1. FullSpeedAhead
AligningSales,Inventory&OperationsPlanning(SI&OP)
toOptimizeCustomerService,ProfitabilityandCash
ApaperbyMartinLaub,Director&MartinBunk,SeniorManager
WorldClass
SI&OP
Wemakeithappen.Better.
ChemicalsIndustry

2. TypicalChallengesinBusinessPlanning
Hitachi Consulting recently ran an executive supply chain network session with
a number of COOs from major European companies where discussions centred
on the challenges facing SI&OP today and the best ways to achieve world class
performance.
Aconsistentfocusoncostsavingshasled
manyorganizationstocombinelocalcost
optimizationinitiativeswithlongdistance
sourcingstrategies.Offshoring,
outsourcing,multi-nationaldistribution
networksandcheaperdeliverychannels
arejustafewoftheleversbeingexplored.
However,thegameischangingonceagain
asorganizationsnowhavetodealwith
increasedcomplexityandaneedtoflexibly
adapttosuddenenvironmentalchanges.
Thecostfocusremains,butmass
customization(morevariants),sudden
variationsincustomerdemandsandhigher
servicelevelexpectationsarepresenting
newchallengesacrossthevaluechain.
Tocopewiththesechallengesmany
organizationsareincreasinglyusingSales,
Inventory&OperationsPlanning(SI&OP)as
avehicleforcommunication,performance
measurementanddecisionmakingrelated
tointegratingfinancialplanning,supply&
demandplanningandinventory
optimization.
Therewasastrongagreementatthe
networksessionthatthetransformation
towardsworldclassSI&OPmustbeowned
bytheCOOandthattheonlywaytoreally
achieveworldclassSI&OPwasbymanaging
thecomplexityofthebusinessthrougha
skillfulcombinationofagilityandflexibility.
Complexityitselfisnotnecessarilyabad
thing.Itcanalsobeapowerfuldriverfor
creativityandefficiency,somanagingitwell
canactuallybeacompetitiveadvantage
becauseitbecomesamarketentrybarrier
forothers.Externalcomplexityisareality
thateverybusinessmustlivewith,butyou
can’tmanageitbyincreasingyourinternal
complexity.Youhavetodotheexact
oppositeandsimplifyyourinternal
processesandgovernance.It’sabout
simplicity,speedandtransparency.
ChallengesforS&OP(5-10yearsago) ChallengesforSI&OP(today)
■■ DisconnectbetweenS&OP
andcorporatestrategy
■■ Siloinformationfromdifferent
entitiesintheorganization
■■ Forecastsaccuracy fairlylow
duetolackofcorrectdata
■■ OwnershipofS&OPprocess
typicallylimitedtoone
function-notshared
■■ Extrinsicbusiness
trendsnotavailable
■■ Continuousimprovement
notbuiltintoS&OP
■■ Agility&flexibilitytorespond
fasttochangingmarkets/
businessstructures
■■ Dependencyoncorrectmaster
data toenablefastanalysis&
decisionmaking(e.g.leadtimes,
inventory/int.demands)
■■ Dynamic,real-time demand
planningcapabilities(real-
timedemandsignals)
■■ Balanceinternalvsexternal
demand
■■ Aligningsupplychainfootprint
withdemand,e.g.distribution
network optimization
■■ ExtendingSI&OPtosuppliers/
customers
Fourtypical‘Just-in-case’buffers
■■ Inventories
■■ LeadTime
■■ People
■■ Equipment
© 2015 Hitachi Consulting Corporation. All rights reserved. Proprietary and confidential.
Typical challenges in Business Planning
7/16/2015 3
OperationalSupply&DemandStrategy
4 typical “just-in-
case” buffers
• Inventories
• Lead Time
• People
• Equipment
Mid-to long-term intransparency
Short-term complexity
Constrained
Supply Planning
Misaligned
Operations Planning
& Execution
Competing
Demand
Planning
Disconnected
Corporate
Planning
CuttingOutBadComplexity
Mostorganizationstodayhavebig,
complexsupplychainsthatareheld
hostagebyconstantlychangingcustomer
demands.Totryandcompensateforthis
theyoftenbuildsafetybuffers,or“just-in-
case”buffers,*intotheirinternalprocesses,
butthatoftencreatesadditional
complexity,becausewhatyouactually
needarethefastestprocessespossibleto
providethesimplestwaystomaketheright
decisionsatpace.
