Category: SIOP / S&OP

Top Trending Client Request: Reduce Inventory

October 7th, 2019

More than 50% of client requests in the last several months have related to inventory. In fact, it seems to be a trending hot topic! In today’s era of the Amazon Effect where customers expect more and have ZERO patience to wait, there are challenges like a volatile environment with tariffs and concerns about space, costs and more, more inventory is needed to grow the business yet businesses cannot afford it. Learning how to reduce lead times and improve service levels while reducing inventory and costs is of utmost importance.

In partnering with several clients on just this topic, we’ve found the same ingredients to success yet the mix and proportions can be quite different. Several of the top contributors behind inventory success include:

  1. Demand planning: It turns out there is a lot to be said for fine tuning your demand plan (sales forecast). How well do you understand your customer requirements? We’ve seen that even in the best of clients, there is a gap between perception and reality. In 80% of our clients, there is a path to significantly improve the forecast with a direct correlation to inventory reduction
  2. Production &/or material planning: Not surprisingly, there is no ‘magic process’ that works for every client.  However, there are general themes that are identical. In every case, there is some sort of logical combination of master scheduling/material requirements planning (MPS/MRP) and kanban processes. How we figure out the right mix, proportions and formulas is the trick. It depends on the manufacturing/distribution type, people, processes, systems, customers, suppliers and related capabilities and more.
  3. Distribution planning: Similar to production and material planning, we’ve seen a significant opportunity with several clients to leverage a more proactive yet simpler distribution planning approach. The process will involve concepts from DRP (distribution requirements planning) and kanban. Often, this simple process can provide the visibility required to better manage inventory levels.
  4. Lead Times: Certainly, none of these can be viewed in isolation. Customer lead times will dictate the requirements of your network, whereas supplier lead times must be built into your planning processes. Distribution lead times and options (mode of transportation) could also make the difference between OTD (on-time delivery) or OTIF (on-time-in-full) and late delivery as well as profit and loss.
  5. Capacity: Understanding your capacity (skills, labor, machinery, space, and more) and how it relates to your requirements is of paramount importance. This process of aligning demand with supply across your organization and supply chain is termed SIOP (sales, inventory and operations planning).

In our experience, clients can reduce inventory by 20-30% on average without negatively impacting customer service. In fact, we often find that a win-win-win can be created: improved service, inventory turns and cost/margins simultaneously.

Read more in an upcoming article I’ve written for Distribution Trends.  Feel free contact us to discuss your situation in detail.

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SIOP/ S&OP and Bottom Line Benefits

July 27th, 2019

According to a Hackett group study, the benefits of SIOP (Sales, Inventory & Operations Planning) can be dramatic.

First, let’s back up to describe SIOP: It is an integrated business process that aligns demand with supply through which the executive/leadership team continually achieves focus, alignment and synchronization among all functions of the organization.

In our experience with over 20 SIOP projects, our clients have experienced these same results (and often even better ones), no matter the industry, company size or priority. Simply put, when done well, you’ll have more cash, profit and revenue. What’s not to like!

The types of results fall into three buckets:

  1. Working capital – Undoubtedly, freeing up inventory to increase cash flow is becoming a greater priority as executives realize just how much cash is tied up in servicing customers’ Amazon-like expectations with global supply considerations. Therefore, it is not surprising that we’ve received a serious uptick in requests to increase inventory turns. SIOP is always a part of the solution. Hackett research says 20-30% improvement is to be expected. We have certainly found this to be true.
  2. Cost reduction – Whether we term this cost reduction or margin improvement, 5-10% improvement is what the Hackett study shows. We have seen these results, even by default (when the SIOP program was focused on improving service). Thus, if they can be achieved by default, they certainly can be achieved with focus! Items that fall into this category include material cost reduction, freight cost reduction, labor productivity improvement, and fixed cost optimization.
  3. Sales growth – According to the study, a 2-4% improvement is not uncommon. We have experienced dramatic results in this area with lead time reduction, on-time delivery performance improvement, customer scorecard wins and strengthened partnerships that lead to new and expanded sales opportunities.

For example, in a significant metals-related aerospace business, we started the SIOP journey to reduce inventory levels to free up debt. By partnering with sales to better understand customer requirements and by better aligning the sites on a single plan and set of priorities, we were able to align demand with supply. It was truly about alignment as the performance measurements couldn’t be completely changed (and they often didn’t support the same decisions as SIOP). Yet, we gained executive alignment and focus. This led to our ability to align the various functional areas on a single objective while still recognizing the site level objectives. Therefore, we were able to reduce the inventory in the core product line by 30% while ensuring customer satisfaction levels were maintained or improved.

