Tag Archive: demand planning

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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Is there an ROI on a Forecasting System?

September 12th, 2019

A Client Question
Since forecasting can deliver significant benefits with increased levels of service, inventory turnover and margin improvement, the question that inevitably arises is whether it makes sense to purchase a forecasting or demand planning system. Of course, the answer is: “It depends”.

In one client situation, goods were manufactured in Mexico and purchased from Asia. Key customers were large retail outlets. Demand seemed to change daily.  Yet, lead times were in the months if the ‘right’ stock wasn’t in the ‘right’ place at the ‘right’ time. Of course, they could cover some small changes by adding freight costs but that isn’t a recipe for profit. Improving the forecast would improve their success. So, the question turned to whether a system would have a ROI.

The Answer
In their case, they could achieve a rapid return on investment by using a forecasting system. However, let me say upfront that more often than not, I do not recommend a system. It completely depends on whether it will drive the appropriate level of improvement and associated results or not. In this case, we could easily drive dramatic forecast accuracy improvement since we started out at such a low level of accuracy due to the business environment, industry and key customers. The people understood the importance of the providing forecast feedback and although the key customers didn’t have “good” forecasts to provide, they could provide data we could analyze. In these types of situations, we are able to reduce inventory by a minimum of 20%.  It should be noted, though, that results can be far greater.

Food For Thought
Although forecasting systems can be a great idea to drive service, inventory and margin improvement, they do not always provide a return. Take a step back to understand your industry from a forecasting point-of-view:

  • Is demand constantly changing?
  • Are you supporting small numbers of customer/location points with less than 25 items or is it 100 fold?
  • Are you able to gain key customer input and/or point-of-sale data?
  • Do you have anyone familiar with demand planning and forecasting to be able to make sense of what a system is telling you?
  • And, last but definitely not least, have you found the appropriate scale for your forecasting system?

Trying to kill a fly with an assault rifle is overkill. If you are interested in running your situation by us, contact us.

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The Value of Demand Planning

February 13th, 2018

In supply chain circles, there are lots of exciting concepts to discuss and debate such as lean, master scheduling, theory of constraints and many more; however, we have found that our most successful clients start with the customer!  

If you concur that we are in an Amazon-impacted marketplace where the customer is king (no longer is it cash!), prioritizing demand planning is essential.  

Do you have a position focused on demand planning?  Or do you have someone who knows it is at least part of their focus?  Does anyone realize its importance?  Let’s discuss the value…

  1. Without customers, you have no company– understanding their needs and what will compel them to buy from you vs. the competition couldn’t be more important.
  2. Do you know how your forecast compares with the recent past?– Again, understanding your customers and why they are changing couldn’t be more important to positioning your business to succeed long-term.
  3. Let’s take a step back – do you have an idea of what you think you’ll sell this year?– Let’s hope so!  Imagine how hard it will be for your HR resources, your operations resources (to determine which machinery to prioritize, purchase and train on), your suppliers and more to run efficiently while serving you and your customers if everything is a surprise.
  4. Is your sales mix changing? – We’ve seen many clients who spiral into a mess not because they don’t have a forecast but because they have no idea that the product mix has changed.  Different products come with different materials, different skills, different complexity and different requirements overall.
  5. What is the timing?– We’ve also seen clients with predictable annual sales (actually incredibly predictable) yet the monthly, weekly and daily sales could be vastly different.  Operations couldn’t keep up.  The customer suffered.  Margins declined.  Timing matters!

We would venture to estimate that 99% of our clients can benefit from an increased focus on demand planning.  Why not give it a go?  If you would like an audit of your current process, please contact us.

 



SIOP Success is a Straight Line to People

May 26th, 2016
SIOP success

The technical aspects of SIOP still have to filter through people. Success happens when everyone in an organization is operating from a single integrated plan.

As with everything in business success, SIOP (sales, inventory and operations planning) success is a straight line back to people. Thus, it is the reason I started my business with the “Profit through People” brand and continue with it as one of our service lines and for our newsletter. In the last 5 years, we have completed many SIOP projects and have found the keys to delivering rapid, bottom line results – exceptional customer service, significant growth, improved margins, accelerated cash flow and high morale. These keys to success are built into our proprietary process for SIOP, 4 EXCEL, which drives exponential results.

Even though SIOP is all about aligning demand with supply and has many technical components ranging from demand planning to master scheduling to inventory strategy and cash flow planning, we have gained the most significant results by aligning ALL areas of the organization on one page – the PEOPLE! There is no coincidence that the first of the 4 E’s of EXCEL is ENGAGE.