*HitachiConsultinghaspublishedapointofview “Attackthejust-in-casebuffers throughintegratedplanning”
02

3. AvoidTheLawOfDiminishingReturns
Inarecentperformancebenchmarking
exerciseHitachiConsultingcarriedouton
forecastingaccuracy,thetopperformers
werenotalwaysthosewiththeabsolute
bestdimensions.Theywereverygood,but
theywerenotnecessarilythebest.There
seemstobeapointwhereitbecomes
wastefultoinvestinextracapabilitiesand
complexitythataddonlymarginalvalue.In
suchacase,increasedspeedandflexibility
arefarmoreimportantthanhavingthe
absolutebestforecastingability.
SI&OPBenchmarking
Traitsofbestperformingcompanies(x-industry)
AbsoluteForecastError
Don’tKnow
AveragePerformers BestPerformers
31%
31%
8%
7%
15%
15%
NotMeasured
>30%
20%-30%
15%-20%
10%-15%
0-10%
AvoidingOverinvestmentsinCapabilities
Matchyourflexibilitytodealwiththeunavoidablevariabilitycomingfromcomplexity
EachmajorelementofyourSI&OPneedsto
be“matureenough”,butitwillonlyreally
delivertherightvalueifit’slockedintoan
overarchingsystemthatissimple,speedy
andtransparent.Demandforecastingand
supplyplanningareinexactsciencesand
onceyou’veachievedalevelofmaturity
thatis“goodenough”therearediminishing
returnsifyouinvestmoretime.Atthatpoint
youarefarbetteroffinvestingyourenergy
intobuildingflexibilityintoyoursystemsto
dealwiththeinevitableinaccuraciesinyour
forecasting.
■■ Topperformersoftenhave
verygoodSI&OPcapabilities
buttheydon’toverinvest
■■ Unnecessarycapabilities
arealsoa“waste”
■■ Thereisapointwhereincreased
flexibilityismoreimportant
thanbetterforecasting
■■ Systematicrootcauseanalysisof
deviationstoSI&OPplanshelptofind
therightbalanceofneededcapabilities
■■ Complexitydoesnotnecessarily
havetobeabadthing(itcanalsobe
adriverforcreativityandefficiency)
■■ Itisthevariabilitycomingfrom
thecomplexitythatneedstobe
managedintheSupplyChain
■■ SI&OPisagreatwaytobalance
requiredresourcesbutalsocapabilities
Variabilityin
Demand
SupplyChain
Optimization
Competitiveness
Complexity
Time-to-Market
NetWorking
Capital
ProductionCapacity
&CycleTime
Thechallengeforseniorexecutivesistocut
outthisbadcomplexity,alignthemain
business processestoencourageflexibility
andagilityandbeginthemovetoapoint
whererealtimebusinessplanning,
primarilydemandforecastingandsupply
planningareavailablewhereneeded.It
won’tbeessentialforeverything,butitwill
definitelyhelptospeedupthereviewcycle.
Betterforecastingandfasterdecision
makingprocesseswillalsomeanamuch
greaterdependencyonbigdatacollection
andanalysis.Masterdatamanagementis
thereforethekeytothisnewworld.Ifthat
isn’tcorrect,allyouranalysis,forecasting
anddecisionmakingwillbebasedonfalse
information.
“Increasedspeedand
flexibilityarefarmore
importantthanhavingthe
bestforecastingability.”
03

4. Everythingmustbefastandsimplified
aroundorganizationalstructure,rolesand
responsibilities.Thisrequiresthatkey
decisionmakersfocusonrelevantfactsand
performancedeviations.It’snotjustabout
whatyou’regoingtodo,it’saboutwhat
you’regoingtostopdoing.
AkeyaspectofworldclassSI&OPis
continuousimprovementoftheprocess,
whichiswhyleadingorganizationshave
beenextendingSI&OPbeyondthe
companywallstoachievetrulyintegrated
businessplanning.
Thisrequiresextendingthevaluechain
throughcollaborativetradingpartner
relationshipsthatlinkSI&OPwiththe
upstreamsupplychain,thecustomerside/
distributioncentersanddynamicdemand
planning.
FrequencyofSI&OPCycle
KeydecisionmakingcriteriatodeterminetherightfrequencyofSI&OPcycles
KeyCriteria
Productionfrequencyoffastmovingproducts
Cashflowtransparency
Availabilityofnewmarket/demandplanning
information(e.g.aftermajorevents)
Inventory“pruning”& clean up/product portfolio rationalization
Actual orders vs. forecast comparison - to optimize allocation to
bottleneck
ProposedFrequency
Bi-weeklySI&OPloops
Weeklycashcycletracking
Monthly&bi-weeklyinput
Monthlyafterfinancialreporting&weeklycleanuploops
Monthly&weeklytracking
ReviewYourReviewCycle
Thekeytobuildingmoreflexibilityintoyour
systemsistobuildmoretransparencyinto
yourreviewcycle,movingawayfromthe
traditionalmonthly,orevenlessfrequent,
cycle.
