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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As the labor market tightens with changing demographics, companies will need to leverage technology and digitize their supply chains.

The world has never experienced a labor shortage quite like the one we are experiencing. According to the Bureau of Labor Statistics, employment growth will average .3 over the next decade; however, labor participation will drop from 62.2% to 60.4%. In essence, we have entered a secular labor shortage. Similarly, according to the German Chamber of Commerce and Industry, half of German companies are struggling to fill vacancies due to labor shortages. Thus, the only companies that will thrive in the next decade will leverage technology and digitize the supply chain.

The use of technology and automation will be of paramount importance to not just supplement the labor force, but also to meet ever increasing customer requirements and provide visibility across the end-to-end supply chain. Companies must be faster, focused, and perform with lights-out manufacturing and logistics to succeed. Thus, a modern ERP system will be an assumption, not a differentiator. In addition, companies must pursue advanced technologies such as business intelligence and predictive analytics to forecast the future and determine where to focus, artificial intelligence, and IoT solutions to support items such as predictive maintenance, and digital twins to optimize process and product performance.

Pertinent Examples

An electrical power solutions manufacturer struggled with an ERP system upgrade, and it impacted every aspect of the business, requiring additional resources to support customer requirements. A base ERP system is no longer acceptable. Instead, a modern ERP system that supports customer expectations such as configure-to-order (CTO), customer relationship management (CRM), and customer-related functionality — including customer portals, order fulfillment visibility and backlog management — is essential.

Since the ERP team didn’t have the time required to fully prepare, the executives quickly supplemented with additional consulting and temporary resources, developed interim solutions for tracking backlog, and ordered ahead to support the transition. Even with one of the best management teams in the industry, until modern ERP functionality was available, they had to implement several stop-gap measures to avoid significant customer impact.

An industrial manufacturer struggled to forecast revenue accurately one month ahead, causing frustration with their board of directors. An assessment of their business processes and use of technology showed that their sales and order entry systems did not talk with their production and inventory control systems. Although Sales could estimate revenue, Operations had no idea which products would be required to support that revenue until Engineering completed design. Thus, although performing above expectations, the two rarely met.

To turn this situation around, we had to build a bridge between the two systems with a data model. However, that alone wouldn’t resolve the issue, as the product details were not known soon enough to ensure seamless delivery and revenue predictability. Thus, in addition, the team created a digital-twin-type capability to predict the product grouping and model information with a SIOP (sales inventory operations planning) process so that materials could be purchased and capacity planned. Once this information was built into automated dashboards, Production was able to transition from reactive to proactive, thereby creating predictability in shipping plans and taking it a step further with proactive margin enhancement strategies.

An aerospace manufacturer continually struggled with on-time delivery, and customers were losing patience. The issue was a bottlenecked area of the manufacturing process that simply could not keep up. They could not find enough high-skilled resources to run the machinery on second and third shifts, and overtime was maxed out. The team pursued an alternate strategy to employ a technological solution to run lights out around the clock.

They purchased a robot and focused their most advanced resources on modifying the robot to work in their manufacturing environment. With the upgraded robot, their high-skilled resources refocused attention on setting up the machinery during day shift, which allowed the robot to perform the repetitive tasks on second and third shift. Order delivery performance improved rapidly, and customer complaints disappeared as the bottleneck was removed. Later, they focused on upgrading their distribution processes with lights-out capabilities as well to further differentiate performance.

Forward-thinking companies will pursue smart technology upgrades while their competition focuses on containing cost. The companies that figure out how to do more with less and digitize their supply chain will thrive while the rest struggle. Resources will no longer be plentiful, and so pivoting with technology will be the only route to executing successfully while meeting ever increasing customer expectations.

Originally published in Adhesives & Sealants Industry.

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Lisa Anderson was quoted in a Harvard Business Review report about supply chain volatility and uncertainty that are part of the new normal.

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Since early 2020, supply chain disruptions have captured global attention like never before. Newspaper headlines reported dramatic events ranging from surging toilet paper demand to empty store shelves to a ship blocking the Suez Canal. These events only worsened the existing global supply chain crisis. Much of the disruption was pandemic-related, but it hasn’t waned nearly as much as Covid-19 has. Many organizations find that supply chain volatility and uncertainty are part of the new normal.

