP success. With that said, you need CRM type information to support SIOP success. For example, you need to gain sales and customer input to changing demand patterns, new customer opportunities, the strength of key regions and product lines, etc. So long as you can gain access to this information through verbal feedback, spreadsheets or via an extract from CRM, the SIOP process will be successful.

Many of our most successful SIOP clients have a CRM system even if they do not directly tie the CRM system data to the SIOP process. What we see is that as clients use a CRM system, they develop the appropriate process disciplines to improve upon the sales and customer input to the process. For example, a building products manufacturer captures potential business opportunities in Salesforce, but they do not tie the information directly into their SIOP process. Instead, they involve key sales leaders who interpret the CRM data, add market intelligence, and collaboratively build a sales forecast in support of the SIOP process. Results follow. On the other hand, an industrial products manufacturer uses Oracle’s CPQ/ Big Machines, and by connecting that information directly to the SIOP process, the client gained an immediate benefit of visibility to future sales.

Do You Need a Forecasting System to Support SIOP Success?
No, you don’t need a forecasting system to support SIOP success. The majority of our clients including many large, global manufacturers with several facilities across multiple countries implement SIOP successfully without having a demand planning / sales forecasting software. On the other hand, you will need a picture of future demand.

In every SIOP project, we have worked with the client to develop a demand plan. Whether high-volume make-to-stock (MTS) items or make-to-order (MTO) items such as configure-to-order (CTO) or engineer-to-order (ETO) items, you will need a demand plan. In order to look into the future to make the appropriate strategic decisions (manufacturing sourcing, capacity allocation, supply chain network, strategic inventory), you have to start with your expectations of future demand.

Many times, you can build a demand plan using an Excel model. It will be sufficient to get the process started and results occurring and can be automated and upgraded down-the-line. In other situations such as in high volume industries with complex supply chain networks, a forecasting software is recommended to best support your needs in a sustainable way; however, it won’t prevent you from getting started with a simple forecast. If your process would benefit from a forecasting system, there are many software options, ranging from the simple to the sophisticated.

Translating Your Revenue Plan into an Operational Plan
Once you have a sales forecast in dollars, the key is turning revenue projections into directionally correct unit forecasts and resulting capacity and supply plans. If using a software, it should convert from dollars to units easily. With that said, it is frequently more complex than a simple conversion factor. Thus, this translation of dollars into meaningful units is often one of the top drivers of SIOP success.

For example, a life sciences manufacturer brought us on board to specifically turn their revenue plan into a directionally correct operational plan. They could see the dollars coming in the door, but the operational leaders didn’t know how many people would be required, which skills would be needed, or which long-lead time materials to order because they couldn’t translate the demand plan into a consistent and standardized unit of measure. Thus, although they had long-term visibility to revenue, they couldn’t fulfill the revenue on a timely basis without taking on too much risk. By rolling out a demand planning process and turning dollars into standard and meaningful units of measure, they were able to quickly gain the appropriate approvals to hire the appropriate skills, reallocate resources, and purchase the equipment to support their growth plans. They aligned their demand and supply plans.

Similarly, a drone manufacturer had intense specificity with their revenue plans but they could not translate revenue into material purchases so that they could plan ahead with suppliers to secure supply with reduced cost. We worked with the client to devise a process to translate revenue into unit sales by product grouping which were translated into key materials and commodities. We were able to provide a conservative, directionally correct forecast for key suppliers so that we could gain the appropriate approval to put supplier agreements in place to support business growth with shorter lead times and significantly reduced costs.

Both clients had CRM systems although neither used CRM data directly to start the SIOP process as it would have held up progress. Instead, we used data and insights from CRM to support the development of a sales forecast/ demand plan which translated into an operational / purchase plan. It just so happens that neither client had a forecasting system. We developed a demand planning model in Excel that used information from their ERP system to support SIOP in both instances.