Itdoesn’tmatterwhichoptionyouchoose,
thepointistoreviewasfrequentlyasyou
needto,sothatwhenyou’refacedwith
highlyvolatilesituations,suchasanew
productlaunch,youhavetheunderlying
abilitytoincreasethefrequencyofthe
processwithoutincreasingthecomplexity
ofrunningit.
Yourreviewprocessneedstobeflexible
enoughtoadapttoeverylevelof
complexityofproductsandmarketsyouare
in.Forexample,productswithaleadtimeof
threemonthsmighthaveprocessesand
complexitiesthatarequitedifferentfrom
productswithaleadtimeofjustthree
weeks.Soaonesizefitsallprocessdoesn’t
workinallsituations.Aminutelydetailed
forecastthattakesintoaccountevery
possiblevariationcanreallyonlybedone
onceamonthandwillprofityoulessthana
morehigh-levelforecastthatisproduced
moreoftenandbuildsinflexibilitytodeal
withanymarginoferror.
GettingAheadoftheCurve
Sohowdoyoumakeeverythingsimpler,
fasterandmoretransparent?Firstand
foremosttheprocessmustcross
organizationalboundaries.Youhaveto
adoptapartnershipapproachbyworking
hand-in-handatalllevelstoensurean
optimaldesignofthenewwayofworking
andgeneratingownershipbythekeyusers.
Youalsohavetocombineafocuson
short-termbenefitswithlong-term
sustainability.Thiscanmeanstartingwitha
diagnosticandrapiddesignphasetocreate
momentum,whilstidentifying
breakthroughsolutionsthatwillenable
sustainablelong-termbenefits.
TheCaseforChangeforLeadingSI&OPMaturity
Organizationsaremoreagileandhavehighertransparencyfordecisionmaking
© 2015 Hitachi Consulting Corporation. All rights reserved. Proprietary and confidential.
The Case for Change for Leading SI&OP Maturity
Organizations are more agile and have higher transparency for decision making
7
Stage 1
Lagging
Stage 2
Reactive
Stage 3
Functional
Stage 4
Mature
Stage 5
Leading
SupplyChainPerformance
Agility
low
high
high
simple & fast
complex & slow
>
<
 Relevant facts only/
aggregated
information
 Decision makers only
 Performance focused
 Transparency of
process output &
performance
“It’snotjustaboutwhat
you’regoingtodo,it’s
aboutwhatyou’regoing
tostopdoing.”
04

5. HowtoSetUpanAgileandTransparentSI&OPProcessforMaximumBusinessBenefit
Dimension StopDoing FocusOn BusinessImpact
Organization/People Involvingtoomanypeople/
functionsinSI&OP
Keydecisionmakersandfast&
transparentdecisionmaking
Responsibilitydrives
improvement
SI&OPGovernance&
ManagementSystems
Over-investingtoachieve
diminishingreturns(e.g.
forecastaccuracy)
Measuringservicelevels
andcontrolvariability
asindicatorforrequired
flexibilityintheSupplyChain
Fastdecisionmakingprocess
withfocusoncontrolling
thefinancialimpact
Processes Micromanagement
ofprocesssteps
Macromanagement;
controlinput&output
Ownershipofprocesses
andresults
Behaviors Bypassingoravoiding
the“unknown”and
potentialconflicts
Alignmentontarget
conflictsasopportunity
togrow(“innovationfrom
goodcomplexity”)
Aligned(financial)
businesstargets
TheDifferenceWillBeImpressive
Noteverycompanyneedstoaspiretoreach
the“leading”stageineveryaspectofits
SI&OPprocess.However,researchshows
thatbest-in-classprocessesyield
considerablymorebenefitsthanlow
maturityprocesses.Best-in-class
organizationstypicallyoperateSI&OP
withafocuson:
■■ Profitability
■■ Inventoryandservicemanagement
■■ Valuechainintegration
■■ Continuousimprovementand
systematicriskmanagement
■■ Real-timeanalytics
FromHitachiConsulting’sproject
experiencewecanconfirmthatthebenefits
fromSI&OPimplementationsarereal,but
theywilldependontheinitialmaturitylevel
oftheSI&OPprocessintheorganization.
