Justin and Lisa Anderson of LMA Consulting Group discuss how to take control of your supply chain and adapt to the current environment. Lisa shares how the SIOP program can improve your supply chain through sales, inventory and operation planning.
Listen to more episodes and subscribe to the podcast on Apple.
Highlights
- End to end supply chain – 1:30
- Implementing SIOP to improve supply chain – 3:15
- Manufacturing and supplies capacity – 8:00
- 3PL and operations planning – 9:45
- Reasons to implement SIOP – 13:30
- Warehouse automation and ERP systems – 19:20
- Forecasting demand systems – 22:45
- How to best service your customer’s needs- 30:00
Episode Resources
Connect with Justin Smith
- https://smithcre.com/
- https://www.lee-associates.com/
- JBSmith@LeeIrvine.com
- https://www.linkedin.com/in/justinbsmith
Connect with Lisa Anderson
Justin Smith: We’ve got Lisa Anderson of LMA consulting group with us today and we’re talking through all things supply chain and how to take control of your supply chain and end. And then going into sales, inventory, operations, planning, and demand planning. And Lisa is a consultant that helps manufacturers and distributors in Southern California and probably outside of Southern California adapt to the current environment. So maybe you can walk us through a little bit of what taking control of your end to end supply chain looks like, feels like, and why people need it and what they can do about it.
Lisa Anderson: Sure, sure. Well, especially in today’s world and everyone now knows what supply chain is because it’s getting blamed on all sorts of challenges.
Justin Smith: The reason Christmas presents aren’t coming.
Lisa Anderson: That’s right, it’s due to the supply chain. It’s even blamed on things that don’t relate to it, but much of it is accurate. So, the end to end supply chain is from your suppliers, suppliers through your manufacturing processes, to your customer’s customers and including the transportation pieces, you know, in between all of those aspects and certainly your IT and technology pieces. and it certainly is connected but that’s been some of the issues. when one link gets postponed or delayed, you know, it causes the rest of the supply chain to get off kilter. So we got out of alignment during the pandemic and it by no means has come back into alignment. Unfortunately, it’s very challenging to realign the global supply chain. you almost have to deal with your individual supply chain with your company.
Justin Smith: When you think of a client engagement and working with folks and when they’re thinking through what is within my control and what can I do about it. Or what isn’t and should I take control of that? For me in my world, I generally see companies that have 3PL relationships when they start thinking of whether we should be leasing and owning our own warehouses and doing our own hiring and cannot help us control costs or control our processes or some of our investments. That’s where I would see people like where that need for better control would intersect with my expertise in my daily work. So I’m curious where you’ll jump in with clients to help them kind of take better control of their supply chain. What pieces of the puzzle are most commonly out of whack or how can you help people?
Lisa Anderson: Resolve that.
Justin Smith: Yeah, take the pain points and identify them and come up with a resolution.
Lisa Anderson: Absolutely. So one of the aspects is, it’s probably at least two things that come to mind. So one is, what’s oftentimes called a SIOP, which is sales, inventory, operations, planning. We’ve been working with several clients since the pandemic, to help them implement a program like that and I’ll explain it, but it has absolutely helped them to have higher service levels and on-time delivery and shorter lead times during the pandemic, than their competitors. As well as most importantly allows them to actually meet the sales orders and meet the revenue goals and scale the business up. So what does it really mean? It’s in essence managing your end to end supply chain. So you’re looking at your customers and your customer’s customers. Meaning who do your customers sell to who’s next in line until the end customer of course. And so if you can get a better handle on what your future demand is, which is very feasible to do, it’s just not easy. then you can better prepare for that demand. And you’re looking at the demand of what they think is going to happen. It’s not as simple as just taking past history and extrapolating it into the future. By all means that doesn’t work at all because you’re in the pandemic. First of all, demand has been extremely volatile. People have changed products, they’ve substituted products, they’ve developed new products. So the demand side of the equation is extremely volatile currently. So you have to get in touch with your customer and it could be by old fashioned picking up the phone and talking to them and understanding what’s happening. Sometimes it’s like by no means enough to even talk to your customers. You really need to get in touch with what your customers are doing. So that’s a really important piece. And that’s for, I would say typical businesses like consumer products or food and beverage or something. If you’re looking at highly configured products or highly engineered order products, there’s more pieces that you have to do to get in touch with your demand. And that is you’re going to have to look at what are some of the common subsystems you have, if you’re building a highly engineered product. So a highly engineered product could be like, you’re building a machine that’s tailored to each manufacturing environment. a common example, a car is configured to order, so you may have a red car or green car. Or this kind of seat or that kind of seat, that’s more configured. So those