SIOP Proactive Strategy to Navigate Volatility
SIOP (Sales Inventory Operations Planning) is proving to be a critical tool for clients in successfully navigating volatile and complex business environment turbulence. Tariffs have thrown a wrench into demand and supply plans. Order backlogs have gone from boom to bust and/or vice-versa with little to no notice, and quotes have been put on hold while other ones are expedited, creating significant flux in demand plans and sales forecasts. Supply is experiencing the same whipsaw volatility as suppliers extend lead times, panic over the lack of orders as they see inventory pile up, etc. Clients are turning to SIOP to proactively and predictively navigate these changing business conditions to serve customers while maximizing profitability, responsiveness, and cash flow.
Volatility & Turbulence in Business & Supply Chain
If there is one item in common across all clients and colleagues in the current business environment, it is volatility. The pandemic spurred a series of supply chain disruptions and related events. COVID shortages occurred across the board, and companies realized the extent of their vulnerabilities in their end-to-end supply chains. This was followed by a series of events such as the ship that got stuck in the Suez Canal and the freeze across Texas that kicked off a series of shortages and further disruptions.
Next came heightened geopolitical risks such as the Russia-Ukraine war, the attack on Israel, spurring on additional supply chain vulnerabilities in the Suez Canal with Houthi rebels attacking ships and exploding pagers in Lebanon. The China and Taiwan tensions increased as did the China and Philippine tensions. As if that isn’t enough, these issues were accompanied by weather events and other supply chain issues such as Hurricane Helene, threats of strikes across the global supply chain, and a drought impacting the Panama Canal.
Most recently, tariffs have thrown a wrench into supply chains. Companies aren’t sure if they should pivot or wait it out. The consequences could be severe with price increases, shortages, and demand and supply misalignment. On the other hand, the opportunities could also be dramatic for those companies that are resilient, innovative, and forward-thinking.
Thus, executives need to assess their situation quickly (changing forecasts, capacities, capabilities, capital, cash) and pivot accordingly. Better yet, they should predict and proactively realign their demand and supply plans to support their future success. Companies that do this well will have more opportunities than ever before to shoot to the top of their industry and markets while maximizing profitability and ensuring customer success.
How SIOP Is Spurring Opportunities for Profitable Growth & Success
Clients are seeing the strategic relevance of utilizing SIOP to stay ahead of changing business conditions. For example, an industrial storage manufacturer rolled out a forward view of their demand plan and predictive capacity plan for their main North American sites. Their customers’ due dates moved around frequently as orders and/or deliveries pushed out or expedited depending on installation schedules, changing economic conditions, freight considerations etc. Once SIOP rolled out across the core sites, we could see potential bottlenecks with capacity shortfalls, opportunities to take short lead time orders to increase revenue, and ways to maximize profitability by reallocating production volumes among their sites. In the industrial storage manufacturer, if one site had a capacity shortfall and would require consistent overtime and delays to customer orders, we could analyze moving to a site in a nearby region to mitigate increased freight costs while optimizing their output and better serving the customer. To learn more about how to roll out SIOP, refer to our book, SIOP: Creating Revenue Predictability and EBITDA Growth.
In a medical products manufacturer with similar capabilities in two sites, their SIOP process constantly provided proactive views of demand and supply. As they saw changing customer conditions or capacity bottlenecks in one site, they could reallocate production and transfer materials to meet customer needs while maximizing profitability. In fact, they also used VMI (vendor managed inventory) to manage their key customer’s inventory across multiple sites, and so if they had to switch production between their facilities, they could minimize freight impacts by switching customers that were in the middle of the two sites to ship from the sister site.
They also picked up on changes to the product mix in their sales forecast via the SIOP process. Because this change meant that the workload would increase on the work centers that required higher skilled resources, the company rolled out cross-training programs and provided support resources from the other site to ensure success. Lastly, an industrial manufacturer utilized SIOP to offload excess volume from one facility to another, evaluate staffing changes across multiple sites in the same region, and mitigate the impact of tariffs by moving at-risk tariff volume to their U.S. site. Once SIOP is running on a routine cycle and demand and supply opportunities are highlighted, many opportunities to grow the business, transform the supply chain, and maximize profitability emerge.
If you are interested in reading more on this topic:
Supply Chain Transformation & SIOP Case Study for Success