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WhatisMissinginTraditionalS&OPProcesses?
The holy grail of supply chain planning is to perfectly align supply and demand to meet corporatestrategicobjectives.Overthelasttwodecades,corporationshaveinvestedheavilyin SalesandOperationsPlanning(S&OP)processeswiththehopeofdrivingalignmentacrosstheir supply chains. Unfortunately, traditional S&OP processes have struggled to live up to their hype, and companies who have implemented S&OP processes continue to struggle aligning all aspectsoftheirsupplychainbecausetheylackthecapabilitytoplanfortheuncertaintyintheir supplychains. A properly applied S&OP process can deliver significant value, but to realize complete supply chainalignmentwithbusinessobjectives,allfacetsofthebusinessmustbeequallyrepresented in the S&OP process. Over the years, companies have developed sophisticated demand, supply, and capacity planning capabilities, but they have lacked the ability to set inventory targets to buffer for the uncertainty in their supply chains. Without the capability to plan inventory for real world enterprise supply chain complexities and uncertainties, a company will overbufferitsinventoryandstruggletodelivertherequiredcustomerservice. To deliver a truly worldclass S&OP process, which delivers sustainable competitive advantage, companiesrequireanenterpriseinventoryplanningprocesswiththeabilityto: Appropriately pool all forms of supply chain variability to set the lowest possible safety stocklevelsandmeetthedesiredcustomerservice Provide a total supply chain view and model interactions between stages in the supply chain Adjust inventory targets over time to match fluctuations in demand and identify the needforprebuildinventory Model the complexities of the enterprise supply chain providing planners with visibility intothedriversofinventory Calculate actionable inventory targets at the most granular level, accounting for the specificcharacteristicsofeveryitemandeverylocationovertime

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Provide a sustainable, integrated process which updates inventory targets as the plannersviewofthesupplychainchanges Support all forms of supply chain planning with a common fact base and scenario analysiscapabilities

SmartOps, which pioneered Enterprise Inventory Optimization (EIO), is the only company that offersaninventoryoptimizationsolutionthatuniquelydeliverstherequiredinventoryplanning capabilitiestodeliverabestinclassS&OPprocess.

S&OPCoordinatestheSupplyChain
In todays dynamic global marketplace, the difficulty of managing modern supply chains is obvious to even the most casual of observers. Companies that develop a clear competitive advantage in operating their supply chain have reaped tremendous rewards while their competitorsstumble.Successisnoteasy. Running a supply chain starts with the annual strategic plan, and ultimately culminates in the weekly / daily execution of each component of the supply chain. In order to align the detailed execution of the supply chain with the highlevel strategic plans, companies have developed Sales&OperationsPlanning(S&OP)processes. Figure#1:S&OPCoordinatesSupplyChainPlanningActivities
Focus Frequency

Strategic

Strategic Planning

Annual

Tactical

Sales & Operations Planning (S&OP)

Quarterly / Monthly

Execution

Demand Planning

Supply Planning

Capacity Planning

Inventory Planning

Weekly / Daily

The concept for S&OP is quite simple. Align a companys demand and supply, and the supply chain will become more nimble and profitable. However, developing a robust S&OP process which facilitates collaboration across the organization and aligns the various supply chain planners is becoming more and more challenging as markets become more volatile and supply chainsgrowincomplexity.

SupplyChainManagementChallenge
Inrecentyears,thevolatileeconomyhasshakeneventhemoststableofbusinesses.Customer demandhasgonefromrecordhighsdowntorecordlowsandinsomecasesbacktotheirhighs. No one ever truly knows where demand is heading. All that is for sure is that demand will
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change.Justasthereisuncertaintyaroundfuturedemand,supplierreliabilityiseverchanging. Corporate bankruptciesrise and fall as credit availability and economic conditions fluctuate. In general, supply chains are dealing with ever increasing uncertainty from all aspects of operations. If increasing volatility wasnt enough for planners to handle, the planners must also deal with the ever expanding and increasing complexity of modern enterprise supply chains. In an attempt to grow revenue, sales and marketing departments are expanding into new markets, increasing the number of SKUs, diversifying sales channels, and ramping up marketing promotions. At the same time, operations are being restructured to drive out costs and promote efficiency. The use of contract manufacturing, offshore production, and vendor managedinventorybringmorepartiesintothemixanddrivesupplychaincomplexity. Figure#2:SupplyChainsGrowingComplexityandPressuretoPerform
Performance Drivers

