Increasingly complex operating environments, rising cost pressures, reductions in working capital, as well as mounting customer expectations, are driving the transformation of supply chains around the globe. In particular, there has been a resurgence of interest in adopting the integrated business planning (IBP) model to deliver a dynamic and responsive supply chain network.
The successful adoption of IBP can unlock significant value for businesses, strategically and operationally. IBP drives strategic alignment across functions, helping businesses to overcome silo mentalities, to build a customer-centric and demand-driven culture.
A typical example of the risks created by a silo-ed approach would be when planned production levels struggle to support a sudden surge in order volume driven by marketing teams. Consider how linking up departments to communicate and plan activities can help to stabilise processes, reduce non value-adding efforts and improve overall cost efficiency. As well, beyond internal integration, aligning inventories across the supply chain, at the manufacturer, distributor and end-customer’s point, can result in more effective promotional activities.
While this model is not new, few companies have gotten it right. Most supply chains are still struggling to evolve from the simplistic demand-supply balancing sales and operations planning (S&OP) model of the 1980s to adopt the enterprise-wide approach of IBP.
Succeeding at integration
The majority of organisations who struggle to move from S&OP to IBP have failed to get the following three steps right:
1. Clearly define and achieve crossbusiness agreement on the IBP Framework
Organisations have long struggled to execute and extract value from the business planning process, which is often hindered by a lack of clarity in what really needs to be decided ,when that decision needs to be made and by whom. Issues are often dynamic and multidimensional, requiring decision-makers to consider issues from multiple perspectives ranging from category, brand, market, channel and key account angles. Failure to do so can lead to misalignment between planning layers, their purpose, and authority, resulting in self-inflicted variability and inefficiencies.
Even if organisations are able to win consensus and align objectives across multiple functions, the right decision needs to be made at the right time. Given supply chain lead times, the timeliness of decisions needs to be governed by clear planning horizons. This ranges from full-year strategy planning, integrated business plans with a month-to-month view, calibrations to supply and demand levels on a weekly basis, to order management on a daily basis. Effectively orchestrating decision-making across all stages and layers requires a planning framework with clear roles and responsibilities.
2. Run IBP as an enterprise-wide rather than a silo supply chain process
Such a cross-business approach is clearly a game-changer when we consider how designing and running the monthly sales and operations planning process has traditionally been tasked solely to the supply chain department. Currently, finance teams focus on post-mortem reporting of quarterly and yearly financial targets. However, finance teams can help greatly by using financial models to drive greater alignment between operational decisions to profits and analysing financial performance from a bottom-up in addition to a top-down perspective. On the sales and marketing front, most struggle to provide forecasts beyond a month and are not held accountable for the accuracy of these figures.
Tackling and breaking down these silo mentalities, and creating a more integrated and collaborative culture where the commercial, finance and supply chain operations work together, will be key to implementing IBP.
3. Leverage Big Data and automation to enable real-time and fact-based decisionmaking
Most companies struggle to effectively deal with today’s digital business environment given their reliance on outdated data sources. Consider this: how many companies still conduct IBP meetings using last week’s reports on last month’s sales forecast that are primarily a combination of spreadsheets, while only partially utilising decision-making tools such as advanced planning systems (APS)?
Reimagining what operations planning should look like in the digital world means leveraging the latest cloud-based digital tools and analytics into an exception-based operations planning process, where information on exceptions to the normal flow of supply chains are captured. Capturing this in real time allows organisations to test scenarios before committing plans to production.
As data growth continues at an exponential rate and is generated from multiple sources, organisations will need to integrate internal systems i.e., enterprise resource planning (ERP) and APS, with external data i.e., sales out data, as well as ensure data accuracy, to obtain “one version of the truth”.
By leveraging visual dashboards, visualisation software, robotic process automation and intelligent automation technologies, companies will be able to achieve “lights out” planning, which means minimal human intervention by planners, allowing them to focus more on strategic activities.
Yet, most organisations have a long way before they can realise this vision. Integrating systems and processes is not only challenging but there is also no one-size-fits-all approach. Further, global organisations with complex manufacturing networks across multiple countries often fail to drive implementation of IBP across all markets when they underestimate the complexity and diversity of the local market. Clearly, global organisations require a different approach to IBP compared to local or regional players with a singular plant-to-market operating model.
To increase their chances of success, businesses will need to achieve the above key principles to unlock the value of an enterprise-wide digitally-enabled IBP model. But these steps alone are not enough. Leaders must drive change management, and this must be supported by executive collaboration and key performance metrics that are not only linked to targeted and balanced incentives, and do not create conflict across functions. The views in this article are those of the author and do not necessarily reflect the views of the global EY organisation or its member firms.
About the Authors
Kuntha Chelvanathan, Partner & Michael Ignatiadis, Director, Singapore Supply Chain and Operations, Ernst & Young Advisory Pte. Ltd
Kuntha leads the supply chain team in Singapore and the procurement team in ASEAN. She specialises in multiyear supply chain transformation, operational strategy and has worked on projects across Europe and Asia-Pacific. Kuntha has industry experience in developing and implementing global strategies for a leading telecommunications company in Europe.
Michael is a Director with EY Advisory team in Singapore and part of the supply chain practice. Michael focuses in supply chain planning and has deep regional and global cross industry experience in sales and operations planning design and end-to-end planning transformation.