AdvancingalongtheSI&OPmaturityscale
notonlyrequirestherightprocessesand
tools,butalsoasoundchange
managementandperformance
managementapproach.Asinany
transformationjourneyyouhavetowinthe
heartsandmindsofthepeopletogeta
changeinbehaviorsthatallowyouto
achievethedesiredresults.
05
Better
Results

6. AligningSI&OPforaGlobalLeader
HitachiConsultingrecently
demonstratedtheimpactthatSI&OP
changescancontributetoabusiness.A
globalchemicalcompanyaskedusto
designandinstallacommon,scalable
SI&OPprocessthatwouldhelpthem
understandfinancialimpacton
decisions,sustainablyreduceinventory,
increasedeliveryperformanceand
removetheconstantfirefightingtoget
therightproductstotheright
customers.TheirpreviousSI&OP
processwasoutofsyncbetween
demandandsupplyplanning,witha
lackofvisibilityandnoclearrules
betweenorganizations.
Workingcloselywiththeclientteam,
HitachiConsultingdesigneda“fitfor
purposeapproach”thathelped
maximizebenefitswithoutimpacting
servicelevels.Theresultsincludedan
inventoryreductionof$79mafter10
monthsor30%–ontracktodeliver
targetof$93mafter16months.The
speedofoptimizationthroughthenew
SI&OPprocesswasreallypowerful–
achievingtheambitioustargetexactly
asplanned.Demandplanning
processesweresimplified,scalableto
includefutureacquisitions,andhad
clearownershipandresponsibilityfor
keyactivities.Theorganizationgained
fulltransparencyofexpectedcapacity
utilizationoverthemid-termto
proactivelymanagebottlenecksand
optimizeutilizationacrossallmajor
manufacturingsites.Forthiscompany
dailyfire-fightingisarelicofthepast–it
isnowmovingfullspeedahead,
optimizingcustomerservice,
profitabilityandcash.
AbouttheAuthors
MartinLaubisaDirectoratHitachi
Consulting.With20yearsexperiencein
consulting,Martin’sworkwithclientsspans
numerousindustries,predominantlyin
Manufacturing.HeisaSupplyChainexpert
withrobustexperienceinsupplychain
management,supplychainperformance
improvement,integratedplanning,
sourcingandprocurement,supplier
management,operationalstrategy,
businessmanagementsystemsand
associatedbusinessprocesses.Hisworkhas
resultedinhisclientsbeingabletomake
considerablefinancialsavings,andseveral
oftheprojectshehasworkedonhavewon
industryawards.
MartinBunkisaSeniorManageratHitachi
Consultingandsubjectmatterexpertin
SupplyChainandOperationalExcellence.
Martinhasover15yearsofinternational
experience.HeisacertifiedLeanSixSigma
BlackBeltandisspecializedin integrated
planning,salesinventory&operations
planning(SI&OP)andworkingcapital
improvements,aswellasoperational
excellenceprograms.
HitachiConsultingistheglobalmanagementconsultingandITservicesbusinessofHitachiLtd.,aglobaltechnologyleaderandacatalystofsustainablesocietalchange. Inthatsamespirit-andbuildingonitstechnology
heritage-HitachiConsultingisacatalystofpositivebusinesschange,propellingcompaniesaheadbyenablingsuperioroperationalperformance. Workingwithintheirexistingprocessesandfocusingontargetedfunctional
challenges,wehelpourclientsrespondtodynamicglobalchangewithinsightandagility. Ouruniqueapproachdeliversmeasurable,sustainablebusinessresultsandabetterconsultingexperience.
www.hitachiconsulting.com
AboutHitachiConsulting
HitachiConsultingistheglobal
managementconsultingandITservices
businessofHitachiLtd.,aglobaltechnology
leaderandacatalystofsustainablesocietal
change. Inthatsamespirit—andbuilding
onitstechnologyheritage—Hitachi
Consultingisacatalystofpositivebusiness
change,propellingcompaniesaheadby
enablingsuperioroperationalperformance.
Workingwithintheirexistingprocessesand
focusingontargetedfunctionalchallenges,
wehelpourclientsrespondtodynamic
globalchangewithinsightandagility. Our
uniqueapproachdeliversmeasurable,
sustainablebusinessresultsandabetter
consultingexperience.
Tofindoutmorepleaseemailusat
info@hitachiconsulting.com
Formoreinformationvisit
www.hitachiconsulting.com