Integrated business planning (IBP) is gaining a lot of traction as more companies seek to advance their sales and operations planning (S&OP) process. IBP 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 workflows, and a wider spectrum of alerts.
With global business complexities growing every day, companies must have business processes in place to help manage the trade-offs between the supply and demand sides of their supply chain. The ideal goal is to have IBP – and the right supply chain planning platform to support it – bringing the right people to the table consistently to create a single, integrated plan for the business. This means routinely bringing together the C-suite, finance, supply chain, manufacturing, sales and marketing teams so everyone is seeing, working from and agreeing to an aligned plan that achieves optimal business outcomes.
A logical question is: now that the right people are gathered at the table, what do we do? Answer: you review KPIs, current and trended. Assess root causes, adjust plans, and debate course corrections.
That’s not a bad answer. Effective IBP demands the discipline that KPIs can instill. But before you start measuring everything in sight – and a few things not in sight – start with a set of thoughtful intentions and questions that will guide you to the right set of metrics and the right set of expectations. For example:
- Verify your strategy. What are your long-term goals? If your sustainable competitive advantage is centered on strong customer relationships, you may carry more inventory than your peers. Inventory-based KPIs probably make sense for you, but how will you benchmark results?
- Should you use the same KPIs as everyone else? Be different when it makes sense. It’s logical that a machined parts manufacturer and a grocery chain would review different KPIs in their IBP processes. But don’t hesitate to leverage good work that’s come before, both inside and outside your industry.
- What’s the right number of KPIs? Should you strive to distill overall performance down to one number? It’s been said that good design is achieved when you can no longer take anything away. Check your motives. If you are on a mission to get to one number so the CEO will stay awake, beware. The right answer is the fewest possible that still preserve the nuance and granularity necessary to properly interpret performance.
- Are you willing to act on everything you’re measuring? If you can’t or won’t, then stop tracking it.
- How do you think about KPI validity? This can be divisive, so KPIs for IBP should be stress-tested periodically. At the outset, your team might designate some KPIs as proxies or provisional based on institutional knowledge until their validity can be proved.
As noted above, learning from others is good practice no matter where you are on the IBP maturity continuum. The supply chain operations reference (SCOR) model developed by the Association for Supply Chain Management (ASCM) is also a good reference. According to ASCM, “The SCOR processes are those that a supply chain must execute in order to meet its primary objective of fulfilling customer orders.”
SCOR includes a set of metrics for supply chain performance, and Supply Chain Council members have formed industry groups to collect best practices that companies can use to elevate their supply chain models.
The model is based on four major ‘pillars’:
- Process modeling and re-engineering
- Performance measurements
- Best practices
The SCOR model contains more than 150 key indicators that measure the performance of supply chain operations. As with the process modeling system, SCOR metrics are organized in a hierarchical structure:
- Level 1 metrics are at the most aggregated level and are typically used by top decision makers to measure the performance of the company’s overall supply chain
- Level 2 metrics are primary, high-level measures that may cross multiple SCOR processes
- Level 3 metrics do not necessarily relate to a SCOR Level 1 process (plan, source, make, deliver, return, enable).
|Performance Attribute||Performance Attribute Definition||Level 1 Metric|
|Supply Chain Reliability||The performance of the supply chain in delivering the correct product, to the correct place, at the correct time, in the correct condition and packaging, in the correct quantity, with the correct documentation, to the correct customer.||Perfect Order Fulfillment|
|Supply Chain Responsiveness||The speed at which a supply chain provides products to the customer.||Order Fulfillment Cycle Time|
|Supply Chain Flexibility||The agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage.||Upside SC Flexibility; Upside SC Adaptability; Downside SC Adaptability|
|Supply Chain Costs||The costs associated with operating the supply chain.||SC Management Cost;|
Cost of Goods Sold (COGS)
|Supply Chain Asset Management||The effectiveness of an organization in managing assets to support demand satisfaction. This includes the management of all assets: fixed and working capital.||Cash-Cash Cycle Time;|
Return on SC Fixed Assets;
Return on Working Capital
There’s much more that could be said about SCOR, and much of it is good. But it should come as no surprise that some people take issue with parts of it.
If you look hard enough, you will find a counterpoint for every point. That’s a trap. In just the same way you’ll find many opinions on the proper set of metrics for ensuring a sustained, successful IBP effort. Some will say they’ve done all the hard work for you. But it’s not their hard work to do. It’s yours, and you can’t abdicate it.
Your KPIs for IBP may overlap with other industries and certainly will look similar to those of other companies in your space. In developing meaningful KPIs for IBP, the true measure of success is being true to your mission while learning from established authorities like SCOR.
Vice President, Product Marketing
Lachelle Buchanan is the vice president of product marketing at Logility, where she leverages over 15 years of experience in unifying the expertise of product development teams with the market insight of sales teams for successful new product introductions. After spending half her career in marketing and the other half in supply chain, Lachelle is most passionate about bringing teams together to solve complex supply chain challenges and delivering value for customers. Owing to a passion for advanced Sales & Operations Planning, Lachelle has Oliver Wight certifications in Integrated Business Planning (Advanced S&OP), Demand Management, Integrated Supply Chain Management and Product & Portfolio Management.