Do You Need a Business Intelligence (BI) Software to Support SIOP Success?
No, you don’t need a business intelligence (BI) software to support SIOP success although having business intelligence and analytic capabilities will enable success. At a minimum, you will need to be able to extract data from your ERP and related systems and combine with spreadsheets and other data. On the other hand, if you have a business intelligence system, it is likely you’ll be able to get access to the appropriate data more quickly, analyze trends and slice and dice the information as a part of SIOP to turn data into data into insights.

On the other hand, we frequently see clients get hung up in creating the ideal reporting platform, and miss the forest for the trees. As much as standardization of information and pretty charts and graphs might be a nice end state objective, delaying SIOP progress will cause more harm than benefit. The most successful clients start with directionally correct, immediately available information and continually improve upon and refine the information with changing circumstances. They summarize key highlights into a few charts and graphs using PowerPoint and bring clarity to pivotal decisions through the SIOP process and executive SIOP discussion. As advanced BI functionality can be incorporated in a meaningful way, it will be a great addition to the process.

Do You Need Supply Planning Software to Support SIOP Success?
No, you don’t need a separate supply planning software to support SIOP success. For most clients, your ERP system will support your supply planning needs. Capacity planning, production planning, distribution / replenishment planning, material planning and logistics planning are supported with ERP. In some situations, an advanced planning software is preferred to support advanced replenishment needs and/or production scheduling requirements.

Whether you implement SIOP or not, this type of software better supports service, cost and inventory objectives in certain situations. For example, a consumer goods company used an advanced planning software to reallocate orders and capacity between sites and to replenish service centers to ensure high service levels to customers. Similarly, a healthcare products manufacturer supplied its customers’ locations (vendor managed inventory) based on replenishment methods with an advanced planning software.

Do You Need Financial Planning & Analysis Software to Support SIOP Success?
No, you don’t need financial planning and analysis software to support SIOP success. Some ERP software options have robust financial planning capabilities whereas the rest will minimally provide data that can be used in Excel or with a separate financial planning software. Many clients already have add-on software modules to support financial planning, or they have set up business intelligence to support financial planning and analysis. Alternatively, they could utilize S&OP software analytic capabilities.

The Bottom Line on SIOP Software
If you research SIOP software, you’ll find several high-powered solutions rise to the top. However, in most instances, these SIOP software options will include demand planning, supply planning, advanced planning, financial planning, and related BI analytics. Thus, if you need one or more of these options or want to take your processes to the next level, it could make sense to pursue SIOP software. On the other hand, we’ve yet to find a situation where SIOP software was required to implement SIOP and gain substantial results. It is far more likely you’ll need a forecasting software or business intelligence/ reporting and analytics software to supplement your ERP system and support SIOP than anything else near-term.

Different SIOP software options have different strengths in supporting different types businesses such as high volume consumer products companies to highly configured-to-order (CTO) and engineered-to-order (ETO) environments. There are also SIOP software options which are better known for strong demand planning functionality, strong financial planning and analysis capabilities, etc. Typically, these software options will only make sense for larger companies because the implementation cost can be substantial.

For the vast majority of companies, substantial progress and dramatic results can be achieved by implementing a SIOP process, using the existing ERP system and related data. In certain situations, a peripheral software such as forecasting and/or BI would add value although will not hinder progress. However, for the right situation and company, a SIOP software can add substantial value and increase sustainability. Thus, of course, the bottom line is that “it depends”.

Data & People: Priorities for Success
Although SIOP-specific software isn’t required to roll out a SIOP process, data is critical. Thus, focusing efforts on cleansing, connecting and consolidating data should be a priority. In addition, focusing attention on your SIOP team will prove invaluable. The most successful SIOP projects have engaged teams, strong leaders, involved sponsors, and they are supported by data analysts/ technical experts. Start by paying attention to your talent and results will follow.

