Sales, Inventory, and Operations Planning (SIOP) – Part 1

Patrick Daly:

Hello, this is Patrick Daly and welcome to Interlinks. Interlinks is a program about connections, international business, supply chains, globalization. And the effects these have had in our life, our work, and our travel over recent years. Today on the show, we’ll be talking to Lisa Anderson and Diane Garcia of LMA Consulting Group in Los Angeles, California. Lisa and Diane are co-authors of a new book titled S-I-O-P, SIOP Creating Predictable Revenue and EBITDA Growth. So SIOP or S-I-O-P, Sales Inventory and Operations Planning is a management approach in which Lisa and Diana 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. So between them, Lisa and Diane have many years experience helping their clients to develop, set up, and implement SIOP across multiple sectors. So welcome Lisa, welcome Diane, and thank you both very much for being here with us today.

Lisa Anderson:

Glad to be here.

Diane Garcia:

Yeah, me too.

Patrick Daly:

So we’re going to talk to you guys about SIOP over two episodes actually. So today what we’ll do is explore what SIOP is, what the business benefits are, what it takes to start the journey along the SIOP road, so to speak. And then in the next episode we’ll explore maybe more depth, the implementation. Highlight some of the pitfalls to avoid and see what the stages are at the timeframes that are involved in actually getting this thing set up bedded into a steady state. So question number one then, let’s see. So SIOP or S-I-O-P, Sales Inventory and Operations Planning, what is it and what’s its relationship to two other approaches that we hear about which are SNOP Sales and Operations Planning and IBP integrated business planning. Are these different names for the same thing or are there distinctions between them? Lisa?

Lisa Anderson:

All right. Well, so really they’re in essence the same thing. We ask clients when we go in, “What would you like us to call it?” And really, every client so far, after many, many years has selected Sales Inventory Operations Planning because they want to include the I for inventory, whereas Sales and Operations Planning is really the same thing, but it’s just they want to highlight the fact that inventory is important as well. So that’s why SIOP is an improvement over SNOP. With that said, go ahead-

Patrick Daly:

Go ahead, go ahead.

Lisa Anderson:

I was just going to say then, obviously IBP is a whole different set of words here that’s Integrated Business Planning that is supposed to imply that that SIOP, you know, expands beyond the operations cycle and moves to finance and is really business planning. However, that is what SIOP is. So it’s really the same thing. It’s just the reason that some folks call it IBP, which is more prevalent in Europe, but the reason they call it IBP is because they’re trying to highlight the distinction that it’s a business planning process, but it’s really the same thing.

Patrick Daly:

And why is inventory so important and why are people wanting to stress that so much?

Lisa Anderson:

Do you want to answer that one, Diane, or just-

Diane Garcia:

People say it’s a part of the entire equation here. So we have each of the letters, and inventory needs to be accounted for, it needs to be planned for, it needs to be aligned to the sales plan and the operational plans. So it’s a very big component of this process.

Patrick Daly:

And so I think it sounds to me like a process that is quite holistic or systemic, in the sense that for tackling the challenges that businesses face. Because it seems to involve multiple stakeholders and these stakeholders maybe sometimes have conflicting interests. I also picked up from your book that it’s a proactive approach to planning. It’s predictive, so it’s looking at what’s going to happen. So I’m guessing that because of all that, this ain’t easy to do, right? So when firms are successful in pulling this off, what kind of business benefits do they typically achieve?

Lisa Anderson:

Well, we find that it’s really the best of all worlds, if you will. Because it supports sales growth with high service levels, short lead times. It just really helps from the customer point of view, but simultaneously it also helps improve profitability and margins. And then last but not least is, what Diane was talking about, and that is the cash flow inventory levels. So how do you achieve all three of those objectives at the same time?

Diane Garcia:

And typically clients are looking for predictability, scalability, and reliability in their business. So it does support all of those initiatives.

Patrick Daly:

And how does it do that? What’s actually happening in order for that to be the outcome?

Lisa Anderson:

So how does it actually do that? Well, I mean, of course each SIOP process has to be implemented for what makes sense for the company. But it starts with getting a view of your sales forecast or your demand plan, understanding what’s going to happen down the line. And then that way you can set it up so that it best aligns with, you can fulfill that demand basically, in the smartest way possible. So that means you can look at “Where should we be producing this demand? How should we allocate capacity? Should we make it or buy it? So we need to prioritize, because we don’t enough at the moment to fulfill, so we have to prioritize customers.” So it basically figured out the best way to fulfill the demand that you have predicted, and then doing so of course, and with the least amount of inventory, tying up cash unnecessarily as well.

Patrick Daly:

So it eventually becomes, this is not a one-off thing, this eventually becomes a practice. Is that correct?