Consequently, companies find it difficult to accurately predict demand. In
February 2023, Harvard Business Review Analytic Services conducted a
global survey of 459 respondents familiar with their organizations’ supply
chain operations. The survey found that of those whose organizations
execute demand forecasts, 69% say, on average, the accuracy of their demand
forecasts has been below 80% over the past three years. And respondents
are not particularly pleased by this result; only 8% indicate that they are
“very satisfied” with the average level of accuracy of their organization’s
demand forecasts.

Indeed, forecasts are inherently wrong. The questions often are just how
wrong a forecast will be and when that failure will occur.

Extreme Events Changed the Game

It is difficult for organizations to predict demand and plan operations if they can’t be certain about what lies ahead. Lisa Anderson, founder of Claremont, Calif.-based LMA Consulting, says the military term “VUCA”—volatile, uncertain, complex, and ambiguous—best describes global supply chains at present.

“Since the pandemic, new issues have arisen—the Russia-Ukraine war, for example—that are causing issues in many supply chains,” she says. “Oil and natural gas are used in the production of multiple products, and this affects everything from medical devices to fertilizer and food production. When you add the heightened tensions between the U.S. and China, and extreme weather events, the picture is one of continued disruption. We have to stop waiting for it to end. It’s not going to end.”

To read the full report, click here.

Originally published on Harvard Business Review, June 15, 2023

The post Forecasting in Flux: Importance of Supply Chain Flexibility appeared first on LMA-Consulting Group, a supply chain consulting firm.

As originally published in Brushware Magazine on Sept/ Oct 2022.

Inflation continues to plague the world with escalating prices across a spectrum of products and services. The price of oil and gas has continued to rise and supply chain challenges persist, creating inflationary pressures across the board. Even though interest rates are rising, inflation isn’t yet getting under control. Thus, what are the best of the best doing to thrive under these extraordinary pressures?

One strategy to successfully navigate inflation is quickly understand your sales forecast in conjunction with customer and product profitability and make the appropriate decisions. For example, an industrial equipment manufacturer saw a dramatically increased need for their large filter product. Although exciting growth, this increase created a capacity shortfall. Of course, not all capacity shortfalls are as easy to solve as others. In this case, they increased output as much as possible, but were limited by the lack of people and the appropriate infrastructure to expand the capabilities of the larger size filters. Additionally, although their offload suppliers could support expansion of small and medium filers, they also didn’t have the appropriate infrastructure to expand capacity quickly of large filters. Thus, lead times were extended.

Of course, as is true with every manufacturer, the prices of raw materials and components remain high. However, not all margins are created equal. In analyzing these filters from a product profitability standpoint, they also saw lower margins in comparison to the rest of their product line. Although they would invest in the appropriate infrastructure if it made sense from a strategic standpoint, based on the customer and product profitability analysis, it wouldn’t make sense to prioritize investment in this product line. This analysis propelled the Sales team to re-review large filter orders, customer profitability, priorities, and pricing strategies.

In addition, the company looked at strategies to offset inflationary pressures by getting ahead of demand with suppliers and increasing efficiencies in operations while keeping customer service intact. Since material shortages continued to plague production, they prioritized material forecasts to proactively work with suppliers and prioritize deliveries. Sales and Operations worked together to align on a sales forecast and converted that forecast into a product line forecast so that they knew how many of which types of products would be needed. From there, they could derive a directionally correct materials forecast so that they could align with key suppliers, get ahead of the curve to minimize prices, and prioritize critical purchases.

From the operations perspective, they focused on creating a master production schedule so that they could see what was coming down the pike and plan appropriately. This longer-term view allowed them to put together cross-training, hiring, and equipment plans. In addition, instead of jumping through hoops daily to determine if they had the materials to produce and adjusting schedules constantly, they put together a production schedule for the week that was sequenced optimally in advance. This allowed them to check material availability and establish a flow so that materials were delivered when needed and schedules stabilized. They were able to increase output by 40%, increasing efficiencies and profitability.

By staying resilient with changing conditions, this manufacturer successfully navigated inflationary pressures, partially offset the negative cost impacts and was able to successfully serve customers. Establishing a collaborative sales and product forecast was key to analyzing changing demand patterns and customer and product profitability while proactively managing materials deliveries and operational plans. The company grew substantially and gained marketshare.

The post Case Study: Strategies to Successfully Navigate Inflation appeared first on LMA-Consulting Group, a supply chain consulting firm.

