Supply Chain Now Episode 546

“Sales & Operations Planning is the SINGLE most important process to favorably impact your business in terms of both revenue and profit while serving your customer well.”

-Karin Bursa, Host, TEKTOK

A resilient S&OP process is even more critical now with heightened volatility around both demand and supply as a result of the global COVID-19 pandemic. In this episode of TEKTOK, powered by Supply Chain Now, host Karin Bursa shares the 3 Things C-Level execs need to know about Sales & Operations Planning & Inventory Optimization.

Intro/Outro (00:01):

Welcome to TEK TOK digital supply chain podcast, where we will help you eliminate the noise and focus on the information and inspiration that you need to transform your business impact supply chain success and enable you to replace risky inventory with valuable insights. Join your TEK TOK. Host Karina Bursa, the 2020 supply chain pro to know of the year with more than 25 years of supply chain and technology expertise in the scars to prove it Karin has the heart of a teacher and has helped nearly 1000 customers transform their businesses and tell their success stories. Join the conversation, share your insights and learn how to harness technology innovations to drive tangible business results. Buckle up it’s time for TEKTOK powered by supply chain. Now

Karin Bursa (01:06):

Supply chain movers and shakers Karin Bursa here. Thank you for tuning in to TEKTOK on this episode, we’re going to address three opportunities to favorably impact inventory and sales and operations planning outcomes. You got that, inventory and sales and operations planning outcomes. So S&OP, sales and operations planning, or perhaps you referred to it in your business as SIOP sales, inventory and operations planning, or integrated business planning (IBP) whichever acronym you use. Most companies look at sales and operations planning as a comprehensive enterprise planning process that considers both volumetric (how much product and where should that product be located) and financial measures, what revenue will this inventory investment deliver for the business and what’s the projected profit around those investments? So, bringing the volumetric and financial measures together in your robust integrated business planning or sales and operations planning process. For today’s discussion, I’m going to refer to all of these as S&OP, which is the most common form that is used.

Karin Bursa (02:30):

Sales and operations planning is the single most important process to favorably impact your business. It’s going to do this in terms of both revenue and profit, but here’s an interesting statistic about sales and operations planning. This came from a recent report from Supply Chain Insights which found that the average manufacturing company has been working on their sales and operations planning process for about seven years, spending seven years honing their S&OP process. However, only 38% of companies were satisfied with either the process or the outcomes that were resulting from their investment in S&OP. So, only 38% were satisfied. What does that mean to you? That means there’s lots of upside potential and a great opportunity for you to help favorably impact your business. And I believe that a resilient S&OP process is even more critical now with the heightened volatility around demand and supply as a result of the global COVID pandemic.

Karin Bursa (03:45):

So check the show notes and download the Supply Chain Insights report. The report is called Sales and Operations Planning, A Guide for the Supply Chain Leaders During the Pandemic. I think you’ll find lots of interesting insights.

Interest in inventory optimization continues to increase as well as companies seek to reduce excess inventory or to realign their product portfolios and get better leverage out of production and distribution constraints and do this while achieving the desired customer service levels. Now, a lot of that inventory optimization focus has been on finished goods product, ready to be shipped to customers. However more sophisticated companies recognize there’s huge opportunity in looking at inventory in a much more comprehensive manner. This is commonly referred to as multi-echelon inventory optimization (MEIO). Again, multi-echelon inventory optimization or the acronym that’s used as M E I O. Think of finished goods, think of work in process, think of raw materials that are across your global supply chain network. There is likely a huge opportunity to get better leverage out of all of those investments and to gain a real competitive advantage in the marketplace.

Karin Bursa (05:11):

Now, Inventory Optimization is a very important topic and we will peel this off and cover it in more detail in a future podcast, but let’s start with the basics today. The most common misperception that C-level executives have regarding inventory optimization is…Are you ready for this? Many C-level executives believe that they are already optimizing inventory investments. The term inventory optimization is thrown around so often that most major companies can show a sustained inventory reduction over a one-year or three-year horizon. But the reality is much of that reduction was done by brute force or by mining all the low hanging fruit across their supply chain network. I guarantee you there’s more opportunity and that opportunity can be used to gain a strategic advantage.

Many executives also look at their inventory with a fairly static lens. They’re not considering the impact of new product introductions (NPI) or product retirements including discontinued or obsolete items – what’s been added or deleted from their product portfolios.

Karin Bursa (06:28):

These are huge opportunities to improve overall margins for your business. So, to continue reducing inventory, and more importantly, to realize a step change in inventory performance C-level management has got to do three important things.

  • Give the supply chain and sales and operations planning team, a seat at the decision-making table. The opportunity to be much more proactive in the recommendations and scenarios that are evaluated to help propel the business forward.
  • Ensure that the company has a robust sales and operations planning process. One that enjoys significant executive sponsorship and support. S&OP cannot be successful  if it’s being pushed from the bottom of the organization up. It is a process that will help support executive level decision-making and the ability to evaluate a multitude of business scenarios and how you source and produce and distribute your products to satisfy specific customer needs.
  • Determine inventory targets based on proven science. That’s right Science, not intuition. Not that we’ve always done it this way, not on tribal knowledge, not on a single inventory policy that is spread across your entire product portfolio. You’ve got to embrace technology and embrace the science of optimization.