Diane Garcia:

Yeah, it should be embedded. I mean, it takes some time to, like Lisa said, figure out what makes sense and what are the key questions to face. But it evolves and it changes, but it really needs to be embedded into the culture so that it is seen and appreciated through the entire organization.

Patrick Daly:

And what kinds of businesses can benefit from the successful SIOP implementation? Is it principally for manufacturing businesses or would distributors and retailers and maybe even logistic service providers, could they benefit also?

Lisa Anderson:

Yeah, really it doesn’t matter the type of business. If you have a sales and you have operational activities and you want to make sure that finance is aligned as well, it really doesn’t matter the type of business. We’ve implemented SIOP from aerospace and defense companies to healthcare life sciences to distributors that service a wide variety of industries.

Diane Garcia:

Yeah, we’ve also helped consumer products. So that relates to the retail end of things that you mentioned. So yeah, it could really be across industries, across all types of businesses.

Patrick Daly:

And how does it relate to ERP and MRP? Is ERP A tool that can be leveraged in SIOP? Do ERP systems have functionality within them to facilitate implementation of SIOP as they do MRP, either as a standard or a configurable functionality? How does all of that world fit together? Or does it?

Lisa Anderson:

Well, no, it definitely does. We find that it depends on the size company, but for most companies, you don’t need a SIOP system, if you will, or an SNOP system. There are such a thing as an SNOP system, however, it really is the demand and the supply planning processes. It’s not really, I mean they make call it an SOP system, but it’s not really an SNOP system. So if you’re a really large company and you want to take things to the next level and you want to do some additional analysis, then perhaps you’re going to use a separate system.

But for actually 99% of the time, maybe at least over 90% of the time, you can make so much progress by just implementing the process. Now with that said, you always have to use the data. And you are performing demand planning processes and supply planning processes as to back it up from an execution standpoint. So you’ll utilize an ERP system to carry out some of the functions, but for the most part it’s getting the right data together and it’s getting the right people together and the process. But Diane, you can, or go ahead Patrick.

Patrick Daly:

If you didn’t have an ERP system, it would be difficult to go down this road, is that right?

Diane Garcia:

Well, that’s what I was actually going to say is, we’ve worked with all types of data. And sometimes an ERP system may not be in place and we’ve continued to make progress, as to Lisa’s point. No matter what, you can make decisions and bring the team together and define the process and the data will come along. And maybe that’s one of your focuses in that particular client is to build the data and the data integrity.

Patrick Daly:

And what kind of data are we talking about? And where do you get those data? And then, so let’s say you got the data then, if you tell me about what data and where you get it. And then what kind of tools do you need to process and analyze that data. So you can make some sense of it about what’s going on, generate some insights and take some decisions.

Lisa Anderson:

Well, I can start at the high level and then Diane can take it from there. But you want to be able to first of all, figure out what your demand plan is going to be. Because that’s where it all starts, is what are your customers going to need and what are the changing conditions of your customers? So from that point of view, historical sales can be handy, it’s not necessary in every, it depends on the client and what’s going on. But historical sales can definitely be valuable, but by no means is that going to cut it. It’s really about talking with sales people, it could be talking with the customers. You could have a CRM system, Customer Relationship Management System to get information from there, so about potential quotes or potential, what’s happening with the customers and where they could be going.

So you really have quite a few inputs going in and I’m sure Diane can tell us about more on the demand side. And then the supply side is really much more about capacity, generally speaking. So machinery and equipment capacity, could be warehouse capacity, all sorts of, could be a building capacity. So it’s all about capacity and figuring out how you could fulfill that demand and how successfully you’ll be. There also is really though, the profitability side and cashflow side. So you may end up looking at customer product profitability as well. So there’s quite a bit of data that you might be looking at here. And Diane, you can probably…

Diane Garcia:

She outlined a lot of the biggies. I mean it’s really, like she said, understanding your demand plan. So what are your key customers? Are you looking at bringing on new customers? Are you really understanding the changes and the trends within your customers and products? The other piece, I think that Lisa, she mentioned the operational side and then of course inventory. So what are your turns trends? What are the key things that would make a difference in your conversation? So it’s really like she mentioned, historical sales and key customers. And on the operational side, what are your capacities? Sometimes we may have to look at freight as a data point. It just really depends on the type of business. For engineering to order, configure to order businesses, the quoting side and understanding your probabilities of quotes to come to fruition is key to the sales plan. So it’s really everything in between your starting and your shipping point

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Patrick Daly:

I was thinking of that, your last point there. So if you’re churning out bottles of pop and you have a relatively predictable monthly cycle. And you sell more pop in the summertime than you do in the wintertime, that’s one thing. But if you’re making say some kind of expensive equipment and it’s made to order, that’s quite a different proposition, right?

