SIOP (Sales, Inventory, & Operations Planning)

SIOP stands for Sales, Inventory, & Operations Planning and is a 4-part cycle (typically monthly) that is built to get your team on the same page for a 12-24 month planning horizon.

Never heard of SIOP? Most haven't which is a little crazy, since it's been used since the 1980's. Even more interesting, businesses that regularly practice SIOP often fail to succeed with a unified outcome. You will always see experts who try to sell different methods and practices, but you won't need them. I've prepared a small overview of the whole process below and will make a more detailed article later for each separate part of the process. For now, let's talk SIOP!

Step 1: The Demand Process

The Demand Process is entirely meant to get your Sales, Marketing, & Product Management teams on the same page with what the market is doing. The market, in this source, is referring to customers, the ultimate end users who actually need the product. We want to understand what the market is doing, because the behavior is important. We need to understand if A happens, what will it do for our B products. For instance, most consumers who enjoy grilling love to do so during the summer. As such, the demand for grills tends to grow at the beginning of summer. Sure, we may have some customers who will buy a grill during the winter, but it's much less likely. The most critical piece of this process is that we want to understand the unconstrained plan. Unconstrained means knowing what would happen if you had a totally unlimited supply of finished products.

Step 2: The Supply Process

Once we receive the demand plan from Step 1, we need to analyze it to figure out where we WON'T be able to meet the plan. Once you have created your simulation using the new demand plan, you can run a new master schedule and use your rough cut capacity planning tools to measure the hours needed to build the products. The constraints found as part of the process are the critical pieces to make a plan to meet the market, maximizing our market share. Our constraints can be made of shortages (AKA gaps): staff, material supply, equipment, assembly areas, and warehouse space (and many more not listed here). We need to note the gaps to your company's budget and the gaps to your unconstrained demand plan.

Step 3: Financial Reconciliation (AKA the Pre-Executive Review)

Financial reconciliation is meant bring both processes, and those involved, together to discuss the plans. The first action is to note the gaps to the budget from both the demand and supply. Gaps to the budget need to drive communication and negotiation from both sides of the table, because a unified front needs to come together to create the recommendations for the executives. The end goal of SIOP is to present the executive team with decision requests, so they can make the best decisions for the business.

Step 4: Executive Review

We've made it to the end of the cycle, and we should be prepared to present the executives with the plans and decisions they need to make, so we can execute the plan. The best part of the final review is that this process should net you the approvals you need to get the job done ("Hamilton" anyone?). Once the Exec Review is completed, everyone should leave with a single set of numbers. This set of numbers is the sales plan, the financial plan, the marketing plan, the operations plan, and the material supply plan. After a few cycles, your company will turn into a machine, and everyone will be driving in the same direction.

Happy Hunting out there!