Guru Rath is the director of Gray and associates and is an expert in supply chain and digital transformation.
The business environment is constantly evolving and companies must adapt to remain competitive while balancing customer expectations with shareholder goals. One way companies can do this is by moving from sales and operations planning (S&OP) to integrated business planning (IBP). S&OP is a planning process that aims to align sales, marketing, and operations with overall business strategy. On the other hand, IBP goes one step further by including financial planning, product development and risk management in the process.
Basic demand, supply, and inventory management processes are achievable through traditional S&OP, but there’s not much progress beyond a certain threshold. So the problem is: How do we deal with the volatility of the business environment as we deal with business process management?
Benefits of IBP
Here are some benefits of switching to IBP.
• Higher Dexterity: Integrated business planning enables companies to react quickly to the business environment and market volatility by providing a detailed and comprehensive overview of their activities. This can help companies streamline operations and seize opportunities for customers.
• Seamless collaboration: IBP requires and enables cross-functional collaboration between different business departments. This prevents teams from working in silos and allows for collaborative team effort, enabling accurate decision making and execution of operations.
• Financial planning: I have found that IBP is the most important integration process between operational and financial planning. IBP can help companies align their operational and financial goals, resulting in optimized material and financial allocations
• Better risk management: Thanks to an integrated and holistic end-to-end view between finance and operations, companies can identify risks in advance and take measures to mitigate them.
Challenges in the transition from S&OP to IBP
While the benefits of transitioning from S&OP to IBP are significant, there are also some challenges companies may face. Here are a few.
• Change management: The transition from S&OP to IBP requires major changes in processes, systems and organizational culture. Companies need to manage this change effectively to ensure a successful transition.
• Data Integration: IBP requires data from multiple sources, including sales, operations, finance, and supply chain. Companies must ensure that this data is accurate, reliable and integrated to avoid errors and inconsistencies.
• Technology infrastructure: IBP needs a robust technology infrastructure to support data integration, analysis and reporting. It is important for companies to invest in the right technology to support IBP effectively.
Best practices for the transition to IBP
To ensure a successful transition from S&OP to IBP, I recommend companies follow these best practices/
1. Define the scope.
Start by defining the scope of the transition, including the key business units and functions that will be included in the IBP process.
When considering scope, consider planning horizons (operational, tactical, and strategic), KPIs (customer satisfaction, on-time delivery, inventory turns, revenue growth, working capital), process management structure, data, and technology requirements. These must all be in line with the strategic objective of the organization.
2. Involve stakeholders.
IBP requires cross-functional collaboration, so it is important to involve stakeholders from across the organization in the transition process. The first step is to identify your stakeholders. Next, some of the best ways I’ve found to engage stakeholders are discussing the benefits of deeper process involvement, addressing any questions or concerns that arise, providing training as needed, and last but not least, identifying a measure to monitor progress .
3. Align processes and systems.
Coordinate your processes and systems to support IBP effectively. This includes integrating data sources, defining workflows and ensuring a technology infrastructure. Do not rely on data that is not or only partially available.
4. Provide training and support.
Ensure that employees understand and can use the new processes and systems effectively. For this training to be effective, you must ensure that you have the support of management leadership. Consider tailoring training according to the needs of the organization (general content can be provided as an overview). Measure effectiveness and ensure clear communication between trainer and participants.
5. Monitor and evaluate.
Finally, monitor and evaluate the IBP process to ensure it delivers the expected benefits. This includes tracking key performance indicators (KPIs) and making adjustments where necessary. Some of the KPIs that leaders should pay attention to include forecast accuracy, inventory turns, customer service levels, working capital, etc. The key would be to establish a baseline before implementing IBP and measure it against the baseline for benchmarking.
The move from S&OP to IBP is a strategic move that can help companies improve their business performance. IBP provides a comprehensive view of the business, enabling companies to make more informed decisions and respond more quickly to changes in the business environment. While there are challenges to the transition, companies can follow best practices to ensure a successful transition and reap the rewards.