When it comes to the supply chain, the age-old dilemma has been, how do you get the right product delivered to the right place, at the right time, and in the right quantity? Now across industries, same-day delivery is pressuring companies to move products through more channels in less time. This growing challenge requires more careful planning.
As consumer behavior and demand continue to shift rapidly, unified and dynamic operations and financial planning are essential for achieving supply chain resilience. Supply chain planning can no longer remain isolated within organizations. Successful production planning must consider demand, production capacity and supply.
What Is Sales, Inventory and Operations (SIOP) Planning?
Sales, inventory and operations (SIOP) planning means carefully integrating sales, marketing, supply chain, operations, product management, procurement, pricing, and finance with the executive team. The Association for Supply Chain Management defines sales, inventory and operations (SIOP) planning as "a business management process through which an executive team continually achieves focus, alignment, and synchronization among all functions of the organization.”
In some organizations, key executive roles operate separately or don’t communicate regularly. For example, in many manufacturing companies, supply chain planning is managed by two separate teams. Finance creates budgets and outlines capital requirements. The operations team balances supply and demand by calculating future capacity and supply requirements. However, in times of crisis, the operations team focuses on risk management and unexpected opportunities, causing the financial and operations planning to diverge dramatically. SIOP planning can help companies remain flexible to dramatic shifts in the business environment.
S&OP Planning to Integrated Business Planning (IBP)
The sales and operational planning (S&OP) process was originally developed by Oliver Wight in the 1980s. First referred to as “sales and operational planning,” the process later became abbreviated to S&OP. Their research found that successful production planning had to consider demand, production capacity and supply. This led to the development of the five-step process of S&OP driven by a supply chain manager:
- Gathering Data
- Sales/Demand Planning
- Production and Supply Planning
- Review Meeting
- S&OP Executive Approval Meeting
Depending on the industry, supply chain planning goes by many different names. Some companies refer to this process as sales and operations planning (S&OP) or sales, inventory and operations planning (SIOP). Others refer to this process as integrated planning or integrated business planning (IBP). In retail, this process is often called merchandising, inventory and operations execution (MIOE).
Over time, the sales and operations planning process evolved into integrated business planning in the early 2000s to enable companies to keep up with rapidly changing markets and shifting consumer behavior. Integrated business planning is a process that combines SIOP and S&OP planning to provide monthly dynamic feedback into strategic planning efforts, eliminating the need for annual operating plans. Regardless of how you label the process, experts agree that implementing an integrated approach to supply chain planning can help organizations increase agility, lower costs, improve customer relations and boost profits.
Benefits of SIOP Planning
Effective SIOP processes help companies balance supply and demand by providing better visibility into sales, marketing, operations and finance data. As Modern Distribution Management (MDM) notes, supply chain planning helps identify the most profitable strategies from many different scenarios. By aligning all business functions to a company’s short, medium, and long-term goals SIOP planning allows companies to fine-tune their long-range strategic plans and annual business plans.
The benefits of implementing SIOP planning include:
- More accurate forecasting
- Improved customer loyalty and satisfaction
- Lower working capital costs
- More effective product launches
- Lower freight costs
- Increased supplier coordination
In addition to more accurate forecasting, sales, inventory and operations planning can help lower inventory costs by tying up less money in stock. One of the main goals of SIOP planning is to establish production rates that will help management maintain, increase, or reduce inventories and backlogs while keeping the workforce relatively stable. By collaborating on a unified plan, SIOP processes can also help improve on-time delivery rates, increase customer satisfaction, and lead to higher sales.
SIOP Planning Requirements
Sales inventory and operations planning requires a single source of data and reporting to ensure uniformity and consistency across an organization. Effective SIOP planning must extend throughout a planning cycle to account for the labor, equipment, facilities, material, and finances necessary to accomplish the production plan.
Unfortunately, historic spreadsheet data does not provide the functionality needed to assess the demand and supply disruptions on a daily or weekly basis. In fact, as consumer demand continues to rapidly shift in response to the pandemic, a recent survey by Supply Chain 24/7 found that 54% of supply chain professionals are now looking to either reduce their dependence on spreadsheets or they are already using different tools for supply chain planning. S&OP and inventory optimization software can now help automate the process, shorten planning cycles, reduce labor costs, and boost productivity because employees no longer have to plan and prepare forecasts manually.
For SIOP planning to be successful, organizations need to have a collaborative atmosphere, trust between team members, be action-orientated, and results-driven. Companies who set up cross-functional teams with clearly defined roles and routinely engage in scenario modeling tend to be more adept at reacting to significant consumer demand fluctuations. With better planning and improved forecasts, organizations may be better prepared to cope with uncertainty and long-term supply chain disruptions.
Learn more how Grainger KeepStock can be a part of your SIOP planning here.