Manufacturers utilize less than 20% of the full functionality of their ERP systems. But the key question is, why does it matter? In today’s inflationary and supply chain disrupted business environment, manufacturers need to automate and digitize to ‘do more with less’ and thrive during these volatile times. One important way to achieve this goal is to further leverage your ERP system where it will make a difference.

No matter which ERP system you use or how archaic, there will be opportunities to use additional functionality. In 30 years of working with manufacturers, there hasn’t been one example of a client that couldn’t benefit by expanding the use of ERP. Beyond customer, profit, and cash flow benefits, ERP systems can help you automate the repetitive and mundane. The people benefit. Turning jobs from repetitive and injury-prone to exception-based with opportunities for learning and development can engage people’s interest. With the shortage of talent as the number one issue to top executives, it is worth investing in the expanded use of ERP.

Start by exploring and assessing which functionality would provide the most value to your organization. ERP systems support your order to delivery cycle, which is essential to successfully fulfilling your sales order demand, improving delivery performance, and reducing lead times. ERP functionality also supports the procure to pay cycle, which is key to purchasing the right materials to arrive at the right place at the right time to support manufacturing and most efficiently manage inventory levels. Almost every client can improve upon the plan to produce cycle, which can achieve three objectives simultaneously – improved customer service, increased efficiencies, and accelerated working capital.

Beyond base ERP, there are many technologies that support the customer such as customer relationship management (CRM), sales forecasting, and e-commerce. Additionally, there are software options to automate and digitize for increased efficiencies and improved quality standards such as the use of barcoding, RFID (radio frequency identification), robotics, autonomous vehicles, digital twins, and automated storage and retrieval systems. Critically important are software options to aid in analyzing and predicting data such as business intelligence (BI), artificial intelligence (AI), and predictive analytics.

As easy as it might be to get caught up in fads and trends, take a step back when assessing where to focus efforts. Understand your customer requirements and business requirements. Which functionality will provide the greatest benefit to your business? Which software functionality will best position you for growth?

For example, in a building products manufacturer, an assessment was completed of their use of their ERP system. Although they might benefit from advanced functionality such as available to promise (ATP) and advanced replenishment planning methods, they discovered they could benefit greatly by simply further leveraging their planning systems to increase OTIF (on-time-in-full) and add value to their service. By focusing on this simple objective, the sales team was able to grow the business during times of significant volatility and uncertainty.

As manufacturers focus on the expanded use of ERP and related technologies, they can create unique value for customers and in their supply chain. Taking it a step further, to thrive during these inflationary times, it is important to automate, digitize, reduce repetitive labor requirements, increase efficiencies, and standardize so that more can be achieved with less. Create value by better utilizing your already-existing ERP asset and engaging your people in solutions and progress.

As originally published in Brushware Magazine on September-October, 2022

The post Using ERP & Related Technologies to Automate, Digitize & Thrive appeared first on LMA-Consulting Group, a supply chain consulting firm.

Why Demand Planning is Critical

During times of volatility including inflation and recession, forecasting future sales becomes even more vital than it is during regular business cycles. Emerging from the pandemic, the global markets have experienced rising costs and significant demand. In the U.S., vast stimulus was added to the economy, creating pent up demand. At the same time, there was a lack of supply as manufacturers cut back during the pandemic and couldn’t find the people, materials, and equipment to keep up “regular” demand, let alone heightened demand.

Additionally, other supply chain disruptions arose such as the Russia-Ukraine war, further exacerbating supply chain challenges. Unfortunately, companies dependent on Chinese manufacturing are suffering further due to global logistics challenges, China’s lockdowns, and more. No one has the “right” inventory in the “right” place at the “right” time (and definitely not at the “right” cost) without a robust demand planning process.

Demand Planning (Sales Forecasting) To the Rescue

Demand planning is integral to utilizing scarce resources effectively. No one can afford to produce the “wrong” products with limited labor and material resources! Creating a demand plan will provide the best insight into future sales. As the key step of a SIOP process (Sales, Inventory & Operations Planning), also known as S&OP, creating the demand plan provides visibility into what customers will need. Most clients build a demand plan for a minimum of a year, focusing in on the budget year timeframe. In certain industries that have longer-term contracts, the demand plan will go out 2-5 years to provide insights into long-term decisions such as buying facilities.