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Managing Increased Complexity with High OTIF & Efficiencies Using Technology

The post Do You Need Software to be Successful with S&OP? appeared first on LMA-Consulting Group, a supply chain consulting firm.

Because we live in a global, supply chain disrupted world amidst record-breaking prices for food, commodities and oil (and all products dependent on these industries), not only are businesses looking to navigate inflationary pressures, but also deflationary pressures. Inflation can lead to deflation as consumers panic and demand softens. On the other hand, there is still a lot of money in the market and pent up demand, and so, according to the experts, it is unlikely the recession is imminent yet it looms in the future. Thus, companies must be prepared to navigate inflation as well as deflation.

Inflationary Pressures

Let’s start with inflationary pressures. There are several strategies for successfully navigating inflation and volatility. In addition to placing orders in advance to secure supply and pricing, think about the following

• Customer & product profitablity: Using S&OP (also known as SIOP) to analyze and make strategic decisions based on customer and product profitability.
• Proactive cost & pricing decisions: Using the information from S&OP, business intelligence, and predictive analytics to analyze cost increases and related business and market impacts, to set priorities and make pricing decisions.
• What-if assessment of manufacturing & supply chain footprint: Analyzing the impact of various what-if scenarios from S&OP and the resulting impact on S&OE (also known as planning and execution) to determine where to increase control (change suppliers, reshore/ nearshore, vertically integrate, etc.), where to offload/ outsource (temporarily and/or long-term), and where to position distribution centers throughout your network.
• Get your house in order: Think ahead and don’t be afraid to invest capital to prepare for the future while also rigorously managing cash flow, maintaining your ability to be resilient and gaining an edge with your people.
• Strategic capacity & inventory decisions: Proactively position inventory and capacity to take advantage of opportunities and maintain flexibility while minimizing the cost associated with this flexibility.

Deflationary Pressures

As businesses see costs escalate and customers push back on price increases, concerns about deflationary pressures increase. Of course, the truth is that it depends on your industry, your position, and many factors that are out of our control. What is largely agreed upon by the financial experts is that a recession is likely down-the-road; however, very few believe it will be near-term. No matter the exact timing, it behooves executives to not hide their heads in the sand.

In order to get ahead of deflationary pressures, our best clients are focusing on the following strategies to mitigate the effects:

• Manufacturing automation: The best businesses are automating everything that can be automated. In fact, the proactive executives have been focused on this initiative to minimize the low-skilled labor requirements since they cannot find people, wages and benefits are increasing, social distancing can be a challenge, and automating can minimize errors. There are all sorts of opportunities to automate in manufacturing environments, and as prices continue to increase, the payback increases.
• Logistics automation: Similarly to manufacturing, logistics has even more opportunity to automate. Not only has the rise of e-commerce led to a dramatic increase in workload (if not automated), but the equipment and technologies are readily available and the return on investment is significant. In some cases, it is required to simply meet customer requirements.
• ERP automation: For administration functions, planners, buyers, expediters, analysts, and more, it has become critical to meet increasing customer requirements as well as to deal with the lack of resources and the need to engage employees to retain talent. For example, unfortunately, a few clients have called because they lost key resources and needed to fill the gap, upgrade the process, and automate so that their people could focus attention on thinking about exceptions instead of mindless keying and manual processes.
• Reduce costs without decreasing service and frustrating employees: There are many ways to reduce costs. The key is to focus on innovation and the use of technology instead of simply cutting costs. Instead of thinking about cutting people (which seems to be the default for many corporate executives and Boards of Directors) as your first approach to cutting costs, use your SIOP process to dig into your cost drivers so that you can focus your innovation efforts in these areas.
• Inventory reduction to free up cash flow: It is always a good idea to ensure you are proactively managing inventory levels with changing conditions from both the demand and supply perspective. There are demand, production, capacity, replenishment, materials, and logistics planning strategies to ensure you minimize inventory in your supply chain with high service levels (on-time-in-full, OTIF). Additionally, this must tie to your strategic decisions with S&OP.
• Data analytics & predictive analytics: Undoubtedly, you’ll be able to pivot quickly and stay in front of changing conditions and take appropriate actions if you can slice and dice your demand and supply data as well as predict where to focus additional resources and what strategic decisions will put you ahead of your competition.
• Pricing, product rationalization & new product introduction: Just as customer and product profitability analysis will support you during inflationary times, this information will support you during deflationary times. Price not for the current situation, but instead for what you see occurring in your industry and the opportunities that will arise. Likewise, prioritizing which products to inactivate, upgrade and introduce will directly impact your future revenue and cost structure.

