Sales, Inventory, Operations Plan (SIOP) is a process within many successful supply chain organizations that recognizes the integral relationship between all departments in the company, but how do you piece together an SIOP process? Read below for a guide to solving the SIOP puzzle for your organization.
What is a SIOP Process?
Almost everyone loves a good puzzle; putting the pieces together one by one allowing them to create a perfectly built masterpiece is oddly satisfying! Building a puzzle takes time, patience and regardless of its size, takes a great deal of perseverance. As we know, a puzzle never comes fully built; it starts off as individual pieces that work together to connect a pathway to a final result. Without the support from each individual piece, you would be left with an incomplete puzzle. The SIOP process is much like a puzzle. There are pieces of the process that fit perfectly together, working together to connect a pathway not only to a final result, but to a sustainable, successful Process that allows organizations the ability to operate as a perfectly built masterpiece.
There are many important functions that make up a supply chain but one in particular which also drives many executive decisions, defines the needs of future business is the SIOP process. SIOP stands for “Sales, Inventory, Operations Plan”, not to be confused with “S&OP”. One might wonder if there is a difference between the two acronyms or if its personal preference on which acronym your organization uses? The answer is yes, there is a difference between the two although trivial in comparison. Both share the same objective of getting the right inventory to the right place at the right time; but in a SIOP process there is a greater focus on reaching higher levels of Inventory optimization requiring more leading-edge planning capabilities, thus benefiting the business more effectively. By adding emphasis on inventory optimization companies can benefit from having the capacity for planned service levels, demand volatility, and lead time variation for each of their SKU’s. Traditional S&OP planning often deals with product families or wide-ranging product categories and though providing valuable data, this process delivers results at an aggregate or macro level. With the addition of inventory optimization capabilities in the SIOP process, demand plans can be understood further, or at a micro economic level which in most cases is the SKU level.
While driving more effectiveness in an organization is a key component to its success, a greater form of effectiveness is knowing and fully executing on those key components. As stated earlier, much like a puzzle the SIOP Process consists of specific “pieces” or departments that work together to connect more meaningful purpose to the process, better known as cross functional collaboration. The core departments included in SIOP are sales, demand planning, supply planning, purchasing, marketing, finance and lastly and most importantly, executive leadership. I won’t get into the specifics of each department, but it’s important to know and recognize that each of them plays a very critical role in the process. Without the support from each of these departments, again, much like a puzzle, you would be left with an incomplete process.
SIOP Process: Steps to Building the Puzzle
It seems like a straightforward process … buy the puzzle, open the box, take out the pieces, and begin putting them together. Conversely, there’s quite a bit more to it than just that! Any skilled puzzle person knows the best and most effective way to begin your puzzle is to always take the time to follow certain steps. Time spent upfront will result in faster, satisfying and productive results. Leaders across the globe who execute on a SIOP process know this to be true as well. Executing with a proper SIOP process does not happen overnight; much like the old saying “Rome wasn’t built in a Day”, neither is SIOP. There are many strategies organizations use prior to implementing the process and as a working, educated leader in SIOP who has assisted in pioneering the process in an organization, I have found the best methods, or steps to take is to ensure the following: Have a clear vision and focus, accepting adaptability and shared accountability.
Clear Vision and Focus
The development and deployment of successful teams and/or processes cannot take place without clear leadership and a game plan that is understood. A clear vision and focus builds direction which then allows for realistic objectives and expectation setting. The vision should be clearly understood with a compelling call to action; a prophetic image of what’s to come. The focus is then turning this vision into a reality. In a SIOP process, the vision is fairly straightforward; the right inventory at the right place at the right time. The focus aspect then comes from identifying things like standardized works or standard operating procedures associated with each cross functional team’s aim at compliance. The vision of the process begins to be built on the reality with sustainable firmness to it. The vision will not change however the focus points may shift given unforeseen circumstances, i.e. a worldwide pandemic! As long as your organization does not lose sight of the vision, sustainability can always be managed.
It’s common knowledge that the one thing in life that appears to be constant is change. When change is introduced in an organization having the ability to adapt to the change and accept the change will be a critical component to the success of the organization. Speaking from experience, introducing a SIOP process will quickly reveal the ability to adapt (or not!) from those involved in the process to surface. The SIOP process is a clearly defined method that requires steps to be taken and not ignored, overlooked or worked around. This requires a great deal of resilience and accountability (which we will soon get to) from all cross functional teams. Leaders in supply chain, specifically those driving the SIOP process have soon realized that adaptability and behaviors go hand in hand. In order to overcome bad behaviors, a sense of urgency on accepting adaptability needs to come from the top leaders down the chain. In a SIOP process, one missing piece to the puzzle could have an effect on the final outcome; with that, recognizing these behaviors and lack of adaptability will need to be dealt with swiftly in order to not set up the process to fail.
This brings us to the last method, and that is shared accountability. Accountability is the action of being held responsible for the results obtained after performing a given activity and the obligation of an individual or team to perform, adhere to and engage in a task as expected. In SIOP, accountability is a huge part of achieving desired outcomes, improving monthly metrics and satisfying the customer needs. The implication behind accountability must be entirely aligned among all executives and/or leaders of the teams and individuals who contribute to the SIOP process. Without a shared level of accountability challenges will present themselves and compliance will become an ongoing concern. So what does shared accountability look like? In SIOP, as mentioned, there are several cross functional teams that collaborate to ensure the effectiveness of the inputs that drive decisions, operations, and business projections. If there is not shared accountability where each team or individual attends meetings regularly, presents valuable data or direction, adheres to expectations and objectives, and follows thru the end- to -end process, then this results in a missing piece of the puzzle. In order for SIOP to operate as it is intended, all pieces of the puzzle must fit in their place. Not only does shared accountability drive positive results it also acknowledges a healthy, behaving function within supply chain that supports the vision and focus of the organization; it mitigates risks; it harvests better accuracies and monthly metrics; and lastly it reinforces a team mentality. When shared accountability is viewed in the highest regard from executive leadership to leaders of departments to individuals in these departments, the SIOP process can and will yield booming results enabling your organization to flourish.
The Masterpiece of the SIOP Process
The SIOP process is a cyclical process that typically operates month over month, although quarter to quarter can be an option dependent upon the organization. By tracking monthly metrics such as forecast accuracy, inventory level & cost for both finished goods and raw materials and AOP targets, the SIOP process helps an organization to not only plan business projections to come, it too provides detailed visibility on areas where the process may need improvement and where sustaining strategies have been efficient. This all acts as guidance in annual operating plans for year over year business goals.
So, there you have it: a comprehensive understanding of what the SIOP process is. There are, of course, many more details we could get into especially as it relates to the performing functions of each department that assists in driving the process, but for now a general understanding of these basic fundamentals relays the message quite clearly. You now know why the SIOP process is much like a puzzle as well as, what pieces work and connect together to make up the process and lastly, the exclusive steps that can be taken to implement the SIOP process. A suitably functioning SIOP process offers invaluable measures to an organization where continuous improvements and efforts to not only meet but exceed Financial goals is attainable; notably, a SIOP process develops ongoing efforts to meet customer demand, connecting the final piece of the puzzle, creating a perfectly built masterpiece.
Subscribe to Clarkston's Insights
Contributions and collaboration by Samantha Kaib