Many companies still struggle with executing a strategic integrated business planning (IBP) process that effectively integrates demand planning, supply planning, and financial planning.
Most simply put, the process should drive decisions on how to best meet demand (customer/consumer sales for existing and new products) within supply constraints in order to optimise financial return. Yet answers to the questions of each planning component of IBP (See Figure 1) can be dramatically different, and lead to very different results if addressed in silos versus an integrated fashion.
Put more bluntly, companies that successfully execute IBP achieve greater operational and financial benefits than those that do not. A key requirement for that success is collaboration, including a disciplined, repeatable process that drives integrated decision making, and a balanced scorecard for performance measurement.
Figure 1: Components of Integrated Business Planning
Based on our experience, we at The Hackett Group believe unlocking IBP can deliver the following competitive advantages and benefits:
- Visibility into the financial implications of decisions and actions related to demand and supply.
- Significant cost improvements driven by a more efficient and effective supply chain.
- Improved top-line revenue growth.
- Inventory deployment improvements, e.g. “the right product in the right place at the right time” based on customer demand, which reduce excess deployment costs.
- Increased customer satisfaction as a result of more accurate demand planning and inventory availability which reduce out of stocks and back order issues.
However, with all the evidence that implementing IBP leads to important benefits in an increasingly competitive environment, why do many companies continue to miss out on the potential rewards of IBP?
We believe there are five keys questions that companies can use to open the doors to an effective and efficient IBP process. The first two questions deal with the market place and competitive environment in which the business operates, while the final three questions help assess internal improvement opportunities based on best practices for process, people, and data, systems and technology capabilities tied to IBP.
- What are the big-picture IBP trends in the marketplace?
Here are three examples of what leading companies are doing:
- Streamlined annual planning and budgeting processes.
- Balanced scorecards, with cascading metrics.
- Unified data models and better integration of technology platforms to support advanced planning and analytic capabilities.
- How do our supply chain cost and metrics compare to other companies?
Benchmarking can serve as a useful tool for measuring performance against the competition. Armed with valuable key performance metrics for cost, process and resources, supply chain leaders are equipped to make critical decisions and address areas of opportunity.
As an example, the metric “Demand/supply planning costs per $1000 revenue” is an excellent indicator of overall efficiency (see Figure 2):
Figure 2: Demand/supply planning costs per $1000 revenue across industries. Source: APQC
- Are optimal planning processes in place throughout the organisation?
Establishing a best-in-class IBP process is the foundation for maximising the efficiency and effectiveness of any organisation. Example best practices include:
- IBP goals and objectives are clear and well understood.
- The IBP process evaluates gap resolution and business optimisation options.
- Materials and reports supporting IBP are exception based.
- Do we have the right people at all levels of the organisation, to own the plan, make decisions, and ultimately be held accountable for the plan’s execution?
Equally as important as the right processes, is having the right organisational talent and accountability mechanisms in place. Example best practices include:
- Adequately staffed resources with required knowledge and skills.
- Clear ownership and accountability.
- Discipline to adhere to decisions made as part of the IBP process.
- Finally, are we equipped with the appropriate technology (tools and systems) necessary to fully support integrated business?
To enhance supply chain technology capabilities that both support and optimise the integrated business planning process, best-in-class organisations successfully employ supply chain systems and tools to maximise their IBP process.
Importantly, the firm must have the tools and systems needed to bring together and reconcile demand, supply, and financial plans in order to identify gaps and imbalances.
Read the full Hackett Group Supply Chain Insight Report here to learn more trends, best practices, and metrics which help supply chain successfully transition to Integrated Business Planning
Hanna Hamburger, a Director in the Strategy & Operations practice at The Hackett Group, has over 25 years of industry and consulting experience. She has worked extensively with consumer products and retail companies as well as life sciences companies in the areas of sales, marketing and supply chain process, technology and tools, and organisation performance improvement. A longer version of this article is available on The Hackett Group’s website.