Simultaneously Managing Inflationary & Deflationary Pressures

Unfortunately, we are in unprecedented times. There is no playbook for the current situation of managing inflation, deflation, and global supply chain transformation simultaneously. The closest example is stagflation from the 1970’s; however, there are many key differences. The successful will pave the way forward. The rest will dwindle, be purchased, or go out of business. On a more positive note, the executives that prepare for this new opportunity will thrive like no other time in history. The closest example occurred during the Great Depression. It drove more companies to success for decades to come than ever before – until now.

Client Example of Simultaneously Managing Inflationary & Deflationary Pressures

The best clients are preparing to successfully navigate inflation, deflation, and global supply chain disruption simultaneously. For example, a building products manufacturer has seen unprecedented demand during the pandemic, and is seeing signs that demand will remain robust while also seeing signs of a pullback. They are not panicking. Instead, they are focusing additional attention in talking with customers and industry players to stay abreast of changing conditions and opportunities and incorporating this input into the S&OP cycle.

They are also proactively reviewing customer and product profitability and syncing sales feedback with ordering patterns and market adjustments. They have been approving and completing projects to automate, increase efficiencies, and upgrade systems and processes. As opportunities arise to cross-train, increase flexibility, secure offload capabilities, and better utilize capacity and/or supplement capacity availability in their plant network, they take advantage of them. Managing inventory levels has become a critical priority while ensuring there is sufficient inventory to support high levels of customer service. And, they have invested in people, both upgrading and adding key people where needed to support growth and innovation. Each of these elements are incorporated into the S&OP process so that they are prepared for inflation, deflation, further supply chain disruption, or whatever else might occur. The bottom line is they are prepared to take advantage of sales opportunities while proactively managing customer service, profitability, and working capital.

SIOP Is Not a One Time Solution

If one thing is clear, it is that the future is unknown and volatility is in the cards. During times of volatility and change, it is critical to stay on top of your changing market conditions and customer needs, incorporate new and changing product and service offerings, and constantly reevaluate your end-to-end supply chain for what will best position you for success.

SIOP is not an off-the-shelf solution, and it is not a one-time “magic bullet”. Instead, the most successful clients look out a minimum of a year to three years (if they have long-term customer contracts) on a monthly cadence, incorporate changing conditions, and evaluate results. Typically, they will reconfirm prior decisions and priorities and address critical changing conditions. Of course, this process must be accompanied with strong execution. If you follow this path, you will thrive whether we are experiencing inflation, deflation, or other global disruption. In fact, the resilient and innovative companies have a once-in-a-lifetime opportunity to gain significant market share during these volatile times.

Refer to our SIOP landing page for information about SIOP and how to get started on your journey. Also, read more about these types of strategies in our eBook, Thriving in 2022: Learning from Supply Chain Chaos. If you are interested in talking about what it would take to purse the SIOP journey in your business, contact us.

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Proactively Addressing Global Events to Grow Market Share & Ensure Seamless Customer Service Using S&OP

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We have entered a new era of with inflationary pressures. It started during the pandemic due to limited supply, but it has been spurred on with the rising oil and gas prices, commodity shortages, and rising food prices. Navigating successfully through these inflationary times will make the strong companies stronger, and the weak companies weaker. In our view, there will be more winners that propel forward during this period of time than any other since the Great Depression. Are you reacting to inflation or thinking three steps forward so that you can take advantage of the opportunities that arise?

