Optimizing Inventory Management through SIOP (& OneStream)

Sales and Operations Planning (S&OP) has been a staple in the manufacturing and supply chain industries for decades and serves as a means of ensuring that operations and production align with customer sales. However, more recently there has been a stronger shift from S&OP to Sales, Inventory, and Operations Planning (SIOP) with an increased focus on how strategic inventory management can increase profits for businesses.

While S&OP and SIOP are often used interchangeably, there are a few key differences in how the latter optimizes inventory and more effectively takes into account customer needs related to inventory. Both processes work towards the same goal of managing inventory profitably, but SIOP uses more progressive analysis and strategic planning to ensure sales and operations are complemented by frequent inventory calculations and adjustments as needed.

Chiefly, SIOP more directly aligns customer demands with inventory supply by concentrating financial decisions on how to best store, move, order, and manage inventory, thus reducing costs related to insufficient or excess product. For example, while S&OP may focus on calculating supply versus demand, SIOP is more cross-functional and includes sales, supply chain management, marketing, and finance teams working in tandem to align inventory with supply and demand needs.

One example of the business benefits of using SIOP is the common problem of excess inventory. Many companies utilize “safety stock” to ensure that no matter what customer demand exists, inventory is available to meet that need. However, this can result in increased carrying and storage fees that may or may not align with the actual number of product sales. Customer demands can change frequently (and quickly), and excess inventory can easily rack up unnecessary expenses.

SIOP can address a company’s challenges related to overstocking by utilizing precise demand forecasting software to more accurately predict sales numbers in the coming quarter, thus setting more realistic inventory targets. In turn, levels of “safety stock” can be minimized, and an interdisciplinary team of marketing and operations managers can better identify how to align stored inventory with customer demands.

Furthermore, SIOP leads to more beneficial financial planning as it more effectively utilizes all parts of the manufacturing process through active and ongoing collaboration between different departments. This leads to not only the financial benefits of reducing inventory costs, but also increasing employee productivity and cash flow that can be allocated to other business initiatives.

From an OneStream perspective, this is a good example of what Tom Shea, OneStream’s CEO, describes when he says that OneStream is evolving to a CPM+ (Plus) solution. Financial Planning and Forecasting that uses summary-level data or an aggregated point of view (typically tied to financial reports) is the prevailing planning approach when using typical CPM solutions. But solutions like Strategic iQ’s Planning Factory, which is a true S&OP solution, takes advantage of OneStream’s “platform” capabilities to leverage Part-level or SKU-level data, creating an opportunity to align operational planning with corporate finance’s reporting point of view. This improves communication between Finance and Operations and creates a better overall understanding of the details behind every forecast.

But, OneStream’s platform sophistication also opens the door to taking it one step further, where customers can include the inventory drivers and metrics needed to extend beyond S&OP to SIOP.   OneStream, in short, can serve as the means for aligning planned inventory and production capacity with forecasted supply and demand needs. The result is improved inventory management, higher rates of customer satisfaction, streamlined production and inventory costs, and ultimately higher profit margins.