As companies are concerned about the whether they should cut back with decreased sales volumes, they are searching for solutions to keep top talent and stop the bleeding. Since the key economic variables are coming together to power a surge in manufacturing (competitive tax rates, stabilizing tariff rates and/or forecasts, and interest rates starting to come down), smart executives want to be prepared for success. Thus, leadership is turning to SIOP (Sales Inventory Operations Planning) and advanced technologies to provide proactive and predictive information to maximize business performance and EBITDA growth.

Case Study: Industrial Manufacturer Utilizes SIOP to Maximize Performance

An industrial equipment manufacturer gained significant growth during the pandemic as companies expanded and they utilized SIOP to stay ahead of growth curves to deliver on-time, with superior service and with shorter lead times than their competition. However, as interest rates increased rapidly, severely impacting their customer base’s ability to make large purchases instead of spreading the volume out over time, orders were pushed out. As tariffs rolled out, additional customers pushed out risk especially those in impacted regions or concerned regions such as Canada. Thus, the manufacturer proactively reduced lead times to be more competitive although backlogs started to shrink for the near-term timeframe.

Since the company invested heavily in training, education and building capabilities across their sites to ensure success, they didn’t want to lose key talent. Additionally, Newton’s law shows that an object in motion stays in motion whereas an object at rest stays at rest. Thus, if a company starts cutting back and putting a halt to progress, it becomes much harder to get the momentum moving again, and they have a higher risk of missing opportunities. Therefore, executives would prefer to embrace opportunities to gain predictive insights and visibility into their supply chain to maximize profit and cash flow while maintaining readiness to scale rapidly and grow profitably. SIOP provides the toolset to achieve this objective.

SIOP to the Rescue

The team has rolled out a SIOP process for a few of the main sites. However, to gain a full picture perspective of rapidly changing demand plans and needs across sites and how that stacks up with capacity and purchase plans, SIOP had to quickly be instituted at additional sites that produce like-products with similar resource skillsets. Thus, the first priority was to get a quick, directional view of the sales forecast and translate that plan into high-level operational capacity. For a custom manufacturer with different allocation methods, getting an apples to apples SIOP plan is easier said than done. Thus, the team jumped into the details with an aggressive timeline.

Demand Planning

The team put together a demand plan by following these steps:

  • Quick assessment: To gain a perspective of the nuances of the additional sites, the team performed a rapid assessment of what was available currently (if nothing else, a list of orders), reviewed staffing by key areas, and gained insight into core processes and use of systems (ERP, CRM, configurator/ quoting, BI).
  • Data dump: We requested demand data including quotes from the configurator, sales opportunities from CRM, sales orders won, and sales orders with a full bill of materials (BOM) once engineered. After a deep dive with process and systems experts, we compiled a sales forecast. That alone would not suffice as there were numerous data integrity issues and it was dependent on the timing and standardization of the latest updates.
  • Demand review in $$: We reviewed the data with key resources and Sales leaders. Products were not available in the level of detail required to gain a good view. Thus, we decided to circle back to that issue and start by ensuring the dollar level forecasts made sense. This required developing a quick map of which dollar types to include vs which to exclude to get a comparison perspective with the other sites. For example, engineering dollars were separated into a different category. In addition, we had to dig into due dates. It is rarely as simple as it seems as companies develop internal processes of what dates mean. Thus, similarly, we had to get to a high-level that would provide a shipment view of revenue (instead of a production view or engineering view). Not all fields were used in a similar way, and therefore they didn’t mean the same thing from site to site. Thus, we made a list for future improvements and aligned the information to the standard format by working with key resources. We had to add estimates for additional sources of revenue (aftermarket/ spares) and ensure that the totals made sense vs last year, last month and in comparison to changing trends.
  • Sync with customer view: Once we had a reasonable picture of demand from the dollar point-of-view, we had to make sure it made sense from the customer perspective. For example, we commonly find that salespeople will put a higher level of confidence on an quote than makes sense based on the stage of the process. In addition, they don’t necessarily update dates constantly for expected close dates. The estimates for engineering lead times and production lead times can vary widely also creating unlikely customer ship dates. Although there wasn’t time to resolve the issues, standardize the processes and potentially converge on a standard toolset, we could update key quotes, identify key customers to highlight and align on a collaborative demand plan.

To gain additional insights into demand planning, refer to our article, “Sales Forecasting Case Study to Fuel Customer & Operational Success“.