Utilize SIOP to Take a Strategic Look at Customer & Product Profitability

To support customer needs and be prepared to pursue revenue opportunities in an inflationary environment, the smart are taking control. They aren’t waiting to see how their supply chain partners respond or what customers request. Instead, they are getting on top of what they should do to thrive during an inflationary environment NOW! The smart are utilizing SIOP/ S&OP (Sales and Operations Planning) programs to quickly determine which customers and products are profitable and their impact on their future business.

SIOP will provide a view into customer forecasts. Those forecasts will be translated into operations and supply chain plans, and options will emerge for how to successfully fulfill the forecasts. Before proceeding with a specific alternative to meet customer forecasts such as adding capacity, repositioning your supply network, nearshoring critical components, and/or purchasing additional warehouse space, look strategically at your customer and product profitability in conjunction with your forecasts to determine what to prioritize and the down-the-line impacts of your decision.

Since SIOP projects future sales, manufacturing requirements, supplier purchases, and inventory levels, if you add costs into the mix, it will also forecast profitability. You can take it one step further by analyzing what if price and cost changes into your SIOP model. It will become a powerful process for evaluating options and making strategic decisions.

Customer & Product Profitability Example

An industrial gear manufacturer wasn’t keeping up with inflationary pressures and margins were declining. We worked together to quickly develop a directionally correct SIOP process. We started with a revenue forecast by customer based on historical trends and customer insights, and we extracted data and partnered with key resources to categorize by market, customer type, product line, and manufacturing cell. We had to deep dive into rebates, discounts, and other adjustments to gain a reasonably correct net sales picture.

Next, we gained a directionally correct view of manufacturing/ assembly requirements. Since they weren’t keeping track of operational costs at the detailed level and it wasn’t feasible near-term, we worked with the appropriate resources to develop directionally correct cost estimates for groups of products. The end result is that we were able to dissect the following:

• Top/ bottom customers by revenue dollars and margin percentage
• Top/ bottom products by revenue and margin and margin percentage
• Top/ bottom customers and products by margin dollars
• Top/ bottom items by revenue dollars and margins
• Average selling price trends
• Projected change in revenue and margin with new pricing and/or new costs or improvement plans.

The leadership team could slice and dice this data to evaluate pricing options and determine the best way to maximize efficiencies and margins in supplying the items. Thus, they could insource, outsource, implement operational improvement plans for the cells that would provide the largest return for their strategic or key customers, etc. The bottom line is that they had the information to proactively evaluate options to quickly increase customer and product profitability.

Taking Actions to Thrive in an Inflationary Environment

Leaders should quickly pivot, utilize their SIOP process to gain data and insights into key information for decision-making, and consider several actions. Our most successful clients are reviewing the following actions:

• Quick and successive price increases as needed to integrate cost increases
• Strategic purchasing for key materials/ ingredients (forward purchases, contracts that include escalators and ranges, etc.)
• Evaluate capex investments required to meet future demands including market share increases if the competition isn’t as proactive.
• Rigorous focus on operating cash flow
• Prioritize and /or address customers and products based on customer and product profitability and related capacity analyses
• Reevaluate inventory from a strategic and tactical point-of-view. From a daily planning perspective, consider upgrading your planning processes to better manage working capital levels while achieving high customer service levels (OTIF, lead times, etc.)
• Reevaluate your manufacturing footprint – reshoring, nearshoring, finding new partners
• Invest in your people and culture to think 5 steps ahead of the competition and successfully deliver improvements.

SIOP Is Not a One-Time Solution

Setting strategy for the next 5 years no longer works! In fact, most companies find that setting strategy a year out can be a tall order. During times of volatility and change, it is critical to stay on top of your changing market conditions and customer needs, incorporate new and changing product and service offerings, and constantly reevaluate your end-to-end supply chain for what will best position you for success.