Diane Garcia:

Correct. Yeah,

Lisa Anderson:

Yeah, absolutely there is. But the nice thing is, SIOP will work with both scenarios. We actually have worked with clients in both of those industries. They’re very different and you just have to utilize the tools a bit differently. But you’d be surprised actually how something as, what seems as repetitive as pop, as you call it, there can still be of course peaks and valleys and maintenance and other things that come up. But basically it’s just a different cycle. Whereas an engineer to order type business, many of our clients say, “Oh, I don’t think that this could, we can’t predict this at all. There’s no way. Everything we make is different.” But thus far, every one of those clients we’ve been able to make it more predictable with a demand plan. Because it’s really more about looking at the demand plan in terms of maybe the model or a group of equipment. And I don’t know, Diane, if you have other names for that, but basically at the sub-component kind of level.

Patrick Daly:

Listening to you talking about the different types of data and information, and I know because of using data in my own work. Particularly, transactional data or master data that you get from ERP systems that we would be using to analyze, say throughputs in warehouses and distribution centers and so on. But you’ve spoken there about that type of data and lots of other types of data and information, maybe not as structured. And you’re bringing that all together. How do you deal with that? How do you process it then? How do you attack it, that data?

Lisa Anderson:

Well, so that is always a tricky question. It depends, of course. It depends on their systems and their capabilities. Do they have a business like a BI or Business Intelligence system, data warehouse? So there’s a lot of questions that we’d have to ask. But no matter the client, basically we help them put together at least some sort of a pseudo data warehouse and figure out the right data to get. I mean, it doesn’t have to be terribly complicated. The truth of the matter is, the key is which of all of this data is most important and what’s going to drive the right type of change? So we can start with something that is just critical to their business or important and we’ll just focus in there and build it over time. So we think about it as being directionally correct. But Diane, you may have something to add there.

Diane Garcia:

That might be a BI tool that helps process it. Sometimes the ERP system can support in cases of capacity. We’ve used ERP systems that will have capacity planning modules that will support the processing of it. And then we really just download reports to you make these insights visual for the group. So sometimes ERP supports, and then sometimes it’s just pulling together a lot of Excel inputs, that perhaps the team has developed over time. And they just need support to pull all that together and make sense of it. And then turn it into something that is visual and easy to understand.

Patrick Daly:

So I imagine Diane, that the reality of it is that these solutions are somewhere on a spectrum between analytical and empirical. And then over time maybe they’re refined and the analytical part becomes stronger as people learn. And as they pay more attention to data quality and so on. Is that what happens? Is that what the way it pans out?

Lisa Anderson:

Yeah, I would definitely say so. Many of our clients have data integrity issues to be sure. I mean, some of them are real whoppers in terms of their data integrity problems. But no matter the situation, there’s always a way to improve upon it and to get… The key is, can we get something out of all of it that is meaningful enough to make a decision? And so far we’ve always been able to do that. So that’s where it’s more, I don’t know if it’s more art than science or what the right way to say it is. But it’s really just not about just getting the data out and then dealing with the data. It’s really trying to understand the data so that you can figure out what’s meaningful. And then how do you best use this to make change with the client. That’s really the key.

Patrick Daly:

Definitely-

Diane Garcia:

And I think that the SIOP process itself, it ranges from that strategic to that tactical view. And so a part of sometimes making progress is focusing on those tactic tactical items. To say, “Okay, in the next month, two months, three months, can we clean up this percentage of customer issues or data issues, whatever it may be along the data.” And then we can see some progress on the strategic side that will drive that change. So it ranges from that top down, bottom up view.

Patrick Daly:

I imagine as companies are working through this process, that learning and that awakening and those insights that arise and those strategic initiatives that are sparked off, I guess are part of the maybe even unforeseen benefits. So I guess when they start out, they have some benefit in mind, whether it’s better inventory control or whatever, but I imagine the whole learning process is hugely beneficial for them.

Lisa Anderson:

Yeah, absolutely. We actually have quite a few clients that say that simply aligning the people is actually much more important than any of this stuff about the data. Although, you kind of have to have all of this, right? You need the people, the process, and certainly the data. But many clients really say that it’s really much more about getting the people to understand and be on the same page.

Patrick Daly:

I kind of alluded to that at the beginning. Because I kind of detected the way you were explaining it, that it requires the input of different stakeholders. And those stakeholders, in my experience in business, they often have conflicting interests. I guess the typical one would be say sales and operations. So what kind of typical issues come up and how do they get resolved? Does this, because it’s fact and data based or information based, it gives people a forum to come to some sort of consensus about what’s really going on in the business. Is that what happens?

