A Sales, Inventory and Operations Planning (SIOP) business process is an essential element for running a successful business. SIOP will allow you to improve your forecasting, capacity and resource planning, cash flow, and inventory levels.
Yet there are many challenges with getting a proper, functioning SIOP process in place. If the benefits are so clear why is it so difficult to get SIOP going and then to sustain it?
I have seen large and small companies struggle with getting SIOP started. And once it is started the forces that make it difficult to start can continue to make it challenging to sustain it.
To be successful your SIOP process must be embedded in the very DNA of your company’s culture and business process set. And the benefits are real and profound. So what are the challenges that you must be aware of and address?
The different functional areas in your company have different roles and performance objectives. The overall company goals are what is important however recognition of these different functional motivators is necessary in order to ensure a SIOP implementation meets everyone’s needs.
The Sales team is eternally optimistic. That is their tendency and it is a necessary part of your company’s make up. They will often take customer orders and forecasts at face value. Sales certainly sees the glass as being half full. They want to maximize their commissions too. And they do not take kindly to being questioned about the validity of their sales forecasts.
Operations wants to know precisely what is really going to be required to be processed and shipped. They want as much certainty and realism as possible. They see Customer forecasts that are invariably higher than what really happens. Yet Operations must put staffing and capacity in place, and Operations incurs the costs of doing so.
The Procurement/Supply Chain team needs to order the materials and manage inventory levels. They are making commitments to suppliers for purchases. And they are making commitments about the amount of cash and inventory that are needed to meet forecasts. Any significant mismatches between supply and demand result in excess inventory at the very least and drain cash flow at the very worst.
And Finance needs to be able to predict the Financial performance of the company as well as the cash flow. They can not be guessing about what the financial results will be. Finance wants realistic planning to be in place. They provide the oversight as to the financial health of the business. Without any forecasting process the Finance team is blind and can quickly look to be out of control.
Depending upon the complexity of your business you are most likely unable to run a proper SIOP process on the back of a napkin. SIOP management requires a single source of data and reporting to ensure uniformity and consistency across your company.
My experience includes running dozens of facilities around the world supporting dozens of customers with hundreds if not thousands of bills of material. Every customer runs to their own forecasting schedule. Yet the company you are in has its own fiscal calendar and schedule of events to support that calendar.
Coordinating all of those dimensions requires a sophisticated spreadsheet and business process, if not a specific IT system. The various functional areas in your business will need to view different pieces of data, different reports, and will want to perform what-if, ad hoc analyses.
The Players and Their Roles
A SIOP process can not be managed in its entirety by just one organization. While one team (eg. Finance, Supply Chain leadership) may lead and orchestrate the overall process it requires every function to make it run.
In my experience you must have a single, strong SIOP process owner. Further that person must have a very, very strong Executive Sponsor.
The SIOP process owner needs to be very talented. They must be able to create and architect the databases, systems, and reports that will be at the core of your SIOP process. The SIOP process owner must be able to work at all levels of the company and across all functions. And the SIOP process owner must be a change agent with the ability to be diplomatic and constructively deal with conflict and resistance.
For the SIOP process owner is going to deal with every possible attitude. Not only must they create and manage the entire SIOP business system and process. But they must be able to manage everyone in the company to a precise calendar of events. Invariably they will have to get people in line. And they will have to deal with conflict quickly and confidently. This is not a role for the faint of heart.
The Executive Sponsor is going to also have to play an active role. The SIOP process owner will need visible support and air cover so that they have the comfort of knowing they will be backed up when necessary. The implementation of a SIOP process can be such a dramatic departure from what the company has always been doing that the Executive Sponsor will have to communicate, convince, and propel the organization forward at the highest levels.
SIOP only works well if your entire company is using that business process. If you allow a facility, or a business unit or a customer team to continue to operate outside of the SIOP process it will undermine your efforts.
Everyone must know that the SIOP process is the one way in which planning will be managed across the entire company. A lack of adherence will not be tolerated. And this will be a performance measure for everyone involved.
I have seen several examples of SIOP implementations across companies. In every case SIOP has proven to be extraordinarily important and invaluable. Once you get past all of the growing pains of a SIOP implementation you will see results almost instantly.
Within a couple of months I expect that people will wonder how you managed without a SIOP process. It will shape your culture, drive behaviour, and improve your company’s performance.
But beware that the challenges that you face along your path to SIOP implementation are very real challenges for sustaining it as a key business process. Issues must be addressed along the way. And certainly there will always be room for improvement.
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