Raw Material Suppliers

Packaging Suppliers Manufacturing

Finance / Wall Street desire to improve working capital Competitive pressures on price Customer expect improved service with less inventory

Distributor or Wholesaler

Complexity Drivers
SKU Proliferation Sales Channel Diversification Vendor Managed Inventory Marketing Promotions Capacity Constraints Globalization Off-shoring Outsourcing

Distribution Centers

Retail Customers

Consumers

On top of the increase in supply chain volatility and complexity, executives also face the increasing pressures to drive supply chain performance. Wall Street and finance departments closely monitor revenue growth and supply chain cost structures. New competitors enter markets, and existingcompetitors are continually improvingtheir products and cost structures. Customersliveinaworldofimmediategratificationanddiminishedproductloyalty,drivingthe need for higher product availability. There is more pressure now than ever before to drive supply chain performance to become more profitable. With the increase in supply chain uncertainties and complexities, it is easy to understand why traditional S&OP processes struggletoeffectivelycoordinatesupplychainsanddelivertherequiredfinancialresults.

WhyDoCurrentS&OPProcessesFallShort?
Thereisaninherentconflictattheexecutionlevelofthesupplychain.Ascompaniesgrow,the roles within the supply chain must be segmented between demand, supply, capacity, and inventory planning. Each of these planning roles has its own goals and objectives which result
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in conflicting results. The following figure illustrates the inherent internal conflict that arises betweenthevariouspartsofthesupplychainplanningorganization. Figure#3:InherentSupplyChainPlanningConflict
Focus
Demand Planning

Objectives
Maximize revenue growth

Potential Results
Increase customer service objectives Market / channel expansion to reach new customers SKU proliferation and product promotions to drive sales Warehouses placement and transportation mode selection may increase supply chain lead times Increase in pipeline inventory Large production batch sizes to minimize change over and setup costs Pushing of product into supply chain to maintain asset utilization and avoid seasonal requirements Lowering of inventory levels may result in lower customer service Push to reduce lead times and batch sizes to decrease inventory requirements Drive to only produce what is needed when it is needed

Demand
Supply Planning Minimize transportation and warehouse costs Minimize production costs

Capacity

Supply Chain Planning

Supply
Capacity Planning

Inventory

Inventory Planning

Minimize working capital requirements

The purpose of the S&OP process is to resolve the inherent conflict between the planners by enabling communication and alignment of the demand, supply, capacity, and inventory plans. However, the level of planning sophistication varies by area, and therefore, not all areas of supplychainplanningareequallyrepresentedandunderstoodintheS&OPprocess. Demand, supply, and capacity planning are all deterministic in nature. Deterministic problems are discrete in nature and well understood by the scientific / mathematical communities. Operations Research (OR) has been studying deterministic problems since the World War II, and has developed linear and nonlinear programming techniques to optimize these problems. These deterministic optimization techniques are the underlying math behind many of the supply chain planning solutions in use today for Demand Planning (DP), Material Resource Planning(MRP),andAdvancedPlanningandScheduling(APS). Unfortunately, supply chains are far from deterministic. There is uncertainty throughout the supply chain. Demand forecasts are never 100% accurate, products rarely arrive precisely at the stated lead times, and production yields and schedules are constantly changing. In other words, supply chains are stochastic, facing uncertainty which varies over time. Because the deterministic models used to model demand, supply, and capacity ignore the stochastic nature ofsupplychains,plannershaveusedinventorytobufferfortheirsupplychainuncertainties.

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Figure#4:TraditionalPlanningMethodsOverBufferInventoryforSupplyChainUncertainty

Untilrecently,thescience/mathforstochasticoptimizationdidnotexisttoeffectivelysupport enterprise inventory planning. Inventory planners have attempted to apply simple stochastic models to the inventory planning problem, but these simplified models ignore the real world complexities and uncertainties faced by modern enterprise supply chains. Therefore, traditional inventory planning techniques and solutions have resulted in companies carrying excessinventorytobufferforthesesupplychaincomplexitiesanduncertainties. Without an effective means to plan inventory, the remaining three areas of supply chain planning (demand, supply, and capacity planning) will always dominate over inventory planning. This dominance creates an imbalance in the S&OP process, preventing the company fromaligningitssupplychainandhinderingitsoverallperformance.

