Sales, Inventory, and Operations Planning (SIOP)

Challenge

A leading global provider of aerospace products faced decreasing inventory turns, high excess and obsolete inventory, and poor service levels. Key business issues described by management included:

  • Forecasts of profit were regularly inaccurate
  • Inventory turns were trending unfavorably
  • High employee turnover

While all these symptoms pointed to SIOP, there were several competing root cause theories:

  • Broken or inaccurate MRP1
  • Staff not following developed production and procurement SOP2
  • Unreliability of customer production requests
  • Poor vendor delivery performance

 

You can’t physically see SIOP, but it has a significant impact on your operational and financial performance.

Assessment

To determine the key root causes and best course of action for improvement, TriVista began with a structured discussion with the client’s leadership identify the functional areas of impact, like planning and manufacturing.

TriVista followed with a detailed, diagnostic at each large facility which included 1) interviewing key process leaders, 2) onsite evaluation that included conducting TriVista’s proprietary benchmark assessment, and 3) completing a detailed data analysis. This allowed TriVista to determine the root cause issues from the competing theories and assess the drivers of the suboptimal business performance, including:

  • Past due backlog
  • Processing time
  • Actual vs. scheduled recent performance
  • Purchase vs. production quantity variances
  • Supplier quantity and on time performance
  • Demand accuracy
  • Order entry, ATP3, and schedule break processes
  • MRP conditions

TriVista’s diagnostic report itemized the SIOP-related root cause issues, financial opportunities, and specific requirements necessary for solutioning. Working collaboratively with the client, the team developed an implementation plan to address the greatest opportunities.

Implementation

Implementation involved three TriVista experts working cooperatively with management at the two client locations that had had the greatest opportunity for financial improvement (EBITDA4 and working capital), as well as on-time delivery improvement.

At the first facility, over a 26-week period, the collaborative team developed:

  • Reliable and predictable production and planning standards
  • Master Production Scheduling, helping on-board the role of Master Production Scheduler
  • A long-term demand plan
  • A cross-functional monthly SIOP review process with client’s personnel
  • Several key models to begin tracking performance indicators:
    • Standards update process
    • PPV5 inventory carry cost tool
    • Master Production Scheduling model
    • SIOP long term demand and capacity requirements model

At the second site, over a 16-week period, TriVista implemented continuous improvement (CI) and SIOP solutions in partnership with the client team, by developing:

  • A capacity model to assist with understanding resource requirements, tact or flow, and labor requirements of demand
  • A finite scheduling routine to support a single piece flow production model
  • A single piece flow redesign to remove batch processing inefficiencies driving long lead times and excessive WIP6 inventory
  • Several key models to begin tracking performance indicators:
    • Single piece flow model and schedule routine
    • Manufacturing lead time calculation

Results

Our team created significant improvement in operational performance by meaningfully enhancing scheduling and demand planning at both facilities.

TriVista team members come with years industry experience;  therefore, we speak the same language as our clients, contributing to our ability to garner the support of plant leadership and receive management buy-in.

At the first facility:

  • Annual revenues increased from $75M to $115M in 18 months
  • EBITDA, as a percentage of revenue, increased 30% in 18 months
  • Inventory turns increased from 2.2 to 3.8 in 12 months (driving out $9M of working capital)
  • On-time performance increased from 65% to 85% in 12 months
  • Actual vs. scheduled production stability increased from 70% to 88%
  • Labor force stabilized and turnover improved by 25%

At the second facility:

  • Key product family processing lead times increased from 28 days to under 10
  • WIP inventory decreased by 50% in key processing areas
  • Revenues increased 30% in 18 months, driven by more competitive lead times

Effective SIOP goes a long way in helping business leaders and management teams gain clarity around the core problems facing their business, but equally important is receiving management buy-in and support to carry out these processes for the long term.

 

MRP1 Material Requirements Planning

SOP2   – Standard Operating Procedure

ATP3   – Available to Promise

EBTIDA4   – Earnings before Interest, Taxes, Depreciation, and Amortization

PPV5 Purchase Price Variance

WIP6 Work in Progress