Lisa Anderson:

Absolutely. It’s actually exactly happens is instead of something being contentious, it comes up through the process. And then it’s more of a process decision, not he said, said, or whatever, everyone’s complaining about somebody else. It’s much more about part of the process. But Diane, do you want to provide maybe an example?

Diane Garcia:

I’m thinking, I mean, just like you mentioned Patrick, the basics of our sales forecast is X and operations maybe perhaps doesn’t even see it or isn’t aware of how much of an increase it may be. Or perhaps an increase, but in a way that is impactful to the operational side. So needing additional machinery or additional skill sets that weren’t required in the past. So it’s bringing all of that and making it visible. And it may not be solved in an immediate form, but it is definitely because it’s a repetitive process, it’s discussed over time and then things begin to balance out or straighten out.

Patrick Daly:

It sounds like a kind of silo busting approach. I don’t know how many times I’ve been with warehouse managers and they’re going, “Listen, I have to deal with this load that’s just arrived and these are new products and the first I knew about them was when they turned up on my dock.” So that’s kind of an extreme case of silo type thinking. So what’s your own take on why are businesses so silo oriented in the first place? Why are we like this?

Lisa Anderson:

Well-

Diane Garcia:

Good question.

Lisa Anderson:

Yeah, good question. But I think what I would say is that, it’s actually a lot of hard work to get everybody on the same page and align. So it’s not that folks don’t want to do the hard work, but I don’t even know that everyone really understands what you would need to do to get people to see the whole equation. People just tend to say, “Okay, I’m in finance, I’m thinking about inventory levels, and every question I ask relates to that and I’m just thinking about people giving me inputs and giving them outputs.” And they’re not thinking about it from someone else’s point of view. Because they don’t have that experience.

Patrick Daly:

And I guess the bigger the business is, the more you’re contained within that echo chamber of your own department. I notice a lot because I deal a lot in operations, and particularly the physicality of moving and storing inventory. And you have people say who are planners or they’re in supply chain, but they’re in supply chain in an office. And they have no actual concept of physicality, of space, of time, of stuff, yet they’re taking decisions about these things. And this is where I find you get a lot of conflict and contention and mix-ups and so on. Would that be your experience as well?

Lisa Anderson:

I think that definitely. Go ahead Diane.

Diane Garcia:

It happens. The only thing I was thinking about while you were talking, Patrick, is that it’s sometimes just out of, I don’t know if necessity is the way to put it, but growth occurs at such a rapid pace. That everybody’s just head down trying to make the shipment plan or support these offloading or outsourcing decisions. And so sometimes you’re just trying to make it through the day-to-day, and so you’re not looking far enough out. And SIOP allows that to happen. So you see the visibility and the direction months ahead, not week to week.

Patrick Daly:

I think as we said earlier, or at least I said looking in at this, it sounds like it ain’t easy to do. So how do you assess a prospective client’s company for this journey? Do you have a criteria, do some people you say, “Listen, maybe this isn’t for you?” Or how do you deal with that?

Lisa Anderson:

Well, the funny thing is that we’ve worked with really small clients, one that actually didn’t even have, they were high growth, but they didn’t have an ERP system yet they’re using QuickBooks. And so we were able to make that work because we focused in on the sales side. And then we’ve worked with companies that are multi-billion dollars with different divisions, and they have different issues. You’d be surprised sometimes. Sometimes you think the opposite of what you’ll find in a small company or a big company.

But what I do find is that either way it’s just tailoring the process to some sort of a meaningful result that you want to get out of it. Even if it’s a really small, you start with a small window, you find something that’s going to make a difference to either their growth plan or like you said, whatever their objectives are. I mean, most clients are trying to grow, of course. But they may have other options too. We worked with a client that was trying to improve their profitability, and so then more focus went to the customer product profitability side of the equation. So it just depends. You find a meaningful spot and pursue it. What do you think Diane is that?

Diane Garcia:

We’re asking a lot of questions about who’s involved in what aspect of the supply chain in the process. Just to get a feel for who would be the key SIOP, or the core team versus those who could potentially be like a SIOP leader who would then take it forward. So you’re kind of assessing what is it that’s in place today, what systems and tools are in place today? So it’s a lot of questions to determine what the environment looks like.

Patrick Daly:

Excellent. So in the next episode, we’ll dig a bit deeper into this. So I’ll just say thank you to both of you for today, Lisa and Diane, for being here with us. And congratulations of course on the publication of the book. It’s been an absolute pleasure to chat to you and look forward to extending this chat on SIOP in the next episode of Interlinks. So thanks also to our listeners for tuning in again today. And be aware that if you enjoy this episode, you can find the full series of well over a hundred episodes, probably closer to 120 at this stage of Interlinks, on Spotify, Apple Podcasts, Acast, and other major podcast platforms. So until next time, keep well and stay safe.