WhatIsNeededtoDoEnterpriseInventoryPlanningforS&OP?
Reliance on traditional methods for setting inventory targets, including rulesofthumb, basic MRP/APSinventorycalculators,orspreadsheetbasedsafetystockcalculators,inevitablyleads toexcessinventoryacrosstheboardorunnecessaryservicelevelfailures.Thereasonissimple these methods rely on oversimplified supply chain models that ignore the complexities and uncertainties that make inventory a necessity in the first place. Real world supply chain complexitiesanduncertaintiesincludethefollowing: Figure#5:RealWorldEnterpriseInventoryPlanningRequirementsforS&OP
The real world is
Stochastic Multistage Time Varying Constrained Granular Dynamic Integrated (Online) Analysis

It is not
Deterministic Isolated Single Stage Stationary Unconstrained Aggregated Static Offline Analysis

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Stochastic: Traditional inventory targets are based predominantly on safety stock calculations that incorporate demand variability or forecast error over an exposure period. These calculations ignore variability from upstream suppliers, transportation variances, or production processes, resulting in safety stocks that are too low for the actual uncertainty imposed on the supply chain. An effective S&OP process requires inventory targets that account for all forms of variability (i.e. demand, supply, service, andproduction),andappropriatelypoolsthevariabilitytosetthelowestpossiblesafety stocklevelswhichwilldeliverthedesiredcustomerservice. Multistage: Setting inventory targets at each location independently, assuming perfect upstreamreliability,ignoresinteractionsamongvarioussupplychainstages,resultingin overbuffering of safety stocks across the enterprise. An effective S&OP process requires inventory targets that account for the interactions between stages in the supply chain. True multistage inventory planning identifies and compensates for upstream shortages due to less than perfect internal service levels, and optimizes the locationofsafetystockacrossthesupplychainsothattotalsupplychaininventorycosts areminimizedwhilemaintainingendcustomerserviceneeds. TimeVarying:Tosimplifytheinventoryplanningproblem,traditionalplanningmethods disregard the timevarying nature of supply chains by assuming fixed demand and ignoring capacity constraints. These approaches generate static inventory or days coveragetargetsovertime,whichleadtoexcessiveinventoryattimesofbelowaverage demand, and stockouts at times of aboveaverage demand. Time varying changes in demand influence the effects of demand variability, supply variability, batch sizes, and capacity constraints on inventory targets in a nonlinear fashion. An effective S&OP process requires inventory targets which vary over time accounting for these influences inanappropriatemanner. Constrained: When inventory planning tools do not reflect the realities of a companys supply chain, planners become skeptical of the outputs and start to ignore the models inventory targets. Without a comprehensive data model that accounts for realworld constraints, such as production capacities, timevarying bills of material (BOMs), production frozen windows, service times, or item/locationspecific review periods, planners often revert to setting inventory levels using rulesofthumb or their own intuition. In effect, educated guesswork replaces science, often with unpredictable results. An effective S&OP process requires inventory targets which model the complexities of the enterprise supply chain providing planners with visibility into the driversofinventory. Granular: Inventory targets must be set for each item, at every location, for each time periodintheplanninghorizon.Becausethescaleofsolvingforinventorytargetsatthis level is so massive, traditional approaches reduce the scale by solving for inventory targets at a less granular level, often using an ABC classification or product families to group similar items. When planners fail to consider the individual characteristics and service requirements of each individual item and each location, items with higher variability than the group average run a greater risk of stocking out, while items with
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lower variability than the group carry too much inventory. An effective S&OP process requiresanenterprisescaleinventoryplanningsolutionwhichcangeneratethemillions ofinventorytargetsdownattheitemlocationtimeperiodlevelsothatsupplyplanners haveactionabletargetswhichgeneratesustainableresults. Dynamic:Standaloneinventoryplanningspreadsheetsordesktopapplicationsrequirea large amount of time to gather, transfer, and enter data. This robs planners of time they could spend updating inventory targets on a regular basis, causing inventory targets to go out of sync with the larger supply chain. An effective S&OP process requires a sustainable inventory target update workflow, which allows planners to updateinventorytargetsfrequentlyandmanagetargetsonanexceptionbasis. Integrated (Online) Analysis: Traditional approaches to supply chain planning rely on disconnected analysis between the strategic, tactical, and execution levels of planning. By using inconsistent assumptions and separate inventory models / spreadsheets for strategic plans, S&OP, and operational inventory targets, traditional inventory analysis results in over buffering of inventory, massaging of inputs / outputs, and scrambling to deliver expected results. An effective S&OP process is supported by an inventory planning process with powerful whatif analysis capabilities that supports consistent assumptions and optimal planning targets between the various stages of supply chain planning. Planners need an inventory model with a comprehensive data model that allows planners to change input variables and see the effect of inventory levels and budgets helping them identify and quantify continuous improvement opportunities. The inventory planning should be synced from the aggregated strategicplan all the way down to the granular operational inventory targets, providing everyone with a common fact base to make supply chain planning decisions. Once strategic analysts choose a supplychainstrategy,theyneedtohavetheconfidencethattheirinventorymodelsare supported by the granular inventory targets that deliver the stated inventory and customerserviceobjectives. SmartOps, which pioneered Enterprise Inventory Optimization (EIO), is the only company that offersaninventoryoptimizationsolutionthatuniquelydeliverstherequiredinventoryplanning capabilitiestodeliverabestinclassS&OPprocess.EIOsucceedswheretraditionalapproaches fail because it addresses the realities of todays global enterprise supply chain it takes a strategicapproachtoinventorymanagement,automatesprocessestomineandutilizetheright business data, and offers depth of visibility into supply chains that traditional methods and existing inventory planning cannot match. EIO calculates and maintains the precise item locationtime period inventory targets, taking into account the total supply chain interactions, to deliver the lowest possible sustainable inventory levels that meet a companys supply chain customer service objectives. By doing so, EIO removes the over buffering of traditional inventory planning processes to perfectly synchronize inventory with the demand, supply, and capacityplans.

