Integrated Business Planning (IBP) – evolving during the last 30 years through Sales & Operations Planning (S&OP)- is a cross-functional management process for interpreting desired business results into financial and operational resource requirements, with the primary objective of minimizing risk and maximizing profit. The process has evolved from what was once known as production planning to a company-wide management process. It supports the executive team to steadily achieve focus and alignment among all the departments of the organization.
The business outcomes, on which IBP processes concentrate, can be expressed in terms of the performance of the following types of objectives:
- Revenue & demand
- Service levels
- Inventory levels
- Profits & margins
- Cash flow
The most significant challenge in implementing an IBP process is for an organization to understand the accurate scale of what it can deliver for the business, and for the management team to be prepared to commit to a new style of running the business. The biggest challenge is to integrate all the critical areas of the company (Marketing, Sales, Production, Supply, R&D, Finance), into a unique Integrated Business Planning Process.
A well-implemented IBP process examines the current and forecasted company performance, that is:
- Review of business strategy
- Updated product portfolio changes
- Renewed customer demand,
- Needed supply resources and
- Emerging economic effects
The administration and management team then designs a new plan, across a pre-agreed period (usually two years or more). The re-planning process often develops on a monthly or even quarterly basis. The process helps the management team to realize how the company obtained its current level of accomplishment but fundamentally is concentrating on future actions and forecasted results. The outcome – a set of operating numbers- of the Integrated Business Planning process, holds all the members of the executive team responsible for executing. It incorporates an updated sales plan, production plan, inventory plan, customer lead-time (backlog) plan, new product development plan, strategic initiative plan, and financial plan. Also, it includes involvement of middle Management through the re-examination of demand, supply, product and portfolio, strategic initiatives, finance, and integrated reconciliation.
The core questions to be asked to determine company strategy and customers demand are:
- What do the customers want to buy?
- What does the company want to be prepared to sell?
- What is the company committed to selling?
Depending on the demand plan, supply resource priorities and strategies are derived. Implementation of IBP is often the outcome of organizations realizing that life-long market success demands more than just product leadership.
While an organization performs the IBP process, the Management will recognize that it provides clarity and frequent communication. They will be equipped to execute any questionable choices required to support decisions concerning their “Customers”: Buyers, Shareholders, and Company Employees.
IBP doesn’t just occur all of a sudden but is a matter of making progressive changes to your business processes until you reach supply chain perfection. It provides some exceptional results for the organizations that successfully enter the game. Benefits may include:
- Profit improvements
- Reduced working capital expenses
- Optimization of logistics, capacity, procurement, supply and demand
- Improved cross-functional collaboration, planning activity, risk reduction, and forecast precision
- Reduced planning timeframes
- Increased stakeholder value for the company
- Broader trust in plans
IBP produces more effective procedures while reduces safety risks, lessens timeframes and maximizes resources. It is the critical component to plan a company’s path to excellence.