Frequently Asked Questions - Integrated Business Planning (IBP)

There are many differences between Sales & Operations Planning (S&OP) and Integrated Business Planning (IBP), but firstly it’s important to note that IBP is not a supply chain process; it has a much broader reach. IBP is the process that connects an organization’s strategy and business plan to ensure both are delivered.

The purpose of IBP is not to drive a better forecast with which supply chain can plan. It is the process that brings focus to the deployment of a business strategy and provides a framework for effective decision-making to drive growth.

IBP is a company framework to surface and solve problems and continually re-optimize plans as circumstances change. It enables organizations to create an aligned, cross-functional plan, based upon key assumptions. These assumptions, documented and updated each month, are based on insights.

To learn more about what sets Integrated Business Planning apart from Sales & Operations Planning read our white paper, Don't fall for fake news; a buyer's guide to Integrated Business Planning.

The central role of finance in IBP is to provide a vital business partnership, enabling visibility and accountability for the financial outcome.

Finance is pivotal in the development of successful IBP in all areas of the business. It must move to challenge and support the organization and act as an enabler rather than compliance police. In this way, finance becomes part of leading the business not only in day-to-day activity but by engaging in commercial strategies and solutions that drive better results.

Read our white paper, Show me the money. The Role of Finance in Integrated Business Planning to learn more.

The success of IBP should be measured in terms of its contribution to the delivery of an organization's strategic objectives. At the most basic level value out needs to significantly exceed the effort put in to run the process. ‘Value out’ (measures of success) is different for every individual business and to a large extent dependent on their maturity. Typical reported quantitative benefits include growth in both revenue and margin, a healthier portfolio, shorter lead times, better customer service, and reduced inventory. Qualitative measures of success include significant simplification of the annual budgeting process and faster issue recognition and decision-making. This is enabled by high-quality decision support information and one set of numbers.

Read our white paper, How Good Is Your Sales and Operations Planning/Integrated Business Planning Process to measure the quality of your IBP process.

IBP is not just a set of meetings, it is an ongoing process that includes some formal, calendarized decision-making forums. It must also be tailored to fit the organizational structure and decision rights. However, there are some common attributes across the process.

Each month, key decision makers come together to review what has changed of significance since the previous cycle, how that affects their ability to deliver the business plan and strategic goals and, crucially, what to do about it. These decision-making forums are clustered around the core business areas; Product & Portfolio Management; Demand (Commercial) Management, and Supply Chain Management. Wherever possible decisions are made in these forums. Where this is not possible issues and opportunities are escalated through a process called Integrated Reconciliation which gathers up and prioritizes decisions which are then brought to the Management Business Review, which is the leadership forum.

Organizations must have the right structure, people, and information flows pitched at the right level of altitude and materiality. Accountabilities and decision rights must be clear. The reviews should be 2-3 hours in length and focused on making decisions about significant issues and opportunities, not just sharing information, so preparation is crucial. Each activity and all the reviews along with their inputs and outputs need to happen ‘on the clock’ i.e., to the agreed timetable every month. The process map brings efficiency, the content brings effectiveness, decision-making delivers value.

One of the most frequent errors we see is organizations trying to run the IBP process at too detailed a level. People then spend far too much time just trying to gather that data rather than doing meaningful analysis and reaching conclusions.

A key piece of design work is to establish the right level of granularity that both enables visibility of key issues and is manageable in terms of analysis and preparation. IBP is focused on managing significant changes in the medium to longer term (typically months 4 to 36), so you must think about what does ‘significant’ mean in your business in that horizon and what are the significant changes that need to be decided via the process vs what is covered in the functional ‘day job’.

Each review will look at information at a ‘family’ level. Note that it is not expected that each review looks at families in the same way. They need to see different dimensions of the plan to drive the right conversations. For example, the Demand Review could look at brand/channel; application or therapy area depending on the sector. Supply would look, for example, at technology groupings; liquids, powders, bulk, packing lines etc.

IBP ensures organizations have one integrated set of plans and are aligned across the business as to how to deliver the business plan and strategic objectives, as well as manage risks and opportunities and buffer against uncertainty. This means organizations have the transparency needed for the supply chain to make informed decisions on how to deploy resources; sourcing; inventory policy; how to manage risk and/or constraints.

Fundamentally the supply chain is managing the business investment in resources, be they people, equipment, materials. IBP brings transparency on expected issues and opportunities and decisions on how those should be managed.

IBP relies on clear accountabilities and empowerment. A core principle is that decisions are pushed down the organization as far as is practical. Within the scope of that empowerment the supply chain can then decide how best to plan and flex the resources it controls.

Greater understanding of the business direction and priorities enables the supply chain to build in planned responsiveness more effectively. Scenario planning is a key facet of IBP. In addition to responding to the commercial plans, supply chain can be more proactive in bringing scenarios and options to the organization.

Inventory optimization is one of the most frequently reported benefits of IBP. Investment in inventory is a business decision but is often made in isolation by people in the supply chain based on history, by commercial people second guessing how best to protect their customers from uncertainty or even by finance to hit year end targets. This can lead to a problematic situation where the overall levels of inventory are too high, but service levels are impacted by out-of-stock situations.

In an IBP environment there is collective cross-functional agreement on how best to manage uncertainty, how much we want to invest in putting buffers in place and how best to deploy that investment. Supply chain teams can then use this shared forward view to get to the sweet spot of optimizing service, cost, and inventory.

Read our blog on inventory management to learn more.