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Figure#6:EIObySmartOpsSynchronizestheS&OPProcess
Enterprise Inventory Optimization
EIO uses a stochastic optimization engine to determine the optimal, time-phased inventory targets at the item-locationtime period level, allowing you to meet customer demand with the lowest possible inventory.

Supply
Inventory

Demand

Capacity

WhatistheBenefitofEIOtoTraditionalS&OPProcesses?
Thesciencerequiredtoaccuratelysetinventorytargetsattheitemandlocationlevelsacrossa planninghorizonforanentiresupplychainisthesameforeverybusiness,andthechallengesof proper inventory planning are fundamental to every supply chain. Similarly, EIO by SmartOps delivers outstanding value to all industries. Companies that implement EIO typically realize inventory reductions greater than 20% and 2040% reductions in inventory carrying and obsolescencecosts,whilemaintainingorimprovingcustomerserviceandontimedeliveries. Figure#7:TypicalBenefitsofSupportExistingS&OPProcesswithEIO:
Improvement Area
Improve Customer Service Levels

Benefit Enabler

Benefits

Optimize inventory levels to "fix the mix Analyze and implement planning parameters that meet longer term service objectives

5-10% increase in order fill rates and on time delivery 30-50% reduction in out of stocks and order lead time variability 15-30% reduction in inventory and working capital 20-40% reduction in inventory carrying and obsolescence costs 20-30% reduction in time used in expediting 10-20% reduction time spent on manual inventory planning processes 10-20% reduction in PPE and depreciation due to excess storage facilities

Reduced Inventory and Working Capital

Manage inventory by SKU, location, and planning period Manage dynamic, integrated demand, supply, production, and inventory analytics and exceptions Reduce expediting and firefighting Effectively handle large numbers of low volume SKUs

Improve Planner Productivity

Transition from push to pull strategies Reduce over production, excessive storage facilities, and expediting

Reduced Production & Distribution Costs

The benefit of supporting existing S&OP processes with EIO can be seen in the experiences of Danfoss, a SmartOps customer. Danfoss is a global industrial manufacturer of mechanical and
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electronic components for heating, cooling, and hydraulic equipment. With 2009 sales of 3.4 billion,Danfosssells40,000activeproductsandoperates: 93manufacturingsites 139salescompanies ~450agentsanddistributors

Danfoss runs a standard monthly S&OP process which attempts to balance Demand Planning, InventoryRequirements,andProductionCapacity. Figure#8:DanfossS&OPProcess