The best practice demand plan will include the following information:

• Markets and/or customer groups
• Product groups that are meaningful from a manufacturing and/or materials standpoint
• Any noteworthy regional impacts (for example, if Asia is growing at a higher rate than Europe, this insight is important)
• Dollar forecast (and/or appropriate currency) by month by region/ distribution center/ production facility (depending on what is needed to ensure supply)
• Quantity forecast by month by region/ distribution center/ production facility (depending on what is needed to ensure supply)
• Unit of measure
• If you have multiple units of measure, a base unit of measure would be ideal.
• Key events, promotions, and/or
• Price changes
• Product transitions
• Forecasts for new products, customers, and/or locations
• Incorporates quote probabilities and inventory agreements

Best practice demand planning processes help executives predict the unpredictable.

Do You Need Demand Planning Software?

Of course, the answer to whether you need a demand planning software to be successful in forecasting is “it depends”. Multiple clients have utilized already existing tools and/or Excel (not demand planning software) to create a simple forecast that was fed into a SIOP process and achieved exponential results. For example, an industrial manufacturer took information from their ERP system, applied simple statistical formulas and created a forecast in Excel for 24 months with a greater degree of accuracy on the current fiscal year. They were able to utilize this forecast to successfully order long lead time materials and plan capacity (including taking actions to offload production they could not support and purchase additional equipment to shore up certain work centers in their operation), resulting in high service levels (OTIF, on-time-in-full) and successful execution of dramatic growth.

On the other hand, there are other situations where a demand planning software is required to create a sustainable process. Generally-speaking, high volume, promotion prone consumer industries require a demand planning software to succeed long term. For example, a food and beverage manufacturer used a forecasting system to create a base demand plan. It was able to pick up on changing trends, segregate promotions from regular business, and provide a more directionally-correct demand plan by location which was essential to supply Walmart, Walgreens, and Costco locations successfully. In addition to improving OTIF, the big retailers charged for stockouts at customer locations.

Demand planning is not a black or white situation. There are countless industries and examples in the middle. In certain situations, it makes good sense to utilize a demand planning software, and in other situations, it wouldn’t add value. It could depend on the customers, the capabilities of the company, other investment opportunities and rates of return, etc. Software itself never drives success. In fact, in many situations, it could drive worse results if not implemented well and/or if the company doesn’t have the resources and capabilities to maintain it. On the other hand, software can automate the repetitive so that your resources can focus on exceptions to drive greater success. For example, a lawn and garden tools manufacturer that supplied agriculture customers as well as customers like Home Depot and Lowes could achieve success with or without a demand planning software. In their specific situation, they already had robust process disciplines in place and high-skilled resources, and so it made good sense to upgrade the process with a demand planning software to take results to the next level and refocus resources away from mundane tasks to higher value tasks.

How to Select a Demand Planning Software

When demand planning software will provide an upgrade to your process and results, attention should be applied to selecting the best software to meet your business needs. As is true with best practices in ERP selection, selecting demand planning software starts with your business requirements.

Collect your business requirements to support a demand planning process. What functionality is important in developing a demand plan for your situation. For example, a few questions to consider in getting started include:

• Will statistical formulas suffice in gaining a directionally-correct forecast?
• Do you have promotions? If so, are they repetitive at the same time during the year and typically the same type of promotion?
• Do you get customer forecasts and/or consumption / usage data? If so, would analyzing to this greater level of detail provide a value-added benefit over statistical formulas?
• Do you have new products, customers, and/or locations? If so, would you be able to model the forecast of a similar product, customer or location?
• Do you gain better insights into your forecast at a product line level or aggregate grouping of products? If so, would you increase or decrease the forecast by a percentage across the entire group and want the software to spread it to the appropriate mix of products and/or locations?
• Do you have better insights into your forecast at the location or region level? If so, would you gain value by letting the system spread the forecast to the appropriate mix of products?
• Do you have price changes occurring throughout the year that you’ll need to incorporate as of certain dates?
• Do you need to incorporate quotes and/or inventory agreements?
• Do you solely need a demand planning system or are you looking for a supply planning and/or replenishment system as well?

Next, research potential demand planning software options. Although this appears easy to do online, it is far from easy to get to the appropriate level of detail to end up with software options in the appropriate price range with the most critical functionality features. As a globally recognized expert in selecting software, our Google searches only yield appropriate results less than 20% of the time. Frustrating! You don’t need a lengthy list. A few decent choices will suffice.

