Integrated business planning (IBP) is gaining traction as more companies look at refining their sales and operations planning (S&OP) process. It’s worth the effort to document what IBP means for your business, if for no other reason than you can’t implement what you can’t define. To that end, let’s reiterate the distinction between IBP and S&OP before we dive into some tips on how to make integrated business planning a success.
The quick take: integrated business planning is long-range strategic business planning that combines volumetric and financial data into a single, highly visual comprehensive planning platform that delivers greater global visibility, more powerful multi-scenario analysis over longer planning horizons, tighter collaborative workflow, and a wider spectrum of alerts.
Research firms, solution providers, and pundits have struggled to standardize the nomenclature. Some refer to it as sales and operations planning (S&OP or SOP). Some call it ‘sales, inventory and operations planning’ (SIOP). And then there’s ‘merchandising, inventory and operations execution’ (MIOE), for the retail sector.
It’s useful to analyze these terms based on three overlapping planning horizons: executional, tactical, and strategic.
Executional deals with balancing demand and supply over the near term, often within the span of the planning cycle. Tactical deals with the mid-term, which may mean anything from a few months to 18 months or more. Strategic deals with high-level alignment over longer horizons. Some call this Integrated Business Planning (IBP), while others also include tactical activities under the IBP umbrella. Here are some useful definitions:
Sales and operations planning (S&OP or SOP) A traditional term whose definition doesn’t stretch far enough to cover all the bases including volumetric balancing of supply and demand.
Sales, inventory and operations planning (SIOP) An attempt to emphasize the importance of inventory. Part of the basic S&OP process is the optimization of inventory.
Merchandising, inventory and operations execution (MIOE) This is a retail industry synonym for S&OP. MIOE deals with the tactical level.
Integrated business planning (IBP) Covers S&OP, SIOP and MIOE across all time frames. Whether you are in Sales, Inventory, Marketing, Purchasing, Production, or Finance, you are from the same business and are engaged in planning activities that are closely connected.
The Power of Integrated Business Planning
According to industry research comparing the performance of companies that follow an IBP approach versus those that don’t, IBP users are:
- Better able to align supply and demand over the entire horizon
- More effective at collaborative planning and building real trust between stakeholders
- Able to reserve capacity at key suppliers earlier and more efficiently
- Faster to react to unexpected disruptions in the supply chain
- More likely to use alert-driven responses and adjustments
- Better at handling promotional demand.
Tips for a Successful IBP Implementation
From experience with thousands of customers, here’s Logility’s list of what the most effective IBP implementations have in common.
The CEO owns the process. The CEO enables acceptance and delivery of IBP at all levels in the business, and must inspire the team to view IBP not as “another project laden with department-level redundancies” but simply how the organization operates.
Sales contributes to the demand plan. Those closest to the customer have the best grasp of activity at the point of consumption, and therefore must be strongly involved and prepared to contribute to the demand plan.
Finance is at the table, not a mere observer. The finance team’s participation is critical for testing different scenarios and protecting the integrity of financial projections.
Think beyond the annual budget. IBP done correctly integrates the strategy with the business plan and ensures the delivery of both. In fact, you may find that IBP nudges your business toward a continuously updated two- or three-year financial plan.
Don’t let details derail. Too many organizations make the mistake of plunging down rabbit holes and forming committees to explore minutiae. Looking at the bigger picture frees the organization to focus on higher-level planning needed for sustaining growth and improving margins.
Get the culture right. Not surprisingly, IBP efforts often focus on process and data. However, the best deployment plans consider the cultural context and never lose sight of the following:
- A basic requirement for effective IBP is a culture that celebrates cross-functional collaboration not as a ‘nice-to-have’ but as a requirement for executing company strategy
- A culture accustomed to ‘delegating upward’ will bog down the executive review portion of IBP and reduce the speed of decision-making. IBP thrives when the lowest levels of the organization are empowered
- IBP places a premium on data-driven decision-making. But many challenging decisions will continue to rely on judgment. The culture should value seasoned judgment and not recast it as “guesses we made before we had all the data.”
So get started on your journey to realizing the power of integrated business planning. Markets and competitors aren’t waiting for you. There are real insights and lasting business benefits to be had from managing strategic, tactical and operational planning with one platform.