are the types of products where you would say, how many, red cars of this type do we generally have? Once you can get to that level in your data, which is the tricky part, then you can figure out what your future demand is going to be at least at that point. You don’t need to know specifically. That’s the S in SIOP. The sales inventory, operations, planning process. That’s the S part. And then next in line, as you look at what does this mean? So now that I have an idea of what my demand is going to be, it’s not static. We’re talking about doing this continually once a month, you’re reviewing it and getting a cross functional team. So you look at it from an operational standpoint and that’s where you say, how much capacity do I have? Do I have enough machines to produce? And today’s world is that you may easily have enough machines, but you don’t have the people. So what kind of skill could I move production from one area to another? You know, there’s a lot of things you can do in operations, there’s overtime, there’s temps, there’s you hiring new people. All sorts of strategies and then you get to, well, you know what, I can maximize my output and I can better improve how I plan my operations so that I schedule in an order that’s most efficient. And that means that you can increase the throughput through your manufacturing facility and produce more. In most cases, clients still have trouble meeting demands then they may have to offload and that means finding a supplier that can help supplement your manufacturing capability, which sounds easy, but it is not. And maybe they only do a piece of your process and then you have to bring it back.
Justin Smith: Like contract manufacturing.
Lisa Anderson: Exactly. Like contract manufacturing. One of my clients they’ve outsourced, one step they have, let’s say a 10 step manufacturing process and they’re able to outsource one step here, one step there. And in another case, they can outsource the entire 10 steps. But you have to look through those pieces. So one is looking at your manufacturing capacity and understanding how can I prepare for the future, like six months down the line, a year down the line so that I have what I need in terms of people, machinery, buildings, suppliers, et cetera. So that I can meet my demands in the most profitable way, obviously for the company. And then you’re also going to go to your materials because just having manufacturing capacity, it does you no good whatsoever if you don’t have materials arriving or components arriving so that you can actually run your lines. So then it goes to, you know, where are my suppliers located? Do they all happen to be in Wuhan, China because we know what that means. if they’re all dependent on the same, like geography. Do I have a backup supplier in place? Should I bring on additional supplies, et cetera. you’re looking at what are the processes I’m using to determine, how to get the right materials arriving when they need to arrive without having too many, without having too few. So, you know, all of those processes relate to the material. And then you also have what you were describing and that is your warehousing and storage locations and your 3PLs. So basically you look at, can I store everything that I’m going to need to store, because let’s say you have peak seasons in your business. You have to, most likely you have to produce or purchase ahead of time, store it in so that you have the product close to your customer for the peak seasons. So do you have the storage? Do you have the capabilities because maybe you’re doing e-commerce as well as box in and out type of business? If you don’t or even if you do, you may choose to outsource, which could be to a 3PL, or you might use a 3PL just like your e-commerce business and do the rest internally. So you evaluate those options. So that’s the operations side of things and then strategic decisions come up during the planning process as well. So you might get to the point where you say, I think I need to reshoring or nearshore, which just means moving manufacturing closer to the customer. So you can be more responsive and more responsive to changing customer needs. That could come up there or you could just be reconfiguring your supply chain, there’s no telling. So all of that comes up in the operations planning side of things, and then you’re also planning for inventory. So should I plan strategic inventory? Like a strategic inventory stockpile of my critical material? Well, the answer probably is, yes since it’s critical. In one of my client’s cases, they had extra people that were utilized. They utilized other areas of the operation, but like, they were probably overpaid for these other areas, if you will. However, they had the skill to start up their machine shop if needed. And so they could have just strategic capacity available that they could produce on a dime and that works too. You don’t have to put it in a finished good form. So sales and operations planning, or SIOP, helps you to better manage basically all the inputs and the outputs. And the other piece, I didn’t mention as a forest transportation, because how you’re shifting between all these people. And it’s not usually that you’re just producing in one location and that you are jumping from one supplier location, that kind of thing. It’s more complex. But you have to get products from place to place. Then determine if you’re using rail or trucks or planes or whatnot. So basically that’s SIOP. That’s one way to proactively and successfully manage in this environment. As I said, a client had a service in the high nineties because they have put in place this type of a process, and they were able to meet the revenue objectives. I mean, it’s not as though it’s a magical solution. You still have a lot of work to do, but it basically is. It helps you get in the right frame.