Depending on your company size, complexity, investment budget, and other factors, you will perform a simplified or comprehensive RFP (request for proposal) where you compare the software options to your business requirements to narrow the selection options. Typically, you should demo 2 or 3 options to see how the software will be used to meet your business requirements. Track how each software satisfies your business requirements and focus on those critical to your process. It is easy to get lost in bells and whistles the software suppliers want to show you instead of focusing on what will drive value for your business.

In addition to comparing functionality, you’ll want to compare pricing and partners. Pricing is another black hole. Getting apples to apples pricing is nowhere near as easy as it appears, and it is always extremely misleading. Dig into pricing until you have a side-by-side comparison of like items, considering short term and long term. Typically it is best to use a total cost of ownership calculation over 5 or 10 years, depending on your circumstances.

Finally, dig into the partner. 80% of success is in implementation, and your partner will be integral to this result. Every supplier will have success stories and talk a good game or they will not be in business very long. In fact, there are more sharks in software sales than in almost any other industry. They sound wonderful, but when rubber meets the road, it is often a different story. Make sure you don’t marry the wrong partner while selecting the “right” software.

Using a Demand Planning Software

The great news is that if your business is well-suited to use a demand planning software, using the software will simply enhance your manual process. Remember, it won’t work to implement a software without solid process disciplines and data integrity. On the other hand, assuming you are starting with a solid base, you’ll gain key advantages.

• Automate your repetitive manual tasks.
• Enable greater use of statistical formulas and will choose a “best fit” formula based on historical data.
• Gain access to increased functionality to manage events and promotions.
• Reduce effort and time in calculating forecasts at lower levels of detail which are statistically incorrect and focus efforts at more meaningful levels (groups of customers, products, etc.)
• Typically your forecast will easily transition to your ERP system and into your planning and capacity analyses.
• Focus attention on exceptions and deviations to drive results
• Gain accuracy at sku and location detail – in most situations, more effort won’t yield results; however, software will yield results.

Demand planning software will add value if you have a solid base. The only question is how much value in comparison to the cost and resources required to implement and maintain. For certain industries, it is integral to achieving superior delivery performance with high levels of OTIF and quick lead times.

Incorporating into SIOP, also known as S&OP

Demand planning software will not achieve the intended results if not incorporated into a SIOP process (Sales, Inventory & Operations Planning). The demand plan is the “S” of SIOP and required to drive capacity and staffing, sourcing, long-lead time material, and customer and product priority decisions at a minimum. SIOP inclusive of demand planning is not a one-time process; instead it should be conducted on a monthly cadence, looking out at a 12-24 month horizon. Results will follow.

As clients gain traction, they are tempted to skip monthly cycles. Keep the priority focus on SIOP inclusive of your demand plans. If you focus on exceptions and changes, the process will be quick yet critical to keeping resources aligned on priorities and addressing changing conditions. Undoubtedly, with the level of volatility in today’s business environment, sticking to the process will yield exponential results. For example, one of our most successful clients is vigilant in prioritizing Executive SIOP meetings (and associated processes). Even in months where key executives believe there are no changes, 80% of the time something arises through the process that keeps them ahead of the curve in pivoting strategies or ensuring the alignment of demand and supply, and most importantly, the related resources. This client will undoubtedly be better prepared for the next curve ball.

If you want to pursue upgrading your demand planning process, upgrading your use of technology and/or incorporating into a SIOP process, review our SIOP webpage of resources or contact us to discuss further.

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Managing Increased Complexity with High OTIF & Efficiencies Using Technology

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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

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Sales and operations planning is a dark art, and most organizations typically have a very ad-hoc process of forecasting due to its nature. But it’s critical to be directionally correct with your plan. Or you might end up missing opportunities or losing customers. Also, planning is more than just creating a model on a spreadsheet. It requires you to come up with estimates and iterate until every external or internal stakeholder agrees with the plan.

In today’s episode, our guest, Lisa Anderson, shares her insights on why it is important to be directionally correct with sales and operations planning. She also discusses similarities in the planning for products such as E. Coli and 737 aircraft and how involved they both could be. Finally, she discusses why you might not get much value in being too detailed at the item level and why you will need to take an iterative approach to come with the forecasts.

For more information on growth strategies for SMBs using ERP and digital transformation, visit our community at wbs.rocks or elevatiq.com. To ensure that you never miss an episode of the WBS podcast, subscribe on your favorite podcasting platform.

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Originally posted on WBSRocks.

The post WBSRocks: Business Growth with ERP and Digital Transformation 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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