SIOP is not an off-the-shelf solution, and it is not a one-time “magic bullet”. Instead, the most successful clients look out a minimum of a year to three years (if they have long-term customer contracts) on a monthly cadence, incorporate changing conditions, and evaluate results. Typically, they will reconfirm prior decisions and priorities and address critical changing conditions. Of course, this process must be accompanied with strong execution. If you follow this path, you will thrive during this inflationary environment.

Refer to our blog for many articles on SIOP. Also, read more about these types of strategies in our eBook, Thriving in 2022: Learning from Supply Chain Chaos. If you are interested in talking about what it would take to purse the SIOP journey in your business, contact us.

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Taking Control of Customer Success Using SIOP

The post Thriving in an Inflationary Environment Using SIOP/ S&OP appeared first on LMA-Consulting Group, a supply chain consulting firm.

Predicting the Unpredictable

Every client believes their demand cannot be predicted. After all, customers don’t know what is going on in their end-to-end supply chain with the global supply chain chaos. Sales teams are optimistic and either forecast too much, hoping Operations will produce and store “just in case” or provide high level dollar forecasts but have no idea which geography it will be sold from or which product grouping will be sold. Marketing might be lost in the clouds analyzing “old” information since the markets are changing real-time and rapidly. New Product Development is racing to keep up with evolving demands. So, how can we predict the unpredictable?

As this has been a common theme with smart, proactive clients, it is worth paying attention. It is possible to predict the unpredictable to the degree required to create a directionally-correct forecast that you can execute against and deliver customer requirements. There is no off-the-shelf solution to achieving success in predicting the unpredictable. Instead, start with a dose of common sense questions.

Common Sense Questions

From a best practice point-of-view, start building a SIOP/ S&OP process (sales, inventory & operations planning) with an emphasis on the forecast (also referred to as a demand plan). You have to start with the customer in mind.

• What is happening in your customers’ supply chains?
• Are your customers well-positioned to take volume during the supply chain chaos or are they more likely to suffer?
• What have been their historical growth rates? Will those continue or were they simply situational?
• Are your customers asking about new products and services? Are they staying up-to-speed on what’s needed to support changing requirements?
• Do you have customer agreements and/or inventory agreements? Should you change them to be tailored to the current situation?
• Is there an opportunity for joint customer visits?
• Do you have quotes? How are the trends?
• If a highly engineered product, what is in common?
• And keep thinking…..

Develop a Demand Plan

Start with whatever is known, add insights based on the common sense questions, and run the revenue forecast by key stakeholders. Do they think it sounds feasible? Don’t worry about details. Think in terms of customers or customer groups, product lines and / or markets. Do NOT get lost in spreadsheets and numbers and lose sight of the big picture. How does the result compare with expectations, competition and common sense? For most clients, start with a 12-month rolling forecast at the high level. Don’t get side tracked with the feasibility to deliver, resource requirements and inventory levels. Stick to demand. You’ll address later with the capacity side of the SIOP process.

Incorporate the Demand Plan into Monthly Review Cadence

Review your demand plan as a part of your monthly SIOP/ S&OP process. Gather inputs from Customer Service, Sales, Program Management, Product Managers, Marketing and whoever touches the customer. Continually refine the forecast from a directional point-of-view. If you are chasing pennies, don’t bother. Spend 80% of your time on the 20% of your customers and products that will drive a directionally-correct forecast on a rolling 12-month basis. You’ll have an opportunity to update the forecast monthly with exception processes built in for extenuating circumstances.

Refer to our blog for many articles on demand planning / sales forecasting. Also, read more about these types of strategies in our eBook, Future-Proofing Manufacturing & Supply Chain Post COVID-19. If you are interested in talking about what it would take to purse the demand planning and SIOP journey in your business, contact us.

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Shortages Impacting Revenues and Forecasts

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