The question isn’t whether you’ll benefit from implementing SIOP. The only question relates to what you’ll achieve based on your priority focus. Will it lean in the direction of margins, cash flow or customer loyalty and revenue growth? If you’d like to learn more about how to benefit from SIOP, read about it in our blog, explore our proprietary process for SIOP, 4 Excel or contact us to discuss an assessment.

 

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Manufacturing and Distribution Expert, Lisa Anderson, Confirms Inventory, Cost and Logistics Pressures in Supply Chain

July 12th, 2019

CLAREMONT, CA,  July 9, 2019 –  Manufacturing and Supply Chain Expert Lisa Anderson, MBA, CSCP, CLTD, president of LMA Consulting Group Inc. confirms that supply chain resiliency requires acute attention to inventory and cost pressures for manufacturers and distributors.  As predicted in her 2019 forecast, “Manufacturing & Supply Chain in the New Normal”, ever-changing customer needs, increased expectations, tight labor and transportation challenges are the ‘new normal’ and key issues for manufacturing and the supply chain.

Economic volatility and what Ms. Anderson calls the Amazon Effect – high customer expectations requiring rapid deliveries, accessibility and flexible, customized service – is putting pressure on costs and inventory levels.

“It’s like the perfect storm, tariffs, last minute changes, rapid delivery requirements and increased customer demands are challenging the supply chain. In turn, inventory levels are increasing.  Add in elevated labor and logistics costs and it gets tougher and tougher to control costs,” Ms. Anderson explains.

The result is an increased focus on improving inventory turns to accelerate cash flow, as well as an emphasis on re-shoring and near-sourcing.

“Aligning sales forecasts with operational capabilities is critical for manufacturers to thrive. In our 14 years of consulting, sales, inventory and operations planning (SIOP) has consistently delivered the strongest increase in business value. Leveraging best practices in demand planning and better aligning sales forecasts with operational capabilities will drive significant improvements in customer performance and the bottom line,” she says.

LMA Consulting Group works with manufacturers and distributors on strategy and end-to-end supply chain transformation to maximize the customer experience and enable profitable, scalable, dramatic business growth. As a result of her work with manufacturers and distributors and financial knowledge of factors affecting the bottom line, Ms. Anderson has been appointed by the Logistics Council of the Inland Empire Economic Partnership (IEEP) to lead the effort to develop a consortium for logistics, supply chain and advanced manufacturing success.

“Inland Southern California leads California in job creation and manufacturing growth. We are in an ideal situation to become a global leader in logistics, advanced manufacturing and export excellence. I’m very excited to be spearheading the effort with the IEEP to create a Consortium of Excellence to support the future of the industry and accelerate regional growth,” she says.

About LMA Consulting Group – Lisa Anderson, MBA, CSCP, CLTD

Lisa Anderson is the founder and president of LMA Consulting Group, Inc., a consulting firm that specializes in manufacturing strategy and end-to-end supply chain transformation.  She focuses on maximizing the customer experience and enabling profitable, scalable, dramatic business growth. Ms. Anderson has been named a Top 40 B2B Tech Influencer by arketi group, a 50 ERP Influencer by Washington-Frank, ranked in the top 46 most influential in Supply Chain by SAP and named a top woman influencer by Solutions Review. She recently published, I’ve Been Thinking, an inspiring collection of 101 strategies for creating bold customer promises and profits. A regular content contributor on topics including providing a superior customer experience with SIOP, advancing innovation and making the supply chain resilient, Ms. Anderson is regularly interviewed and quoted by publications such as Industry Week, tED magazine and the Wall Street Journal.  For information, to sign up for her Profit Through PeopleTM Newsletter or for a copy of her book, visit LMA-ConsultingGroup.com.
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Media Contact
Kathleen McEntee | Kathleen McEntee & Associates, Ltd. | p. (760) 262 – 4080 | KMcEntee@KMcEnteeAssoc.com   
                                                         

 



The Strategic Benefit of SIOP

June 26th, 2019

SIOP (Sales, Inventory, Operations Planning) should not be relegated to the Planning Department. Although the planning group is a key participant and might lead the process, SIOP touches upon several strategic issues while creating alignment with Sales, Operations, R&D/ New Product Development, Finance, Purchasing, and others. As a CEO, you must become interested!

