SIOP, also known as S&OP, can do the heavy lifting of the budgeting process by filling in the blanks on operations and inventory line items.
SIOP (sales, inventory & operations planning) can easily replace a good portion of the budgeting process – with better results! Why? Well, SIOP is a monthly process of reviewing and agreeing upon the latest sales forecast/demand plan for the next 12-72 months and the resulting master schedule (production plan). When you compare the master schedule vs. capacity and staffing levels, the required staffing needs will become clear. Options are reviewed as these gaps could be filled through promotions, temps, full-time hires, contractors, consultants or via off-load. Machine requirements will also emerge – upgrades, new machines, etc. Skill development needs will be unveiled. Based upon the demand and supply plan, an inventory plan will also be created. And the list goes on.
When you have a monthly executive review of this type of information, it becomes a great way to align the areas of the organization on the same page. It also captures the same type of data that is the basis for a budget. Thus, the SIOP demand plan can be the basis of the budget. It could be tweaked from there with Board of Directors or other additions. The information captured as to the required staffing and capital needs will be captured in the budget. The inventory plan will provide a good basis for cash forecasting.
The areas that will have to be added into the mix will be those not directly related to operations. Thus, overhead rates might be affected by SIOP in that the need for additional support could arise, the specific budgets will need to be developed in additional detail. SIOP can also bring up the need for additional buildings or off-site storage; however, those specifics will need to be added in later. There will be other details which have to be developed separately; however, the budget basis could easily be 60-80% of the way to the desired state. Wouldn’t that be a great advantage! If you are interested in learning how to implement SIOP, contact us. To learn more about how to implement SIOP, read our book, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth.