You Know the Model and Where You Fit In…

But what actually should be measured as you navigate through each stage of this new approach to becoming more mature in your sales, inventory, and operations planning (SIOP) processes? Thus far, we’ve introduced the concept of an outcomes-focused SIOP model. We’ve also helped you identify and understand where your organization may be right now based on the “symptoms” experienced — both internally and externally.

In part three of this series, we’ll explore a sampling of the metrics involved in each of the stages of our new model. The aim is to help you understand the outcome of each stage: to focus on what is being achieved rather than focusing on what is being done.

Reminder: This Is Not a Simple Process

Traditional SIOP maturity models typically enable a simpler understanding of stage by activities performed (e.g. “Did you do X? Great, then you’re in stage 2.”). But when the focus of evaluation shifts from activities performed to value derived by the business and its customers from those activities, metrics become a bit more challenging.

Let’s dig into some examples below, along with potential risks to be aware of. Note that we’ll be starting with stage one and not stage zero. Because if you read what was happening in stage zero, you’ll know that metrics were the last thing on everyone’s mind (and basically didn’t exist, anyway).

Outcome-Focused SIOP Metrics to Watch by Maturity Stage

First, Here’s How We Think About These Metrics

SIOP is about managing conflicting objectives across corporate functional pillars. Sales would like to have enough inventory of every item so that whenever a customer makes a request, it’s easily satisfied. Procurement and manufacturing would like to have the capability to buy and build at the lowest unit cost, so knowing well in advance of when raw materials are needed and at sufficient volumes. Finance would like to minimize inventory to keep space, inventory carrying (cost of capital), and the risk of obsolescence down. Supply chain planning wants SIOP to be efficient in support of all those objectives, yet enabling resilience in the face of ever mounting disruptions.

At River Rock Advisors, we consider those conflicting objectives to be Service | Cost | Capital. For our client base, we most commonly leverage:

  • Service — Most easily tracked, yet still quite difficult to capture and track, On-Time and In-Full (OTIF), which is on the path to “Perfect Order” as a metric.
  • Cost — Minimizing “expedite” costs. Meaning wasting budget on hurrying up activities to react to unplanned events, often good events but expedite costs can be a margin killer.
  • Inventory Working Capital — Inventory excess impacts space, potential obsolescence, shrink, space required, warehouse efficiency and importantly the working capital (carrying costs, interest lost, insurance, etc) involved that can hamstring a firm’s ability to invest in revenue generation activities

But not all conflicting metrics can be optimized/balanced at once when a firm is starting from ground zero. Rome wasn’t built in a day. What follows is what can/should be emphasized by phase to get your SIOP, thus your cross-functional operations, in shape across time and in-line with the “Outcomes Based Maturity Model.”

So, now we will address the timing of when metrics evolve to showcase what stage of SIOP maturity a company is currently in and what is next:

Stage 1: Service Function

The metric to watch here is a reduction in the number of internal complaints voiced to executive management — along with a reduction in the amount of time that executive management spends resolving those cross-functional complaints.

  • Watch out: Word could get out that the “squeaky wheel gets the grease,” thus SIOP could devolve into a regularly scheduled complaining session.

Stage 2: Customer Service Provider

In the second stage of SIOP maturity, customer service is beginning to improve thanks to prior efforts. Thus, tracking OTIF (On-Time In-Full) customer deliveries at the customer order line level and/or customer order header level will be important, and this improvement can help drive sales/revenue. This should build upon the stage-one metrics on internal complaints.

  • Watch out: A singular focus on OTIF may lead to much too much inventory as well as an increase in expediting costs. This can cause executive management to believe that SIOP has failed.

Stage 3: Efficiency Driver

In stage three, the focus shifts to making the most out of your purchasing, manufacturing, distribution operations processes. A key SIOP metric to watch here is increased operations throughput with the same amount of capacity. Additionally, metrics in this stage might also (or instead) use overtime reduction, expedite costs reduction, lead time reduction, and, particularly important for SIOP, “meeting appropriate inventory investments and reducing excess and obsolete (E&O) inventory.”

  • Watch out: Improved end-to-end planning can and does help, but lack of stability in or improvements in underlying processes, data quality, and beliefs can derail or cancel intended actions — leading executives to move to another “flavor of the month.”

Stage 4: Revenue Generator

With stage four, the stability of metrics in the prior stages enables sales teams to sell more high performing goods and services while holding low priority segmentation goods and services stable — or reducing them. So, the metrics in stage four are cross-functional in nature and in support of profitable revenue growth: Top Line Revenue, Total Supply Chain Cost as a % of Revenue, Gross Profit, and (again) Inventory Levels.

  • Watch out: Everyone likes the concept of customer or product segmentation but hates pursuing segmentation to improve “profitable revenue growth.” To start, the thinking behind it is hard as you have to say “no” when it is easier to say “yes,” and the process changes and “at the time of action” decisions required are even harder.

Stage 5: Competitive Advantage

With stage five, the same thinking as stage four applies: you want even greater stability in all prior metrics. The reason for that is stability of the metrics defined in stages one through four will now help to drive improved market share and/or desirability within your customer base as well as desirable pricing.

  • Watch out: Desire for silver bullet solutions can drive executives to want to jump steps to gain a competitive advantage — without doing the work required to have thoughtful, responsive, and resilient processes, change management, and technology.

What’s Your SIOP Maturity Model Measuring?

If you’ve been following along, you’ll now have an understanding of what this SIOP maturity model entails, its stages and what happens in them, and the knowledge of what needs to be measured in them for success. We have more to share, so be sure to check back often and follow us on LinkedIn. And if you’re ready to put this maturity model to work for your organization, we’re here to help. Reach out whenever you’re ready.