In corporations today, on the surface, sales and operations are two distinct organizations that appear to march toward very different objectives. While sales wants to maximize revenue, operations works to deliver products at the lowest possible cost.
How do we bring these two together? Within the semiconductor supply chain, forecasting is where these two organizations overlap, specifically in the area of factory loading and inventory management. Their common goal is to drive to a good financial plan and keep operational plan in check always. Inherent to the sales and demand planning are the financial projections but when sales forecasts do not align with the customer demand, enterprises faces risks to the financial plan and potential of creating costly excess inventory & obsolescence (E&O). By taking an integrated sales and operations planning approach, companies can improve their financials, optimize the total product cost and minimize supply risks.
When sales and operations take a siloed approach, the organization is effectively running blind. When working together, Sales forecast can present a picture of what the actual demand will be and provide guidance on the volatility of that demand. Operations can then set guidance on factory loading and tune the inventory to meet the market demand. As these two groups can inform and guide resource management for each other, imagine how resources (people, machines and inventory) waste could compound if the product is over or under ordered or is not in-tune with the manufacturing processes and cycle times. Unutilized resources/equipment will not only add cost, the ‘fall-out’ inventory could hit the cash reserves, all of this due to misguided signals. While flexibility in resources (people, machines and inventory) will always be necessary for the semiconductor supply chain, establishing a controlled and effective process that allows these two teams to communicate effectively will help set expectations and mitigate resource mismanagement.
There is a clear advantage when sales and operations teams interconnect continually. A common integrated management practice known as Sales, Inventory & Operations Planning (SIOP) allows businesses to capitalize on information sharing for reduced customer lead times, accelerated decision-making and optimized inventory. SIOP congregate sales, operations, finance and engineering team to play ‘check & challenge’ recurrently. Implementing this organizational change offers several distinct benefits for a company seeking to better their bottom-line financial benefits and operational efficiencies:
- Communication among teams improves through frequent connection
- Sales teams are quick to capitalize on volatile demand and ever changing market conditions
- Reduces the excess and obsolescence of inventory
- Close gap between the financial plan and the operational plan
- Reduce the product cost and prioritize capital investments
- Improves Product margins by optimizing factory absorption rates
SIOP is best realized when leadership is on board and invested in the process. Encouraging departments to converge and change paradigms is most effective when led by the department leadership arranging meetings and determining new standard operating procedures. At Lumileds we found that, following initial guidance from leadership, the introduction of an initial working group using new SIOP procedures helps define what key performance indicators (KPIs) should be. The behavioral learning and KPIs from this working group can then be applied at scale to an entire business unit with the reinforcement of company leadership. Once deployed at scale, measurement from KPIs ensures ongoing accountability and ownership of SIOP
No company, especially in semiconductor industry, wants to have unstable workforce, high E&O and ill-utilized resources. A closed loop SIOP process offers a planning strategy to help semiconductor companies achieve their annual operating plans while keeping the variables under strict controls. As semiconductor providers begin to integrate SIOP, we recommend looking to research and development cycles for additional insight into planning for product roadmaps and new product releases.
Are you integrating SIOP? What challenges or questions do you have in deploying this process? Let us know in the comments section below.
This article was co-authored by Elle Dings. Elle Dings, senior director worldwide supply chain planning LED at Lumileds. Dings is a seasoned professional with 15 years’ working experience in Global Supply Chain operations, Optimizing/Re-engineering Business Process and Program Management in primarily high-tech manufacturing environments. Dings has held leadership roles managing diverse, global, high-performance teams. She has strong analytical skills and is certified in Black Belt in Lean Six Sigma methodologies. Dings has a BS in Applied Science from Fontys University and an MS in Industrial Engineering from Einhoven University of Technology in the Netherlands.