Some of the most challenging issues we’ve faced while implementing SIOP had nothing to do with the technical components. For example:
• How do we get sales and production on the same page?
• Can R&D and production work to one integrated plan?
• How can we align our customers and suppliers on the same page?
• How can we get finance, sales and operations on the same page?
• And so on…

We find that becoming expert in culture change and collaboration is important to success. Clearly, communication is at the crux of this equation as well. If you are thinking about how to get each of these parties to see how SIOP will benefit them to align on one page, give us a call to learn more about 4 EXCEL.

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SIOP/Integrated Business Planning

July 7th, 2015
siop helps put the planning puzzle together

Manufacturing and distributing product to meet customer demand can be like a puzzle unless you start using SIOP as a core process to run your business.

SIOP (sales, inventory, & operations planning) taken to the best practice degree is often associated with integrated business planning. In some circles, they are seen as interchangeable. In others, it is seen as the “next step” for SIOP. It is nomenclature to me as I see fully leveraging SIOP as common sense.

Substantial results will follow. For example, several of my clients have achieved one or several of the following with SIOP/Integrated Business Planning: 1) successfully supported dramatic growth; 2) improved service levels; 3) slashed lead times; 4) improved margins; 5) accelerated cash flow; and 6) increased productivity.

Why not use SIOP as a core process to running the business? Wouldn’t that be a common sense approach to success? As the famous William Occam said, “The simplest solution is often the best”. This also syncs up with what I’ve found to be the most successful philosophy – start with the simple and expand with what will provide the most value to your organization.

So, what are the common keys to success?

  1. Start with demand: It is always appropriate to start with demand. Focus in on your customers. What do you expect your customers to buy? Which products are most popular? What else can you offer your customers to go the extra mile? Getting a solid handle on demand is a great place to start.
  2. Forecast accuracy: The more predictable your sales, the less inventory you’ll need to carry to meet customer expectations. How volatile are your customers’ ordering patterns?
  3. Rolling # of months or years: As each month goes by, you’ll want to add a month to the end of your planning cycle. In essence, the concept of a rolling plan is essential to ensure you take the long-term, continually reviewed and updated view. I love the way one of my manufacturing clients describes this concept – it’s like a conveyor system where one month drops off and the next one gets added on.
  4. Inventory strategy: Your inventory strategy is one of the factors that will be used in the development of the master schedule. How many turns are achievable for your industry and in supporting your company strategy? Inventory is used to cover volatility and lead time. What is needed?
  5. Service level plans: What are your customer expectations? Where do you stand in the market? Should you shoot to be competitive, distinct or breakthrough on service and lead times? These factors will affect your resulting inventory expectations.
  6. Master schedule: Translate the demand into supply requirements. Combine demand, inventory strategy, level loading, and lot sizing into a master production schedule.
  7. Purchase plans: Translate your master schedule into a purchase plan. Similar to the master schedule, combine the master schedule, inventory strategy, level loading and lot sizing into a purchase plan.
  8. Inventory plan: Once you know your demand plan, master schedule and purchase plans, the resulting inventory plan will follow.
  9. Capacity plans: How do your staffing and machine capacity plans align with your master schedule? Will you need to ramp up? Cross-train? Purchase machinery and equipment?
  10. Cost & margin plans: It only makes imminent sense to sync these plans with your cost improvement plans. Assuming you have a good handle on your pricing and mix, a margin plan will emerge.
  11. Cash flow plans: Once your inventory plan is known, it is achievable to estimate cash flow requirements and plan accordingly. Will you need financing? Can you support your growth and investment objectives with your inventory strategy?
  12. Make vs. buy decisions: Strategic decisions including make vs. buy options will arise through the SIOP process. The right people are together to evaluate what will provide the most value for the business.
  13. Capital plans: Certainly, capital plans will be a by-product of the SIOP process.
  14. Collaboration plans: How do your integrated business plans align with your customer and supplier programs? Share critical information and collaborate for success.
  15. Communication & alignment: One of the key advantages of a SIOP process is to align ALL functions, customers and suppliers on one plan. Clarification rules!
  16. One plan: The concept of one plan is paramount to SIOP success as the 80/20 is in alignment, collaboration and execution with clarity.
  17. Action items: Let’s not forget action items. Without solid execution and follow-up, no process will thrive. 

If you follow these key factors for success, your monthly SIOP process will align resources and result in a rolling forecast that integrates with your financial plans and operational plans. In essence, you’ll have the 80/20 of running a successful business in one place.  

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