Justin Smith: Yeah, having the framework to work through. That’s half of it. It is interesting to think of when you entered the mix and what the state of affairs are in that framework when you arrive. What it takes to get set up in an engagement to recognize what’s going on and then work through a project with a client. And then, I don’t know if you stay on afterwards or monthly or quarterly or annually. How does that fit when you think of your involvement in this process?
Lisa Anderson: So generally speaking, we’ll start out a project with an assessment and like, we have to know where we’re starting. What kinds of people capabilities, skill, what processes, and how are we using the systems? We basically understand the order fulfillment cycle, which basically means from, how do you sell the business and what’s important to your customers to how do you take orders. And you know, engineered products, depending upon what kind of business you’re in. How do you currently plan for purchases and how do you plan for production? How do you ship products, et cetera? So basically go from beginning to end and understand how it works in the client and of course, what the objectives are. For SIOP programs, we might be coming in for many reasons like most recently the main reason is folks want to grow and scale so that they can successfully project more predictable revenue streams and be able to meet that rapidly. However, prior to the pandemic and, you know, some clients are still interested in service levels. So like, they’re thinking like how do I increase my on-time delivery? How do I reduce lead times? But really that goes back to growing the business successfully and having happy customers. And the other thing could be once you get a more predictable revenue stream. Most importantly, beyond your customers, that’s always going to be number one but beyond that, you want to scale profitably. Which it enables you to do if you can preplan, like I was talking about, manufacturing, the supply chain, et cetera. So profitability and the third area is working capital. So that means having the least amount of inventory throughout your system so that you have less cash tied up unnecessarily. You want cash tied up if it’s going to allow you to service customers and support your revenue growth. But beyond that you’re pretty much just as you well know you’re taking up extra space with there is none currently.
Justin Smith: Right, there’s not much space, much less extra space.
Lisa Anderson: Exactly, exactly. So you really want to manage your inventory as well. Can you circle back to the question you asked me?
Justin Smith: Yeah. That’s what an engagement looks like.
Lisa Anderson: Oh, the engagement and the timing that’s right. So we start with the assessment and then that tells us what are the key levers? Like, what are the priorities? So every client has like hundreds of things they could do to improve. But you know, we’re not going to worry about a hundred things. So we do this type of assessment. If they don’t have a SIOP process in place, we’re going to start with designing a pilot and piloting something like a one facility, one product line, something like that.
Justin Smith: A trial.
Lisa Anderson: A trial, exactly. And generally speaking, you know, doing an assessment of who had it depends on the size and complexity of the company and how many locations we’re talking about, but, you know, it could be as short as probably four to six weeks to as long as three months. I’ve seen longer but a highly complex situation. And then the pilots generally speaking, is another, you know, three months is an ideal timeframe, but you can always accelerate progress depending on how you’re scoped out your pilot and how many people, process, and system. upgrades do you have to do in order to just make the pilot process work. But you try to keep it something so that you can have results with your pilot within like a quarter I would say. And then from there, what we’ll do is we’ll expand and roll out the rest of the items, which is no telling. With one client, we had really extensive data challenges and so it took us quite some time and we had to get sales on board. So you’re usually working with sales and you’re working with ops and purchasing the cross-functional groups. So, you know, like SIOP programs in general, like I would say to roll out across the board, it depends on what the board is. It could take a year and then it could take multiple years in some cases. Generally speaking, it doesn’t take that long. However, what I find is that as clients roll out, they realize there are a lot of advantages if we continue to improve along the way, so you make it sustainable, and it actually drives the visits that can easily be multiple years. We’re continually improving. So, does that help answer the question?
