Sales, Inventory and Operations Planning – A Continual Process

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SIOP

A company performing SIOP properly, can keep the reigns on working capital and operating expenses while still being able to grow. Conversely, if this process is performed poorly, a business can hemorrhage, draining valuable resources from other parts of the business.

I was once a new hire who’d inherited the SIOP process because nobody else wanted it. I knew New Product and End of Life from my Toyota days, so I unwittingly accepted the additional workload from the intern returning to school — yes, they had an intern running SIOP. At that point I didn’t realize that the company had no process for SIOP, nor did I know that the data was corrupt. Add to that the fact that after years of engineers building new product, in those areas where there was no market, surplus inventories that were inactive or obsolete proliferated and financial targets were routinely missed. Being a supply chain guy, I set a course to:

  • Ground myself with the academics of the process
  • Stick to my mantra of People, Process, Tools
  • Develop a rudimentary process to get the company moving forward

The ideal supply chain maintains no unnecessary inventory, responds to changes in the marketplace, and supplies the required products in a timely manner. However, in most businesses:

Manufacturing complains that sales overstates the demand forecasts and then doesn’t sell the product, then the supply chain gets blamed for too much inventory,

—or—

the sales team complains that manufacturing can’t deliver on its production commitments and therefore hurts sales.

—This then creates—

unplanned demand “spikes” used to meet financial targets, coupled with a constant struggle for new product launches that strains the sales and operations teams.

Sales Inventory & Operations Planning (SIOP) is the process that brings the business together. It creates a forward-looking plan that aligns the business, makes decisions on how to optimize resources and how to achieve the goals of the business.

SIOP is a tool to help manage a business. It is led by a Business Leader who is accountable for each of the process steps, with the SIOP Leader reporting directly to the executive in charge. Implementation is aggressive – it starts early and is ugly at the beginning. However, this evolves into the process that’s used to run the business. SIOP requires behavior changes with new values:

  • Honesty – openness vs. hiding problems
  • Forward planning vs. a short-term focus
  • Cross-functional participation vs. a silo mentality
  • Balanced business goals vs. individual targets
  • Empowerment to develop solutions vs. mandates

SIOP does not set strategies for channels, customers, products, or supply: it assists by seeing trends in delivery, product revenue, inventory and reliability. Furthermore, from a tactical perspective SIOP doesn’t manage the execution of a sales plan, customer order fulfillment, production scheduling or sourcing. It allows a business the ability to understand their revenue vs. plan, schedule attainment and inventory levels.

SIOP revolves around the mantra of People, Process, Tools. Many companies do the work but fail to drive the spirit of the process within their culture. They spend the time, money and manpower but fail to gain value from their efforts. Success comes from strong leadership, education of the participants and a desire to drive by the key elements.

It requires a fully engaged leadership and business team that combines standard processes with world class tools – this is what helps manage through the ups and downs of a business cycle, or swings in the economic environment. SIOP is a continual monthly loop used to anticipate and act on the changing business outlook by:

  • Reviewing product Portfolio, understanding lifecycles and implications
  • Planning future Demand, considering risks and opportunities
  • Developing Supply response and ability to react to changes
  • Reconciling all plans with a financial assessment of risk
  • Creating a forum for Executive review and agreement on team decisions

It is where everyone “puts their skin in the game” by helping to reflect on the latest environment with a common understanding across the business. Executed properly, a business is able to manage through good times and bad with a consensus built from all parties. When the SIOP plan is translated into cash it generates a realistic estimate of likely company performance which potentially shows a gap with the budget. An honest process will result in an honest gap identification, which then can be managed.

People often ask me, “How long does it take to implement a SIOP process?” My answer depends on the level of commitment that a business has to its own process. As I perform an assessment, I always begin by looking at whether the business is still having “Unplanned Events,” as these are typically indicative of a poor planning process. Specific areas to look at include Overtime, Expediting Cost, Fines and Penalties, as well as customer facing on time performance.

Creating SIOP is hard, and not for the faint of heart. It requires massive amounts of commitment from the business and communication across all functions. Every additional product line increases complexity from the design to delivery processes. Product portfolios, with their complexity, can have an impact on performance. Consequently, managing SIOP — including the beginning of life, product rationalization and end of life — have a profound impact on working capital and operating cost.

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