Leading Supply Chain Strategies

This Blog is dedicated to bringing viewers and members the best supply chain practices, methods and technologies for surviving the rapid changes in markets and positioning your company for future growth. Please feel free to add your comments. Ed. Nagy
Saturday, October 29, 2011

Is SIOP (Sales Inventory and Operations Planning) the next generation of S&OP?
Im sure many of you have heard of S&OP (Sales and Operations Planning). However, many companies are now focusing more attention on an extension of this concept and are referring to it as SIOP (Sales, Inventory and Operations Planning). What is SIOP? SIOP is a set of integrated and transparent business planning processes that helps an organization balance supply and demand requirements while maximizing cash flow and business profitability. These processes are both interactive and collaborative which provide global visibility and insight to facilitate effective cross-enterprise performance planning. Ideally, these processes optimally synchronize demand plans, inventory plans and supply plans to support business revenue and profit objectives. In a nutshell, SIOP tells businesses to produce or supply the right products in the right quantities at the right times, at the right cost. What is so different? SIOP enables a firm to create new supply & demand plans and quickly see how these plan(s) impact other functional areas. This is achieved by bringing together demand plans and forecast data from multiple sources. These sources are internal (such as Sales/Marketing, Development, Procurement/Sourcing, Finance, Manufacturing or Production and Logistics) and can be external (such as trading partners, retailers, distributors or suppliers). SIOP maps out relationships between business plans and forecasts from various functional groups and provides the opportunity to conduct extensive what-if analysis not only on supply plans but finance plans as well. Traditional S&OP processes typically assume you will evaluate one or maybe two supply & demand plans. SIOP can process and evaluate multiple supply & demand plans. This can be especially useful in planning sales promotions or new product introductions. Many times companies will plan three basic scenarios: a baseline (S&D Conditions most likely to occur), along with an optimistic and a pessimistic scenario. All of these views require a reconfigured workable supply plan. By developing different supply and demand scenarios (baseline, optimistic, pessimistic), businesses can optimize profitability and be better prepared to react during unexpected supply or demand shifts. By visualizing alternative supply and demand situations SIOP can help you to identify supply or demandshaping opportunities that might go by unnoticed with other planning methods. SIOP allows you to define and target customer service levels then develop an optimal inventory mix that can buffer potential upstream and downstream supply chain fluctuations. Having this optimized inventory mix helps your business meet its service level targets while doing it with fewer inventories. In addition, the process allows you to make fact-based trade-offs or deviations in the planning process when you deem necessary. Your business can now recognize and manage the interdependency of target service level s and inventory investments when deciding how to achieve their business objectives. If your firm uses rough-cut capacity planning, SIOP can help you to better control inventory, capacity and to use resources more cost effectively to deliver products on time and on budget.

Optimization and leveraging of SIOP processes can help businesses achieve the following: Reduce overall supply chain costs and inventory. Better manage volatile supply of demand situations Increase gross revenues and generate top line growth. Lower Distribution costs Better utilize assets and resources to reduce manufacturing, production and distribution costs. Improve customer service and fulfillment. (reduce replenishment lead-times, stock-outs) Increased team work within and across all business functions Better control of overall business performance and budgeting

Some Essential Elements to Implementation: Sponsorship and Commitment: In order for SIOP to produce optimal results, there must be top level commitment (CEO, CFO), discipline and collaboration among different functional groups in the organization. Top executive sponsorship which includes finance is very important to SIOP performance success. Its crucial that all group performance plans and forecasts are driven by strategic and financial goals. Team leaders, responsibilities, deadlines and deliverables need to be formally established. This support helps establish the process governance model, ensures consistent application and execution of processes and promotes sustainability. Develop strategic goals, policies, metrics: Companies need to establish clear strategic initiatives, business metrics and policies, and deal with various management and process challenges before setting up SIOP processes. Strategic goals are what performance plans and forecasts strive to support and drive business direction. Once Strategic goals are established KPIs, metrics, and procedures need to be constructed to support the SIOP framework. Collaboration: Functional groups cant plan in isolation. Companies should continually focus, achieve alignment and synchronization among business functions to support strategic goals. Collaboration among groups can be a challenge especially where groups may have conflicting goals, dissimilar metrics or siloed approaches to planning. The enterprise needs to think as one interactive connected unit. Organizations need to adopt the same type of rigor, accountability and enforcement to the entire SIOP process as they do for their financial and accounting reporting processes.

Meetings: Monthly Executive review meetings should be held regularly that focus solely on SIOP. They should include a firm agenda and review actual results vs. planned performance. Exceptions and issues with the demand/ supply plan should be investigated through root cause analysis in a sub-meeting prior to the monthly review meeting. That way new plans or modifications /trade-offs can be acted upon in a timely fashion. Seek to gain agreement on planning through consensus. Plans should be done at least monthly with time-horizon projections out to at least 12 months. Its a good idea to have triggers (market intelligence) built in to the process to alert you early to potential changes in supply or demand forecasts.

Prior to monthly executive review meetings, you may have a series of sub-meetings. This is where you put together the basic plan. Here you will develop an unconstrained demand plan and an intuitive forecast. Then you will add supply and capacity plans and finally you will firm up alignment between demand and supply plans. The planning schedules or content are not absolute. It is important however to communicate openly and do it often. Technolgy: Its highly recommended to use a dedicated software solution to conduct the detailed analysis required by SIOP. The system needs to interface with other existing systems (ERP, Sales/Marketing, Finance, MRP, logistics, etc). This may require a centralized data-warehouse and perhaps a relevant taxonomy. SIOP systems should synchronize business activities and resources of individual departments so the business can visualize and respond faster to changing supply or demand. You should be able to visualize any changes in plans against the same key corporate metrics and indicators you use to run your business? If problems are identified your systems should allow you to use data-mining to drill down the supply chain until you can see the problem. Closing: As you may have guessed there are many aspects and opinions of the ideal SIOP process. Furthermore, I should point out that total optimization may not actually be attainable. However, SIOP represents a process toward which companies should strive to achieve a balance and evolve while yielding improved supply chain performance. ___________________________________________________________________ By presenting this article, I hope I have sparked your interest a little in the benefits of SIOP (the next generation of S&OP). Whats more, I hope our fraternity of professionals will chime in with their positive or negative experiences with S&OP, IBP and share essential elements to successful S&OP /SIOP processes..