Distributors looking to create more efficiencies and improve planning could consider implementing sales, inventory and operations planning (SIOP), a business process that combines various functional plans into one business plan.
During a recent MDM webcast, Targeted Strategies to Optimize Sales, Inventory & Operations Planning, Brad Johnson, president of Building Products Distribution — Supply Chain Analytics (BPD-SCA), explained key strategies for successfully implementing the process.
SIOP means carefully integrating sales, marketing, supply chain, product management, procurement, operations, pricing, finance and the executive team. In some companies, those functions operate in silos or don’t communicate enough with each other. The monthly process forecasts 12 to 24 months into the future. “It’s focused on making decisions and course corrections,” Johnson said. The benefits of implementing SIOP, he added, can include:
- Improved fill rates
- Improved customer satisfaction and loyalty
- Decreased working capital needs
- More effective product launches
- Optimized freight cost and coordination
- Creation of consolidation centers
- Shipping directly to customers from a hub
- Improved forecast accuracy
- Increased coordination with suppliers and leveraging spend for reduced cost
“You will spend more money on key products and less on the slow and obsolete,” Johnson said. “It will highlight issues that may need a different approach.”
SIOP is designed to enable a company to react more nimbly to shifts in the business environment. “Priorities change. Forecasts are missed. Customers change their mind. Suppliers are limited. For all these reasons, you need to be able to adjust and change your speed,” Johnson noted.
Full Company Commitment
In order for SIOP to be successful, the company needs to have a collaborative atmosphere, trust between team members, and an approach that’s action-oriented and results-driven. It needs a leader who champions the process, someone who is tech-savvy and experienced in executing SIOP.
Johnson also emphasized the importance of gaining support from the entire executive team. “If you don’t have the right people in the room, it won’t stick,” he said.
How do you measure the success of a SIOP process? Track some key metrics, including:
- Inventory position
- Fill rate
- Forecast accuracy
- Supplier on time delivery
- Supplier average lead time
- Transportation average lead time
“If you focus on your customer and the fill rate, it’s amazing how many things come to light,” Johnson said.
Before starting a SIOP process, make sure your company is ready for it from a practical and technical standpoint. “What is the quality of your data?” Johnson asked. “I’ve seen many times where the data in the company was poor, and it wasn’t ready to implement a process like this. Getting your data right is critical to be able to make these changes and be able to use the systems to do the ordering.”
At the beginning, you don’t have to uproot all your processes to do SIOP. You can run it in parallel with a cross-functional project team, Johnson suggested. “Tailor it to your needs. No company is the same. Make the process fit what you do, and make it work best for you,” he said.
To listen to an on-demand playback of the webcast and download Johnson’s slides, click here.