Sales and Operations Planning (S&OP) has long been the standard best practice for companies to align supply and market demand. Continuous S&OP improvement has proven to be a worthy investment for many companies, but even at its best, S&OP alone has its shortcomings. Many companies are now evolving from S&OP to Integrated Business Planning (IBP). IBP is a planning approach that incorporates the whole of the business enterprise with the goal to satisfy market demand while maximizing profitability. Compared to S&OP, IBP considers more factors, more functions and more opportunities, over a longer term, to help companies better respond to internal and external factors. To discuss this evolution, Sebastian Valencia, Clarkston Consulting Associate Partner, sat down with Randy Donaldson, previous Vice President, Operations and Engineering at Cosmetic Essence, Inc. and current Clarkston Executive Alliance member.
Additionally, the complexity and speed of today’s marketplace forces companies to have a faster, more responsive and more integrated approach to planning. New product developments and launches, customers with unique demands, and evolving regulations are just a few of the continuously changing factors that highlight the shortcomings of traditional planning. These changes drive variances that result in ad-hoc planning with Marketing, R&D, Regulatory and Finance.
Companies know that these stakeholders must have a seat at the strategic planning table if they are going to move away from reactive planning. When companies turn to IBP, planning reaches outside the traditional boundaries of sales and operations to ensure the full scope of the business is considered. Finally, depending on the nature of the business, some companies are even turning to Integrated Business Planning to help them identify new opportunities, form strategic partnerships with clients or differentiate their products or services. Regardless of the factors driving companies to IBP, most will find benefit in having more eyes and ears from the business contributing to the strategic planning process.
Although you have already alluded to some of them, what are the top five benefits of adopting Integrated Business Planning?
I would say the top five benefits of adopting IBP are:
- Optimized profitability: This is driven primarily from the increased scope of planning that centers around the financial implications of the operational plan and associated trade-offs.
- Increased agility: IBP’s scenario planning and modeling accounts for many of the internal and external factors that would traditionally cause fire drills and reactive planning.
- Extended accountability: More people from more functions are now accountable for making planning decisions that maximize profitability.
- Improved forward, long-term thinking: IBP takes a longer-term view of planning, forcing all key stakeholders to think beyond the customer demands of today.
- More business-minded operations talent: With IBP, operations is exposed to the details of customer demands, market data and financials. Engaging in discussions about these topics can be quite transformative for operations teams.
Why are companies looking to evolve to Integrated Business Planning?
Companies are turning to Integrated Business Planning (IBP) to ultimately ensure that profitability is at the center of operational planning. Companies conceptually know all sales are not created equal. However operationally, planning processes simply consider a unit as a unit, with little consideration of the attached economics.
To maximize profitability, companies must optimize the economics of every sale, which requires a far more strategic and comprehensive look at planning than what companies traditionally employ.
If you think about the traditional S&OP process, financials are considered, but are typically not a key driver for planning. Sitting on the operations side of the table, my team would receive the sales forecast and simply try to operationally execute on the projected customer demand. Strategically collaborating with Sales or Finance on critical financial considerations was just not a part of the standard process. In contrast, IBP brings additional people and criteria to the table. For example, Finance works with Operations to assess run strategies, develop labor models and assess customer profitability, all of which are incredibly important for prioritization and trade-off situations.
To learn more about The Evolution from S&OP to Integrated Business Planning, click through on the PDF below.