Inventory: The Key to Unlocking Integrated Business Planning and an SIOP Process

Tony Abel, Managing Director Supply Chain

Properly implementing a fully integrated and comprehensive sales, inventory and operations planning (SIOP) process can deliver value that spans demand, supply and product management, while simultaneously driving financial discipline. Many are familiar with the traditional sales and operations planning (S&OP) process. The more advanced approach, however, is integrated business planning, which includes inventory — a missing key factor in the more traditional S&OP approach.

A robust sales, inventory and operations planning (SIOP) process can provide a competitive advantage by allowing organizations to be more agile, lowering working capital costs and increasing speed to market. Recently, we were engaged by an organization that was not seeing the results they had hoped to achieve on their S&OP journey. Despite their efforts to deal with the usual planning and forecasting obstacles, the company was challenged by customer order fulfillment rates and lead times and was experiencing growth in on-hand inventory.

As we began our analysis, we realized the company was approaching S&OP academically without internal communication, executive support or effective collaboration. Each group was doing its part, then passing information along without communicating with other involved functions (planning, scheduling, procurement, inventory management, etc.). No group was taking responsibility for the lack of communication that led to ineffective planning sessions and inaccurate forecasts.

In our experience, there are three ways companies fall short when it comes to communication:

  • A lack of data integrity
  • Little to no reconciliation of the schedules (production, sales, etc.)
  • Lack of accountability

Any one of these will undoubtedly lead to an ineffective process.

On the other hand, an effective SIOP process can deliver improved forecast accuracy, improved planning, reduction of inventory, improved asset utilization and an optimized on-time-in-full (OTIF) delivery performance. The power of visibility to effectively manage all of the moving pieces in an SIOP model is the key to achieving success.

A successful SIOP process requires organizations to manage metrics, rather than simply monitor them. Accountability and clear roles and responsibilities are essential. When roles and responsibilities are not clearly defined, some companies may experience the classic “bullwhip” effect, in which inaccurate or unrealistic resource planning triggers buyers/planners to purchase items that production cannot always process in a timely manner – resulting in higher inventory levels and space and storage challenges.

The SIOP process should be formal, rigorous and cadenced, with inviolable deadlines for producing data and reports, firm dates for meetings and a clear understanding of roles and responsibilities. An effective SIOP process should include, at a minimum, the following disciplines:

  • Top-down executive support
  • The ability to leverage data
  • Open and active communication among the groups
  • A regular cadence of meetings with the goal of reaching consensus on planning for the month, both on the demand side (sales and operations) and supply side (production and purchasing)
  • One overarching plan incorporating the relevant and prioritized outcomes of individual plans
  • Effective change management

Balancing customer expectations and delivery performance within the constraints of a formal plan is where the SIOP process becomes more of an art form than a science. The more an organization can support its delivery outcomes with solid data, the less it leaves to interpretation.

Greg Scharine, Senior Consultant with Protiviti’s Supply Chain practice, contributed to this content.

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