12-18 month horizon

MONTH 1

MONTH 2

Prior to implementing EIO, the Danfoss Inventory Requirements process was singlestage in nature, did not account for all forms of supply chain uncertainty, and was manually intensive. Danfoss had developed a custom database to set Reorder Point (ROP) targets across its supply chain. The legacy inventory planning process calculated ROPs in a stagewise fashion, setting targets at customer facing locations and then moving up the supply chain, using a singlestage logic and ignoring the interactions between inventory at each location. As the targets were calculated, lead times were assumed to be certain, ignoring the lead time variability in the supply chain. The iterative process was manually intensive, and due the complexity of the Danfosssupplychain,tooktwoweekstodevelopROPsfortheentiresupplychain. AnevaluationofSmartOpsEIOsolutionillustratedtoDanfossthatitslegacyinventoryplanning process did not handle the real world complexities and uncertainties of its enterprise supply chain. By modeling a portion of the Danfoss supply chain and comparing EIO targets with the legacy inventory targets, Danfoss saw that its legacy inventory planning process was over buffering the supply chain with inventory to maintain service levels. The EIO targets were able tomaintainthesameservicelevelsastheDanfosslegacytargets,with20%lessinventory.

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Figure#9:DanfossEIOImpactInventoryReductionof20%WhileMaintainingServiceLevels
Pre-Pilot
Group 1 > Group 2 by 3.7%
14,000,000 DKK

Latest six weeks

Group 1 > Group 2 by 24.4%

12,000,000 DKK

10,000,000 DKK

Inventory Level

8,000,000 DKK

6,000,000 DKK

4,000,000 DKK

Long global supply chains require some time before on-hand inventory is impacted

2,000,000 DKK

0 DKK
20 08 .0 1 20 08 .0 3 20 08 .0 5 20 08 .0 7 20 08 .0 9 20 08 .1 1 20 08 .1 3 20 08 .1 5 20 08 .1 7 20 08 .1 9 20 08 .2 1 20 08 .2 3 20 08 .2 5 20 08 .2 7 20 08 .2 9 20 08 .3 1 20 08 .3 3 20 08 .3 5 20 08 .3 7 20 08 .3 9 20 08 .4 1 20 08 .4 3 20 08 .4 5

OH - Group 1 - Current

OH - Group 2 - Smartops
= SmartOps target upload

Based on this analysis, Danfoss expanded the implementation of EIO to the rest of its global supplychain.ByintegratingEIOintoitsS&OPprocess,Danfossisnowableto:
Source: Danfoss presentation at SAP Sapphire EMEA, May 2010

AutomaticallycharacterizetheuncertaintyofitsDemandPlanattheitemlocationlevel sothatinventorytargetsquicklyreflectchangesasforecastsimprove Model multistage interactions, allowing planners to understand how inventory at one location impacts inventory at another location, which will enable a more efficient operationoftheglobalsupplychain Gain visibility into the various forms of supply chain uncertainty (including demand uncertainty, lead time variability, supplier reliability, and production variances) and set morerealisticinventorystrategy Reduce the effort required to calculate inventory targets and evaluate alternate inventoryscenariosfromtwoweeksdowntoafewdays

TakingS&OPtotheNextLevelSIOP
A properly applied S&OP process can deliver significant value to an organization but does not guaranteesuccess.Inpractice,manycompanieshavefoundthatlogicallybalancingsupplyand demandstillleavesthedooropenforamultitudeofbusinessmishaps.Toaddressthis,leading firms have begun to revise their periodic planning approach by including a broader cross section of key decision makers and calling out inventory as a focal point. This broader approach, commonly termed SIOP (Sales, Inventory and Operations Planning) represents an evolution of the standard S&OP approach and is providing competitive advantage to todays supplychainleaders. In its most basic incarnation, an effective S&OP process seeks to appropriately match supply anddemand.ThebasicS&OPprocessdoesnotalwaysresultinthedesiredlevelofefficiencyor competitiveness.Commonly,theconstraintliesinatoonarrowprocessscope.Forexample,in
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an organization driven by large retail promotions, it would be shortsighted to leave the Marketing team out of the discussion. Regularly, this issue manifests itself in mismanaged inventorylevels,particularlywhentheplanningdiscussionislimitedtoManufacturingandSales and where no KPIs exist for working capital. Without direct Finance intervention, the easy answerbecomesmoreinventory!andaCFOsworstnightmareiscreated. To address these shortfalls, a broader process has emerged, expanding the periodic review process to include a wider crosssection of key decision makers and tackling the inventory challenge headon by specifically calling out inventory policy as a key process deliverable. For this reason this process has been named SIOP, or Sales, Inventory and Operations Planning. In contrast to the older S&OP approach, satisfied with a simple balance between supply and demand, the SIOP approach seeks to deliver a robust model for nearterm, profitable business planning. Figure#10:S&OPvs.SIOP
S&OP Key Objective Reconcile Supply & Demand SIOP Deliver a structural model for planning a business to meet corporate goals