Supply Planning

Simultaneously, the team focused on translating the demand plan into a supply plan. When translating a custom (ETO/ CTO) order, there are several key steps to gain predictive insights into product groups and key attributes. For a rapid ballpark picture, there wasn’t sufficient time. Thus, the experts dug into meaningful trends, broad assumptions, and numbers of people by core departments. A few of the strategies rolled out included:

  • Prior trends: They reviewed prior data trends to find meaningful insights that provided directionally correct insights and found ways to apply those rules to the demand plan to gain a high level view of the capacity plan. For example, if a certain product line or work center was reliably 30% of the total volume, they used that assumption.
  • Production and/or shipment output: Determining the available capacity is often much harder than it seems in custom manufacturing. ETO products can vary widely and so production rates will also vary widely especially depending on which stage of the process is calculated (fabrication, machine shop, weld, assembly, paint etc.), the size of the product, the number of accessories, the material type, sourcing for unique materials etc. Sometimes you can use dollars as a reasonable comparison, other times you should review for the bottleneck production area, and other times it is something else all together. Gather experts and start with reasonable assumptions for the first SIOP cycle.
  • Products: Frequently, at the early stage of SIOP, you will not be able to get to the product grouping level quickly enough. However, you should start to pursue product groupings and key attributes as it will drive the effectiveness of the longer term supply plans.
  • Purchases/ inventory: In several clients, the key in supply planning relates to the purchase of a core group of items that will drive operational effectiveness. Start by utilizing broad inventory planning assumptions. In this situation, inventory reduction was a key objective. Thus, broad insights into what the demand plan meant for purchasing was a good place to start.
  • Collaborative input: Of course, the team ran key assumptions and data by the key resources and incorporated their inputs and feedback. 99% of the time a key resource will provide a critical insight that doesn’t align with the data upfront. Pay attention and incorporate what makes sense yet put processes in place to confirm viability from an 80/20 standpoint.

Executive Review

The executive review evolved from a site level demand and supply review to a multi-site demand and supply review, thereby uncovering opportunities to maximize profit, better utilize resources, and accelerate cash flow. A few of the core tenets include:

  • Combined demand & supply view: We put together a stacked bar graph with quotes, orders, aftermarket, sales funnel and other statuses. In addition, we had lines for the budget and operational capacity so that you can see at a quick glance if you are over or under capacity.
  • Site by site review: For those sites that are close in proximity and can produce several similar products (similar capabilities), we put the charts over one another so that you can see that if you are over capacity in January in one site and under capacity in the other site, you could move volumes among sites. Clearly, if this arises, you would cross-train and prepare ahead of time. This strategy became a key to success.
  • Resource sharing: If you find a month or quarter that is severely over capacity, look across all your sites to see if you can utilize resources from another facility. Of course, it is unlikely they will produce exactly the same type of products; however, it is likely they will have resources with similar skillsets (weld, machine shop, assembly, etc.). Why not send resources to fill short-term gaps so that you can maintain your high-skilled resources while satisfying your customer needs. We did just that.
  • Project work & training: If you find a month that is under capacity, prepare in advance to roll out project work, improvements, new technologies and the like with the opportunity. Or develop a training/ cross-training program to develop skills requiring by looking at volumes/ mix coming down the pike. Again, this strategy was deployed.
  • Medium/long-term actions: For short-term spikes in demand, we evaluated offshoring opportunities that you cannot absorb throughout your network. For long-term shortfalls in capacity, we evaluated hiring additional shifts and/or resources, bringing on additional sites or outsourcing to a reliable supplier. If the issue was reversed, we dug into the sales pipeline, expanded into additional markets, focused on new product launches and other opportunities impacting the plant’s capabilities and/or region. Remember to evaluate mix changes and the impact on SIOP. If the issue cannot be resolved, we considered layoffs, idling the plant if there are advantages in maintaining the ability to scale in the future, converting the plant to a distribution center, or closing the plant especially if it can be combined more effectively into another location while maximizing the customer and margin effectiveness.
  • Alignment of Sales & Operations: We highlighted key customers and/or big quotes or new product launches so that Sales could provide perspective as you reviewed demand charts. Similarly, we pointed out key capacity shortfalls or overages based on input from Operations leaders and plans to address. Encouraging collaborative thinking and creative solutions was also integral to the process.
  • Inventory & expected purchases: Although we were just bringing the site on SIOP, there wasn’t time to roll out the appropriate upgrades to project inventory levels and forecast purchases yet. Thus, at a minimum, we discussed key trends, opportunities to share inventory and other strategies to more effectively manage this precious resource. For the sites on SIOP over the longer term, they utilized SIOP to proactively manage inventory and reduce around 50%, freeing up cash flow for higher priorities.

By rolling out this multi-site SIOP process, the company was able to keep critical capacity and resources with high potential in the next 6-12 months while supporting customer needs, improving lead-times to gain additional opportunities and maximizing profit, productivity, and efficiencies. We also dramatically reduced inventory for the sites with greater SIOP maturity while maintaining service levels. In addition, we are exploring additional ways to incorporate artificial intelligence and advanced technologies to further improve the SIOP process. To learn more about strategies to utilize AI and advanced technologies to power smart supply chains and smarter decisions, download our complimentary special report.

SIOP: The Path Forward

SIOP should be used as a strategic tool to proactively and predictively navigating changing business conditions while maximizing bottom line results. To learn more about how to rollout SIOP, download a complimentary copy of our book, “SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth“. Clients value the practical nature of SIOP in allowing them to gain control over their future business success. In essence, moving from reactive resilience to proactive strategy setting.

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