Justin Smith: Yeah, and I can only imagine once you start opening it all up and asking all these questions and you’re on like a pilot program, like I’m sure it, it creates all sorts of new ideas, new areas for investment and then it’s a cycle that you have to build upon.
Lisa Anderson: Well, yeah, and actually from that point of view, like in several cases where we went into work on the SIOP process, we discovered that there’s opportunities, let’s say in one of the areas that builds on the SIOP. So like how do you schedule what you’re producing in the manufacturing facility and in what order to be most efficient so that you can increase throughput and increase your capacity as an example. So that becomes potentially a project on its own in order to improve that. So that’s one thing that could result. Another thing could be that we don’t always have the materials we need when they need to be there. So we need to look at how we utilize the ERP system, maybe their MRP system, and how do we educate folks to upgrade their processes and use the systems? So that’s another area. So to your point, as you continue to refine the business, it can have such a huge impact on profitability and the servicing of customers that it ends up expanding in different directions as you make progress. You know, it becomes a natural progression.
Justin Smith: So if you think of this natural progression, scale growth and people getting past, maybe the shock part and seeing some fruits of the labor. Scale and growth, that’s a people, that’s technology, that’s processes. Like you help clients with their use of technology in this process. As they scale and grow, what’s that look like for you? It’s such a broad topic and there’s so many technologies that people implement. Where what’s newsworthy in our world is warehouse automation and how people are starting to adopt that and having this big Gulf in between what’s easily accessible and what highly automated and well capitalized public companies are using and seeing if those two are coming together. Or how smaller and medium sized operations access and implement and invest in more warehouse automation. That’s what I see because I don’t see it as much of the part of the planning that you’re working on. So, I’m curious to see where that intersects your world.
Lisa Anderson: Well, you’re absolutely right. Another key area we work on is from the technology side of things, because really to succeed in today’s environment clients need to leverage additional technology in order to provide the level of service that customers are looking for as well as to do it efficiently enough. First of all there, aren’t any additional people out there to hire. And as they’re reshoring, which is the second strategy that we were talking about is what they are doing to improve things as the rating production comes back. I don’t know if it’s back really closer to the customer, but that means that it’s probably going in our case to the US to Mexico. Why have people doing repetitive tasks that are more of the kind that are less safe? They lead to injuries, et cetera. When you can automate them. So you know technology relates to that too. So one of the things that I’d say is most important, especially when it comes to SIOP is the use of their ERP system. So whether they have SAP, Oracle, Epicor, Sage, whatever it doesn’t matter. We basically utilize all of those systems. And we find the two key things is how to better leverage the system to perform all those functions I was talking about earlier. That’s one piece. And then the second piece is how to get the right data out of the system and cleanse the data, if necessary, as well. Even in the really big companies that are highly successful, there tends to be a lot of data challenges. So, how do we get the right data, cleanse the data, and make meaningful decisions with that data? Because right now there is no time. You can’t just wait around for the ideal or perfect information to pop up for you to make a decision. By then your competitors have already sped by you. So we need to be able to slice and dice data to make good decisions. And that’s very important as part of the SIOP process, as well as better leveraging the ERP that’s in that they have. And in a rare case, we would recommend that they use a new ERP system. I would say that in 98% of the cases we can use the system they have already and make meaningful, substantial progress. Now we might tell them though, that you are going to run into a brick wall and that you need to have a parallel path, upgrade a system, but it doesn’t happen that often. But nevertheless, we also do help folks select systems, but one is the ERP system and the data. Then beyond that, if you look at how I better forecast my demand, you know, we could get into forecasting systems. Which, you know, sometimes are included in the ERP system and they’re also really a peripheral system that generally speaking, they charge extra for the forecasting. So forecasting systems sometimes are needed sometimes aren’t, it depends on the situation and the complexity. But that’s another system that we might utilize. An advanced planning system might be needed. It depends on the type of flying and the complexity. We really don’t recommend that you try to buy too many systems that you really don’t need. So keep it as simple as you can but given your business, you want the right systems to support your particular business. So forecasting, advanced planning. Then when we get to, how do we optimize operations and how do we optimize, you know, warehousing, et cetera. Then we would get into automation equipment, how do we tie the machinery to the ERP systems. So we can see things like uptime, downtime. How do we get advanced information on what’s happening and visibility across our supply chain? There’s like a ton of technology that you can implement to connect with customers and suppliers. So I would say that what you were talking about as far as the automation in the warehouse is another piece. Same thing as through manufacturing. There’s a plethora of software and technologies you could use, all of which are good on the surface. The key is which ones should you implement in your particular situation? That’ll have the most impact on your customers and your profitability. And what sequence or order because you can’t do everything at once. So, you know, really that’s a part of the situation that we’re assessing is, what do you currently have? How much more can we use that? What kind of assistance will you end up needing to leverage additional functionality? And then what works with your base ERP system? Because you do want as much of the technology as you can to work in conjunction with one another, because otherwise you have a new problem on your hands working with disparate technology.
