As revenues remain volatile, disruptions plague supply chains, and interest rates remain high, executives’ ability to build revenue, margin and working capital predictability and improvement takes on an elevated importance. Clients are experiencing volatility, uncertainty, complexity, and ambiguity (VUCA) at an elevated level with both demand and supply. Industrials and commercial aerospace are sluggish (although optimistic) whereas building & construction products and defense are thriving (depending on the specific customer base). Disruptions such as Hurricane Helene have impacted supply, whereas disruptions such as inflation have impacted demand. If you are not prepared, don’t have early indicators and continuous monitoring of changing conditions, and don’t have forward-looking data for strategic decision making, it will be harder to survive and you will not be ready to take advantage of opportunities as they arise. A SIOP (Sales Inventory Operations Planning) process fills this need.

Why SIOP?

According to McKinsey Global Supply Chain Leader Survey, 90% of respondents have encountered supply chain challenges in 2024. These disruptions are not slowing down. SIOP is an important piece of the solution as it is a forward-looking process to monitor changes in demand and supply, highlight potential bottlenecks and/or opportunities, and provide a vehicle and cadence for strategic decisions while keeping a pulse on the execution. This cross-functional and collaborative process can extend to the end-to-end supply chain as needed to ensure revenue predictability, a directionally-correct conversion to supply and capacity forecasts, and the successful fulfilment of orders with increased customer value, operational efficiencies, margins, and working capital. Most importantly, SIOP will provide the vehicle to keep you ahead of changing conditions so that key decisions can be made such as reallocating supply, rationalizing low-margin products, and new product development plans.

Case Study: Aerospace & Defense Manufacturer

In an aerospace manufacturer that focused on complex controls, the team was suspect that revenue predictability could be achieved as they were concerned about producing items that ended up on slow moving and obsolete inventory lists. However, if they waited for the orders to be fully confirmed, material orders were constantly being pushed out, pulled in, and changed, and the bottleneck operation of the facility could not keep up, let alone keep up efficiently. From an executive standpoint, there was push back at hiring critical resources until the demand was known; however, past due orders were piling up.

We launched the SIOP process with a deep dive into demand. Although there are contracts in aerospace, the day-to-day, week-to-week, and even month-to-month orders can be quite volatile. Interestingly, we find that the industries with theoretical stability over a reasonable timeframe (such as long-term contracts, building and construction plans, custom products) are the most volatile. Thus, the team was reluctant to develop a demand plan and, more importantly, use the demand plan to plan, make or buy.

There was valuable information coming from customer portals with usage, forecasts, and customer inventories (depending on the customer). By reviewing this data in conjunction with a proactive review of the order backlog (with both firm dates and flexible dates) and potential quotes with Customer Service, we developed a base forecast. We didn’t stop there. Instead, we reviewed market conditions and key customer accounts, select orders and overall trends with Sales leadership to align on a collaborative forecast. To this date (30+ years into this expertise), this client developed the most accurate forecast at the detailed level.

After a bit of convincing, we incorporated the forecast for key products and used the forecast to develop long-term material forecasts, bring in non-unique materials, and plan production in certain situations. We developed forward-looking capacity reporting that highlighted potential bottlenecks and provided information so that the appropriate operations plans could be deployed, The results were staggering. We converted the forecast into staffing needs by work center groups to gain approval for critical resources, provided long-term forecasts to suppliers and improved margins with updated agreements, and optimized material flow and scheduling with level loaded schedules. Thus, service levels shot up by 20+ points, customer trusted supply and increased commitments, margins improved by a few points, and working capital improved longer-term (after resolving service issues and right-sizing inventory).

Case Study: Building Products Manufacturer

In a building products manufacturer, there were concerns about revenue predictability and cost containment. Of course, they went hand-in-hand as depending on the sales forecast, they wanted to flex manufacturing output, ramp up or down on replenishments to their sales branches to support customer needs while mitigating distribution costs, and plan far enough in advance to optimize freight costs while not causing the wrong inventory to be in the wrong place at the wrong time.

We started by digging into the sales forecast. In this situation, it was important to develop the sales forecast by manufacturing facility and by sales branch. The manufacturing facility forecast allowed Purchasing to optimize pricing and contracts, materials planning to ensure materials were available to support operations during a heavy supply chain disruption environment, and operations to plan staffing appropriately (hiring, overtime, cross-training of crews, etc.). The sales branch forecast was essential to support ensuring replenishment planning shipped the right products to the right location at the right time to support customers in the most efficient way possible. Optimizing freight by filling truckloads optimally and creating regular runs to branches made a significant difference to freight expenditures.

An advanced demand planning system capability was available, and so we worked with the teams to better utilize the system capabilities to develop a base forecast. The forecast was reviewed against historical sales by facility and/or branch, growth trends were evaluated, and key customer and product line forecasts were assessed. Sales and Marketing provided market and customer expertise and gave feedback during the SIOP process. We also developed metrics to evaluate forecast accuracy and predictability.

The supply side leapt into action. During the SIOP process, the Operations teams reviewed capacity plans by work center groups and evaluated ideas to cross-train and move resources where required, planned overtime, developed operational efficiency improvement programs such as equipment upgrades and scheduling optimization strategies, and develop hiring and incentive plans to support manufacturing output needs. The replenishment teams developed inventory optimization strategies by further leveraging MRP (material requirements planning)/ DRP (distribution requirements planning) functionality, upgrading safety stock and inventory replenishment strategies, and integrating truck building and route optimization strategies into the planning process to mitigate freight costs. Last but not least, since we had a proactive view of demand and supply, we were able to pursue service policy optimization strategies to ensure customer value and sales growth while reducing the cost to serve.

SIOP drove bottom line results. Not only did the executives note the effectiveness of condensing multiple-hour SIOP meetings into succinct, results-oriented SIOP meetings, but they also appreciated the lead time and customer service improvement, the optimizing of inventory throughout their network that drove working capital improvement, and the increase in planning and supply chain effectiveness which drove operational performance and freight cost reduction.

SIOP: The Path Forward

SIOP is not a magic solution; instead, it is a collaborative and strategic process to align demand with supply and Sales with Operations to mitigate disruptions and drive business results. Although there is much that is simply common sense, SIOP provides the vehicle to bring this common sense to fruition. Instead of getting into conflicts over who is responsible for various issues, SIOP provides a forward-looking process to bring potential issues up, confront realities as part of the monthly cadence, evaluate fabulous opportunities that might require investment ahead of the crowds (zig when the competition zags), and a constant review of demand (revenue, pricing, geography) and the optimal routes to fulfill demand in the best manner to support growth and profitability. To learn more about how to rollout SIOP, download a complimentary copy of our book, “SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth“.

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Successfully Navigating Turbulent Times with SIOP