Already have an S&OP process? IBP is within reach

Long viewed as leading-practice, Sales and Operations Planning (S&OP) has remained largely unchanged, utilised by organisations as a simple process to balance supply and demand. Today’s more volatile, competitive and customer-centric market requires that organisations more effectively anticipate respond and coordinate in the most profitable manner.

Comfortable with S&OP, many organisations have disregarded Integrated Business Planning (IBP) as another buzz word, a minor enhancement of their current process, or placed it in the ‘too hard’ basket. If this is your organisation, it’s time to think again.

IBP builds on S&OP, allowing organisations to drive alignment with, or address gaps to, their business plans by integrating business units and functions across the organisation to conduct data-backed scenario analysis across the planning horizons. For those organisations with mature SOP processes, IBP can be the key to boosting productivity and profitability by expanding decision-making across key business units and functions, adopting broader scenario analysis beyond volume and capacity considerations, and aligning planning horizons.

Why IBP?

S&OP was originally developed to balance supply and demand, effectively utilise resources and progress from tactical short-term planning to a strategic medium and long term horizon. More recently, increased competitive pressures led to the introduction of financial metrics in the S&OP process. This ‘finance enhanced’ S&OP process still falls short of the capability of IBP. Two features differentiate IBP from S&OP:

  1. IBP incorporates and aligns all relevant business units and functions enabling more balanced decision-making underpinned by the organisation’s strategy.
  2. IBP enables scenario analysis across each planning horizon assisting organisations to envisage potential options and outcomes in order to make more informed, dynamic decisions.
Characteristics of a successful IBP process

The foundation of successful IBP is a well-embedded S&OP process. Once supply and demand planning is in check, the organisation can progress its transition to IBP. A successful IBP process is integrated, informed and focused.

IBP decision making is integrated with all business units and functions (including more directly engaging finance) to balance the strategic and tactical priorities of the organisation:

  • Greater Financial integration is a fundamental element of the transition to IBP. This includes, but is not limited to, accountability for performance through gap to budget analysis, OpEx vs CapEx review, and revenue vs profit evaluation.
  • In order to achieve an integrated consensus plan, organisations should align and balance their planning horizons through the cascade from strategic through operational and tactical levels.

IBP decision making should be informed, combining scenario analysis with cost-to-serve consciousness:

  • Technological advancement in the past decade has paved the path to capture and analyse data in a timely and efficient manner. Available technologies facilitate enhanced scenario analysis that moves beyond capacity and volume, fed by financial data.
  • Exercising a finance driven scenario analysis is only possible if the organisation has a clear view on its cost to serve each customer/market through each channel.

IBP decision making should be focused optimising activities along the supply chain and focusing new product development towards operational and strategic efficiency:

  • Integrating product innovation into IBP reduces the time to market and improves the success rate of newly introduced products. This will include an orchestrated phase out of current products and development of a purpose-oriented product portfolio.
  • Utilising an accurate demand plan supported by finance driven analysis, decision makers are given the opportunity to optimise the extended supply chain to better serve operational, tactical and strategic business targets.
  • SOP often has the perception of being overly supply focused, with capacity and production planning being the centre pieces. Extending the planning process to other business units and functions (e.g. marketing, finance and R&D) ensures the customer and financial lenses are more prominent.

How can my organisation transition from S&OP to IBP?

IBP is a necessary evolution of S&OP, an achievable and important next step for progressive organisations to remain competitive in today’s market. The followings are our three top tips for commencing the transition from S&OP to IBP:

  1. Get the basics right: Assess your organisation’s S&OP maturity. Without strong S&OP foundations (i.e. a monthly planning cadence, clearly defined roles and responsibilities, performance accountability and alignment to strategic objectives), the transition to IBP has a higher likelihood of failure. Importantly, IBP tools and system support should always be viewed as enablers, rather than foundations.
  2. Remember, it is Integrated (not siloed) Business Planning: IBP is not limited by industry, or business unit. Successful IBP requires alignment from relevant business units and functions spanning your organisation, alignment of extended planning horizons and, increasingly, the joint business plans developed with your customers
  3. Consider each of the three planning horizons: IBP should predominantly focus on the long-term horizon (12-24 months). Next, it should drive accountability for recent performance and subsequent continuous improvement. Finally, IBP should feature adaptability to meet short-to-medium term challenges and opportunities. This is often a mindset shift for S&OP-familiar organisations.
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