Justin Smith: It’s such a wide range of segments of the business that you have to be familiar with and be able to plug into and look for solutions and identify pain points. I thought I had, uh, a wide spectrum of people that I work with to help with problems, but it seems like it pales in comparison to who you may need to call on for help on a certain part of an improvement process.
Lisa Anderson: Yeah, it’s true. It can be pretty broad the topics that you have to get into in order to pull the right levers, if you will. To figure out how to improve your service to your customers and support your future growth. That is actually the trick. I mean, once you know which lever to pull, getting the right resources and helping the client to pull that lever, is another task, but it’s actually figuring out that design, like which lever do I pull and in what order that that’s kind of the key.
Justin Smith: You see a doctor and they say, my arm hurts but why does my arm hurt? Before we know what, we’re going to do about it. Yeah, it’s the symptoms and being able to see them and recognize which ones.
Lisa Anderson: Exactly and down the line impacts. Actually, you just bring up a really good point. So one thing that I find is very important, but it’s difficult to communicate in advance of that when it comes to these technologies or even processed steps. It may all look great on the surface, but then if you aren’t thinking about down the line impact, once you make one change, it seems like it works great for your purpose, but if it screws up two people down the line from you that’s a whole different problem. And suddenly you have like customers running out of products and you know, other bad things happening. So that’s that, that’s the other piece. You have to be looking at where the end to end supply chain really does come into play.
Justin Smith: How does that new action change what the next action is and for the next partner in their next action? This is super helpful. I think maybe if we had a wrap up with a one or two stories of what success looks like after an engagement and how that affects a client. I don’t know if you had any top of mind or ones you had recently wrapped up or ones where you’d seen a client be really happy and be able to benefit from the engagement. If you had anyone that was top of mind. That would be illustrative. I think that’d be helpful.
Lisa Anderson: Well, sure. So in addition to the one that I kind of referred to, which was a machinery and equipment manufacturer. We helped them roll out the SIOP program and worked through several data challenges to create a predictable forecast, really, and allow us to plan capacity in advance and determine what to offload and what long lead time materials to bring in. We were able to service customers in the high nineties, I think it was 98 during the height of the pandemic, when everyone was running out with supply chain issues.
Justin Smith: You knew the one store with toilet paper.
Lisa Anderson: That’s exactly right. They had that success. And then another example, working with a client that is in the building products industry and their product is not highly engineered in their case. So in their case, we were really looking at their planning process, which means how do we think about, what products to run in which order, and how to best send them from the manufacturing facility to all of their outside distribution centers? And have the right products and the right outside distribution center at the right time, which kind of relates back to your specialty in terms of some of those outside distribution centers are 3PLs as well. And so from that point of view, it was really more figuring out how to replenish those outside distribution centers. And then how to tie that back into the production schedules. And so we worked with the clients and in one of their particular locations, they went from being made to order to make to stock. But most importantly, while we were still made to order, we did get a handle on that process and it allowed them to have a record breaking year in terms of the production output, because they had a better stability in their production schedule. And therefore record breaking sales, from this production, from this plant. Which of course is the ideal thing because everyone’s trying to grow their business. So they were able to take on additional customers and continue to grow their business. Whereas many others many of the competitors were struggling with the supply chain challenges as everybody is. And that case, we were really focused more on the planning aspect, and we did have SIOP program going, but it was more of the planning side that drove the results
Justin Smith: And made for a happy client, I’m sure. Especially to be able to excel and then to see the benefit of all the hard work of putting these processes in place and stopping to think about it, each part of it. And really brainstorming where there is room for improvement and implementing new systems. I’m sure it’s training the implementation is probably also just as challenging is figuring out what the problem is in the first place.