We have worked on countless SIOP projects with clients across industries as diverse as building products, food and beverage, healthcare, and aerospace.  It has proven to be the most effective at achieving the win-win-win of enabling growth while maximizing service, cash flow (inventory) and profit. For example, at one aerospace client, we put the fundamentals in place to support SIOP (scheduling, planning systems MRP/MPS, forecasting) and then rolled out a SIOP process involving all key aspects of the organization. Although our objective was to bring service levels from the 60%’s to the high 90%s, we not only accomplished that metric but we also improved margins by 5% and increased morale and engagement. What’s not to like with these results!

Critical Aspects of SIOP
Let’s start with just those elements that are most important to achieving results:

  • Can you get executives involved? Of course, it is better to gain executive involvement upfront.  However, I have found that it is quite doable to gain the involvement over time as well. For example, in one client situation, a key executive was not on board at any level at the start.  So, as we rolled out a pilot process, we convinced him to give the process a try. Once he sat in on the executive SIOP meeting, he became more interested because strategic issues arise such as make vs. buy, changes in sourcing, impacts to sales strategies and more.
  • What do you have to do to get directionally-correct information for making decisions? By NO means do you need perfect information.  In fact, if you wait for perfect information, your decision will be long past. Yet directionally correct information is imperative so that you can make fact-based decisions and/or gain approval from corporate or your Board for what you know must be done to succeed. I cannot think of a client situation where I couldn’t gain access to at least directionally correct information after an assessment, no matter how ancient their ERP system.
  • Will you involve all relevant departments in the SIOP process? If you focus on data and not the people, you will not succeed. The 80/20 of success is to bring typically disparate groups together to align on 1 plan/ path forward. It is much easier to say than to accomplish, and so those clients that do this well have a far higher success rate than the rest. You should involve Planning, Purchasing, Operations, Logistics, Customer Service, Sales, Finance, New Product Development, and any key area of your operation.

SIOP is not a quick resolution.  However, you can make quick interim progress . Similar to safety, it must become part of your day-to-day culture. As business conditions change, roadblocks naturally arise through the process. We’ve found that they have a FAR higher chance of being averted or minimized when they arise as part of the process instead of related to one person or department who typically is seen as the “problem”. Strategic issues also arise naturally through the process so that they are proactively addressed instead of resulting in a reactionary panic.

You can start the SIOP journey with an assessment of readiness with recommendations for improvement. Several clients have started with this approach so that they knew which building blocks to put in place and whether the benefits would drive a substantial return on investment at this juncture. If you are interested in this type of assessment, contact us.

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Why Inventory Will Matter Again

June 8th, 2019

I was on a bit of a trip down memory lane over the holidays as I reconnected with former colleagues from when I was VP of Operations and Supply Chain at PaperPak, an absorbent products manufacturer for healthcare and food products.  I recently talked about healthcare manufacturing with a group of powerful women (and a few brave men) at the Professional Women in Healthcare event.  When inventory arose as a hot topic, I thought about paper rolls (pictured).

Actually, inventory was a hot topic as we partnered with key customers to develop collaborative forecasting models, implement vendor managed inventory programs to dramatically reduce inventory and free up cash while improving service levels and to maximize storage and efficiencies in our operations, distribution centers and, most importantly, throughout our transportation system (since absorbent products are bulky and freight intensive).

In our view, inventory is circling back in importance and will become a hot topic again as customers expect immediate, customized deliveries with the expectation of easy returns and last-minute changes to orders in production, in the warehouse or in transit. What are you doing to get ahead of this ‘new normal’ assumption?

To throw out a few ideas to get your juices flowing:

  • Get demand further into your supply chain – what are your customers’ customers selling or using of your product?
  • Be collaborative with strange bedfellows – I’ve written several articles recently on this topic as the most successful executives see the value in finding the ‘win-win-win’
  • What talent do you have focused on having the ‘right’ inventory at the ‘right’ place at the ‘right’ time? You could double your inventory and decrease service if you don’t know how to navigate these treacherous waters.
  • How sure are you that your demand and supply (labor, skills, machine capacity, buildings/ storage capacity, cash flow) are aligned and will remain aligned (review your SIOP plans)?

This topic reminds me of one of my early articles, the Million Dollar Planner. Although that sounds insane, it might be worth thinking about conceptually. If you maximize your customer experience, profitability and cash flow, the return is frequently in excess of a million dollars. Most importantly, what could you do with an extra million dollars? Invest in new products and services to spur growth? Build your infrastructure to enable scalable growth? Build your talent base to create sustainability? The possibilities are limitless.

Contact us if you’d like to discuss further.