SIOP/S&OP: Don’t Reshore; Move Manufacturing Forward

Globalization is no longer working

Globalization is not working. Geopolitics abound. For example, the war in Russia and Ukraine ravages on. There are concerns around the nuclear power plant in Ukraine, occupied by Russia. And that is aside from the impact on oil, food, commodities and much more. China continues to threaten Taiwan and has already changed Hong Kong. It is no longer the same for business. There are countless risks throughout the world. Read our recent article on geopolitics, natural resources, and the supply chain to learn about the larger scope of these risks. The bottom line is that globalization is no longer working.

SIOP to Devise a New Path Forward

SIOP (Sales Inventory Operations Planning), also known as S&OP is a process that will help you navigate changing business conditions (such as the fall of globalization). It provides a proactive view into your demand plan (sales forecast) so that executives can evaluate changes required to your manufacturing and supply chain footprint to successfully and profitably supply the revenue forecast. If you are dependent on China, Russia, Ukraine or other risky countries for manufacturing or anywhere in your supply chain (ie. your suppliers’ suppliers’ supplier) or if your customers are dependent, you should reevaluate. SIOP is a process/ tool that will help you with this process.

Will reshoring and nearshoring suffice?

In our recently released special report, “The Road Ahead: Business, Supply Chain & the World Order“, reshoring, nearshoring and friendly-shoring are discussed. Every executive should be evaluating these strategies to regionalize your supply chain if you want to have a sustainable business for the long term. A few of the key points include:

• Reshore: Certainly, smart companies are moving manufacturing closer to customers (which typically is bringing it back to its country of origin if that is where the customer base is located). Extended lead times and delays were unacceptable during the pandemic; however, much worse than that is the fact that executives can no longer “count” on reliable sources of supply in today’s risk ladden environment.
• Nearshore: If your product requires a significant amount of labor to produce, you might want to nearshore, meaning move manufacturing to a country close to your customers. For example, Mexico has a lower labor rate than the U.S. yet is close (and doesn’t require a container ship to transport), and so several companies are producing in Mexico if they have a high labor content in their products.
• Friendly shoring: Friendly shoring, also known as friend-shoring, is the same as nearshoring except that you have to be careful about where you are locating manufacturing. Is it a friendly nation to your ‘home’ location with the bulk of your customers? If not, if global conflict arises, you will be left with the same geopolitical risks.

Read more about these strategies in our blog category reshoring/ nearshoring. Although reshoring and nearshoring are important strategies, they will not suffice. China produces at scale. There is no way companies can move enough manufacturing to suffice by itself. Many executives think that they will be OK because they diversified to other southeastern Asia countries. That is not enough. Additionally, according to the Economist, China has expanded its influence throughout southeastern Asia, making these manufacturing havens such as Vietnam riskier. The other big powerhouse and hot spot is India. As discussed in our special report, India offers promise; however, it also comes with infrastructure risks, water risks etc.

The bottom line: Reshoring/ nearshoring is not enough.

Expand Manufacturing Capabilities

Don’t just think about moving manufacturing. Why risk your current supply? If your outsourced company finds out you are reshoring/ nearshoring, you will go to the bottom of the priority list immediately. That will not help your service or viability. Why not expand your manufacturing capabilities near your customers so that you can make a seamless transition? Unfortunately, it is unlikely you will get your equipment and other assets out of China. You can always try that after you have sufficient capacity near your customers.

Whether you insource or outsource doesn’t matter. The key point is that you need to expand your manufacturing and supply chain capabilities ASAP. Start by thinking through several questions:

• Equipment capabilities: Do you have any manufacturing presence near your customers? If so, take an inventory of your equipment, assets and infrastructure.
• Talent capabilities: Take an inventory of your talent capabilities. What types of skills do you have? Where are they located? What risks are associated with your talent?
• Industry 5.0 (manufacturing and supply chain technologies): Take inventory of your capabilities, ease of transition to these new concepts, etc. A few of the top technology enablers include industrial blockchain, drones, exoskeleton robots, additive technology, 5G and beyond, and mixed reality to achieve a superior customer experience, hyper customization, a responsive and distributed supply chain, experience activated (interactive) products, and a return of manpower to factories.
• ERP system capabilities: Will your ERP system support your transition and expansion needs? Do you have a supplier that is investing heavily to keep up with the latest technologies and incorporating artificial intelligence (AI), internet of things (IoT), predictive analytics, e-commerce (B2C, B2C), WMS, advanced planning and more.
• Process capabilities: Do you have the appropriate processes to support both strategy and tactics that will be required to navigate the next 10+ years? From a strategy perspective, you should have a SIOP (Sales Inventory Operations Planning) process in place to determine how to best navigate changing conditions to be prepared to supply your ideal customers and achieve profitable growth. From a tactics point-of-view, you will need the execution capabilities to support SIOP which is known as S&OE (Sales & Operations Execution). These processes include demand planning, production planning, replenishment planning, capacity planning, material planning, production scheduling, logistics planning, labor scheduling
• Innovation culture: The only way to succeed in the next decade is with innovation. Start creating a culture of innovation. It isn’t something you can dictate.
• Supply chain capabilities: In addition to demand and supply planning capabilities, you need to elevate to the SIOP process to make sure your logistics, distribution and transportation capabilities will support your changing circumstances.

There is no time to waste in building your manufacturing capabilities. By performing a quick assessment, you’ll know where to focus.

Innovation: Develop New Manufacturing Capabilities

Beyond simply expanding manufacturing capabilities, develop new manufacturing capabilities. Innovate. Create new technologies and advanced capabilities. The future will belong to those who can manufacture to scale while maintaining resiliency and profitability. When you develop new capabilities, choose to locate your manufacturing next to your customers. For example, additive manufacturing (3D printing) enables for on demand production near the point of use (customer, consumer). Innovate and find ways to utilize this technology, combine with other technologies and capabilities, develop new and you’ll surpass the competition and secure your market leadership position for decades to come.

Refer to our SIOP webpage for more information, our blog (SIOP category) for hundreds of articles, and learn more about SIOP and what’s important for a successful implementation in our new release eBook, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth. If you are interested in talking about how to improve profitability, free up cash, and/or improve service, contact us.

About LMA Consulting Group — Lisa Anderson, MBA, CSCP, CLTD Lisa Anderson is the founder and president of LMA Consulting Group, Inc., specializing in manufacturing strategy and end-to-end supply chain transformation. She focuses on maximizing the customer experience and enabling profitable, scalable, dramatic business growth. Ms. Anderson is a recognized Supply Chain thought leader by SelectHub, named a Top 40 B2B Tech Influencer by Arketi group, a Top 50 ERP Influencer by Washington-Frank, one of the most influential in Supply Chain by SAP and a woman leader in Supply Chain by RateLinx. She was recently interviewed on Fox News, has published special reports with a supply chain focus: Thriving in 2022: Learning from Supply Chain Chaos — Insights from 22 Trusted Advisors and the eBook, Future-Proofing Manufacturing & the Supply Chain Post COVID-19, as well as her primer, I’ve Been Thinking, strategies for creating bold customer promises and profits. A contributor on topics including a superior customer experience with SIOP, advancing innovation, and making the supply chain resilient, Ms. Anderson is regularly interviewed and quoted by publications such as Industry Week, Bloomberg, and The Wall Street Journal. For information, sign up for her Profit Through People® Newsletter or for a copy of her book, visit LMA-ConsultingGroup.com.