These three things. 1) give the S&OP team a seat at the decision-making table and the opportunity to be more proactive. 2) develop a robust sales and operations planning process that enjoys the support of the executive team. 3) determine your inventory targets based on proven science, not folklore.

So with that in mind, let’s challenge your S&OP team to treat inventory targets as a planning input, not just a planning outcome. Most companies think of inventory as just finished goods (an output), just what’s available to ship to a customer today, tomorrow, next week.

Karin Bursa (09:05):

In contrast, the S&OP team knows that inventory targets are both inputs and outputs, and it’s incumbent upon the S&OP team to help educate the rest of the company about creating a closed loop process around inventory target setting.

Now the closed loop inventory target processes really has two parts to it. The first is calculating the proper inventory targets through a comprehensive S&OP process. And the second is really to modify the plan as actual demand – actual customer orders are coming in and satisfied and actual inventory levels deviate from the target performance. We need to capture all of these insights. This information is going to help us plan better in the future. And, it’ll help to fuel any artificial intelligence that may be calculating and planning your business.

Karin Bursa (10:22):

One of the most renowned experts on multi-echelon inventory optimization, Dr. Sean Willems, the chair of supply chain analytics at the University of Tennessee shared a great analogy with me. And, it’s an analogy that I think is even more pertinent today, given some of my personal behaviors during the COVID crisis.

So here’s an everyday analogy for the critical nature of thinking about inventory as both an input and an output of sales and operations planning. It is the process of ordering takeout food. When you place your order and they quote you a delivery time, either on the phone or online, that is a calculated input to the system, it generates with your meal being prepared, cooked, and packaged and ready for delivery. The actual delivery time is the output. That’s when the customer received the order and was satisfied by the goods and services they received both matter. Both metrics are critically important to the overall customer experience, the overall customer satisfaction.

Similarly calculated and achieved inventory targets both matter for your business.  Was your order correct? And was it ready for consumption by your customer at just the right time? Okay. So once the broader company understands why inventory targets are so important, they can start managing to them. And they’re going to better understand how you can effectively use techniques like inventory buffers and safety stock to ensure that you achieve the desired customer service levels and the production schedules that you set for your organization.

Now, remember, we’re going to dive deeper into multi-echelon inventory optimization in an upcoming TEKTOK podcast. Like any initiative worth pursuing, optimizing the performance and outcome of your sales and operations planning process requires investment in people, honing your process, leveraging technology to support the S&OP process giving you the ability to evaluate multiple scenarios for your business, and the data to fuel the process. Spend time in all four of these areas. And for many organizations, you’ll find there’s lots of opportunity.

Karin Bursa (12:50):

Remember the three things we need for our C-level executives to get on board with S&OP.

  1. Get a seat at that decision-making table around sales and operations planning. Let’s harness the opportunity to be more proactive.
  2. Ensure your S&OP process has Executive level support. If you are not helping to answer the questions they’re asking, refine your process and present the scenarios they need to make better decisions.
  3. Evaluate inventory as both an input into the process, as well as an outcome of a good refined sales and operations planning process. And then finally be sure that you are basing inventory targets on proven science. Yes, this is where your supply chain planning and your sales and operations planning technology solution can drive significant value and save you time. You cannot get there with spreadsheets.

Karin Bursa (13:58):

I hope these insights on both S&OP and multi-echelon on inventory optimization will raise your supply chain IQ. And don’t forget to download the supply chain insights report that you find in the show notes.

The Supply Chain Insights report is Sales and Operations Planning: A Guide for Supply Chain Leaders During the Pandemic.

And on the topic of raising your supply chain IQ, be sure to check out the wide variety of digital content at www.supplychainnow.com. And while you’re there, find TEKTOK that’s TEK TOK and subscribe. You don’t want to miss a single episode.

This is Karin Bursa, your host for TEKTOK the digital supply chain podcast, helping you eliminate the noise and focus on the information and inspiration you need to transform your business. We’ll see you next time on TEKTOK powered by Supply Chain Now, the voice of supply chain.

Karin Bursa is the 2020 Supply Chain Pro to Know of the Year and the Host of the TEKTOK Digital Supply Chain Podcast powered by Supply Chain Now. With more than 25 years of supply chain and technology expertise (and the scars to prove it), Karin has the heart of a teacher and has helped nearly 1,000 customers transform their businesses and share their success stories. Today, she helps B2B technology companies introduce new products, capture customer success and grow global revenue, market share and profitability. In addition to her recognition as the 2020 Supply Chain Pro to Know of the Year, Karin has also been recognized as a 2019 and 2018 Supply Chain Pro to Know, 2009 Technology Marketing Executive of the Year and a 2008 Women in Technology Finalist. 

 

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