Functions Involved

Manufacturing Supply Chain Logistics

Manufacturing Supply Chain Logistics Sales Marketing Finance

Sample Decisions

How much of Product A should be manufactured this month?

If there is a capacity shortfall on Product A, is it more economical to run overtime, prebuild inventory, or cancel planned promotions?

The highlevel workflow associated with SIOP uses inventory to focus key decision makers on the broader business objectives. The steps involved in an SIOP process expand the discussion to ensure that a comprehensive business perspective is developed. While SIOP uses the broad inventory dynamic to expand the discussion, SIOP is about more than just making simple inventory decisions. Lets consider an organization where an SIOP mindset and workflow may generate better results. Consider a manufacturer faced with a capacity shortfall created by a retailer promotion projected to blow away expectations. A traditional planning process mightconcludethatexpensiveexpeditingisthepreferredcourseofaction,ensuringthatsupply is able to support anticipated demand. However, the broader SIOP process may identify alternativesthatdrivesuperiorbusinessreturns.Theorganizationmayopttoacceptacapacity shortfall if this would enable higher marketplace pricing, or it may adjust the Retail event itself to rebalance demand. With a strong, continuous focus on inventory policy, it is also conceivablethatanSIOPprocessmayidentifythepotentialchallengeinsufficienttimetoallow foraninventoryprebuild.

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Figure#11:GenericSIOPWorkflow
Portfolio Review
NewProductIntro EndofLife Pricing MTO/MTS Insource/Outsource

Demand Review
Unconstraineddemand plan Activeconsensus making Agreeonnumber Revenuereviewwith demandplan comparison

SupplyReview
624monthsofdemand plan Nodetailedscheduling Capacity,required inventoryandsupplier capability Createsupplyplans

Reconciliation

Executive Summary

Bringallfunctionsback BriefPlanpresentation together andapproval LedbyFinance TotalPlan Allfunctionalleads participate

MakingS&OPorSIOPWork
While the SIOP process represents a clear advance over earlier approaches, it still requires a supportive environment in order to function effectively. Specifically, an SIOP process requires three key catalysts for maximum effectiveness: an accommodating organization, effective support systems, and sufficient data. Fortunately, theseareno different from what is required for a basic S&OP process and are well within the reach of most organizations. Information and technology,inparticular,aremoreavailablethaneverbefore. Of initial concern to most companies is organizational structure. Frequently there may be no clearinventoryownership,makingitdifficulttoidentifytherightS&OPorSIOPteamcapable of making rapid, efficient decisions. Rather than attempt to list all possible organizational challenges,letusconsideranidealorganizationalstructurecapableofefficientlysupportingthe S&OPorSIOPprocess.Severalkeytraitsareevident: 1. Globaldecisionmakingcapabilityacrossgeographies,divisionsandfunctions 2. Clearinventoryownership 3. KPIsthatincludecostmetrics(includingcostofcapital) 4. ResponsibilityrollupthatallowsforfullP&Ldecisionmaking The second catalyst, support systems, is required to deliver relevant data to key decision makers. S&OP and SIOP both require supporting infrastructure to manage supply & demand. On the supply side, Operations must be able to adjust production levels and predict capacity shortfalls may occur. For demand, there must be rigor to managing future demand, whether this takes the form of a simple sales forecast or a comprehensive global Advanced Planning System (APS) solution. When it comes to inventory, an effective SIOP process needs to be capable of generating and managing an effective, efficient inventory policy. The core functionalityprovidedbythissupportsystemisknownasEnterpriseInventoryOptimization. Similartosupportsystemsdedicatedtodemandplanningandcapacitymanagement,inventory optimizationsolutionsalsoseektofindanappropriatebalancebetweenbusinessrequirements and constraints. The distinction between these three systems is merely the set of business objectives and constraints under consideration. Attempting to manage any of these variables withouttheappropriatesupportsystemshouldbearedflagtoanySupplyChainexecutive.
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Figure#12:SIOPSupportSystems
DEMAND INVENTORY Deliver Customer Service Cost of Inventory Enterprise Inventory Optimization SUPPLY CAPACITY