Lisa Anderson:And in this case, they actually had turnover in their production planner. We’re the glue, if you will because we really helped with taking the expertise to the next level and rolling out some process upgrades. and helping them. These days in consulting, it’s quite challenging in the sense that clients are continuously losing key people, which is unfortunate. But you know, it’s one of the advantages because we’re able to help them fill some of those gaps. The other thing about that client that kind of relates to what you were saying earlier. So it makes sense to bring up that they were also looking at the strategy side of things, couldn’t be more than just reshoring, nearshoring. How do I handle the manufacturing side? So in this case, which outside distribution center should I really have to best service my customer’s needs and my changing customer’s needs? Should I have as many as I have today? Where should I supply them out of? Should I supply deep products from all distribution centers? So, you know, doing an analysis of how to best serve customers while being profitable. It relates to both the manufacturing side, as well as I guess you could call it distribution but it’s working through their network of distribution centers as well.
Justin Smith: The network is a tricky one when you start having multiple moving pieces and figuring out which ones. And they all have their own timelines and their own personnel and are trying to figure that out. That seems like plenty of people would say, Lisa, we need some help. We need someone from the outside to come in and just take a moment to pause and just go through everything and figure out what to do.
Lisa Anderson: It’s very true.
Justin Smith: I mean an independent third party that has no dog in the fight.
Lisa Anderson: No, I mean that exactly because many of our clients are, we have plans that need to shore up the skills and we help them do that and design the solution. But in some client’s cases, we actually had one client last year that was a life sciences manufacturer. And they specifically brought us on board because they had capable people. They had actually implemented the types of programs in their past life, but they really just didn’t have the time and ability to make sure that they were able to do it in a successful and quick way, they wanted to accelerate progress. So that’s specifically why they brought us in. So you’re right. There’s many reasons today that you may end up bringing in a consultant.
Justin Smith: Well, I know who I’ll call when people ask me. That’s very helpful. I appreciate you kind of going high level and into some of the themes and then really you have breaking open SIOP. It’s something that I know in my world. That’s not the part that we see very often, but the result right, is what then trickles down into our world as people make changes based on those decisions. So it’s simple to have a better understanding of it, and I’m sure people listening will be at their own point in that journey. So I appreciate your sharing that with me and with everybody on the show.
Lisa Anderson: Absolutely, I enjoyed it. I love for folks to be thinking about just making a small step in that direction, whether you use a consultant or not, because really what could be more important. I see more companies separating either becoming a winner or loser in the next few years than ever before, except for the great depression. So, you know it’s your opportunity. I’m all for becoming a winner instead of the loser.
Justin Smith: Yeah. The difference in those improvements right now is the time when there’s going to be a lot of the growth that’s associated with it or with the processes and technology adoption. When that really is a jet fuel that once you get that going in a way that’s very meaningful. It all starts to separate the pack a lot more.
I mean, really my clients that are succeeding and thinking ahead and proactive, innovative, and agile are increasing business. And they’re taking it from the people who are waiting for the supply chain challenges to resolve themselves. You know, unfortunately they’re going to be waiting a long time and unfortunately their volume is going in the meantime.
Justin Smith: I need a real estate brokerage consult, Lisa. I think that’s what I learned from this.
Lisa Anderson: That’s right. No, absolutely. I mean, it is quite key because you know, in order to store your strategic inventory in order to like, people are going to be sourcing more manufacturing facilities. I mean really, getting space that’s close to a customer that’s in a good location where you can find people. That’s a really big thing. It’s really critical. So I highly recommend that they reach out to you to do that.
Justin Smith: No doubt. I appreciate that, Lisa. Well, thank you for taking the time. We’ll look to catch up soon.
Lisa Anderson: Great. Well, thank you.