Business Objective

Manage Orders

Product Sourcing

Create Inventory

Sample Constraints

Inventory Levels

Network Design Advanced Planning Systems

Production Capacity Production Planning & Discrete Scheduling

Supporting Systems

Demand Planning

The final catalyst, data, can be broken down into a hierarchy of needs as shown below. These relationships illustrate the difference between critical, core planning data and helpful (but supplementary) performance data. Given the state of modern enterprise applications, any organizationrunninganERPsystemshouldnotviewdataasabarriertomovingforwardwitha S&OPorSIOPprocess.Bothcoreplanningdataandkeysupplychainrelationshipsarerequired aspartofthebasicfunctioningofanyERPsystem.Thinkofitthisway:Ifanorganizationdoes notunderstanditsowncoststructure,therearebiggerproblemstobeaddressed. Figure#13:HierarchyofS&OP/SIOPDataNeeds
Fine Performance Detail

SupplierPerformance ProductionAdherance

KeySupplyChain Relationships

Leadtimes BillsofMaterial

CorePlanningData
Conclusion

Costs FutureForecast

The lesson? Enterprise Inventory Optimization (EIO) is foundational to any S&OP or SIOP process. Without the capability to plan inventory for real world enterprise supply chain complexities and uncertainties, a company will over buffer its inventory and struggle to deliver the required customer service. To deliver a truly worldclass S&OP or SIOP process which deliverssustainablecompetitiveadvantage,companiesrequirethecapabilitiesofEIO.

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AboutSmartOps
SmartOps, the market leader in enterpriseclass supply chain optimization solutions, enables companies to manage the uncertainty of complex, multistage supply chains to achieve rapid returnoninvestmentandlongterm,sustainablevalue. Founded in 2000 and headquartered in Pittsburgh, Pennsylvania, United States, SmartOps created the market for Enterprise Inventory Optimization (EIO) software. Deploying SmartOps solutions has dramatically improved supply chain performance at Fortune 1000 and Global 2000 companies in discrete manufacturing, consumer packaged goods, chemicals, technology, life sciences, and distribution/retail industries. Typical value achieved is a 2030% sustainable reduction in inventorywithin the first year, along with improved customer serviceand reduced supplychaincost. SmartOps mission is to be the de facto standard for global inventory planning, optimization, and governance. SmartOps accomplishes this by providing dynamic key operating targets across the enterprise, resulting in a sustainable and substantial reduction (20%+) of the more than$1trillionofinventorythatexistsinsupplychainstoday,whileimprovingcustomerservice andresponsiveness. In May, 2009, SmartOps and SAP AG announced a reseller agreement, through which SAP will resell the SmartOps Enterprise Inventory Optimization solution. SmartOps EIO is the official SAP solution extension for inventory management. This agreement provides SAP customers withthevalueofSAPjointdevelopment,delivery,andsupportforSmartOpsEIO. SampleSmartOpsEIOCustomers: AcklandsGraingerInc.,BayerMaterialScience,CardinalHealth,Caterpillar,Celestica,TheClorox Company,ConAgraFoods,CSLBehring,Danfoss,DawnFoods,Diageo,TheDOWChemical Company,DuPont,EastmanChemicalCompany,EsteeLauder,GlaxoSmithKline,Hewlett Packard,HoneywellInternationalInc.,JabilCircuitInc.,JohnDeere,Johnson&Johnson,Kellogg Company,KohlerCo.,LexmarkInternational,McCainFoods,MerckandCo.,Molex Incorporated,Monsanto,Nalco,PPGIndustries,PolarisIndustries,ResearchinMotion,Shaws Supermarkets,SyscoCorporation,Whirpool,Swagelok,SunChemical,Unilever,Wyeth,and more.
SmartOpsCorporation www.smartops.com 1251WaterfrontPlace Suite301 Pittsburgh,PA15222 UnitedStates ContactInformation +1.412.231.0115

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