Integrated Business Planning (IBP) is a management process, which enables effective decision-making and control over the entire organisation. Whilst IBP sits at the heart of many organisations across the globe, until recently it has been a fairly unknown entity in the SME market, but now it is fast becoming the management process of choice for small companies with big ambitions. Here’s why I’m predicting it will be the next big thing:
It is a proven process
IBP has evolved over more than 30 years. Its roots lay in sales and operations planning (S&OP), a widely used process for coordinating the commercial and supply sides of a business. In fact, IBP is often referred to as Advanced S&OP. Over time, the focus of S&OP has shifted towards a better understanding of the external environment as well as ensuring alignment and synchronization among the internal company functions. Where Integrated Business Planning differs from S&OP is it doesn’t just align demand and supply, it aligns all the key functions – marketing, R&D, operations, logistics, finance, HR and even IT – into one company plan.
Those who already use IBP are seeing significant returns
According to an Aberdeen Research Study, enterprises that strategically deploy S&OP programs consistently outperform, by an average of 20% in gross margin, those companies whose approach to S&OP is more tactical and less integrated. Indeed, there is a rich body of evidence to show IBP brings dramatic benefits to a diverse range of organisations – from huge corporations to small and medium sized enterprises – with some reporting the transfer of millions of pounds, euros or dollars to their bottom line.
Take US Army Materiel Command (AMC); it cut inventory by $ 4.5 billion, without any degradation of combat readiness, following implementation of its IBP programme – an implementation that took just eight weeks. And in Melbourne – a very different organisation – SME meals-on-wheel provider, Community Chef, reduced lead times by 20%, refined its manufacturing model and substantially improved its value proposition as it began to implement an Integrated Business Planning process.
IBP takes the pain out of annual planning
For many companies, the creation of the annual plan or budget is a major event that consumes significant time and resource across the organisation, particularly in finance. As a monthly, rather than annual process, IBP regularly aligns the strategic and tactical plans from each individual business function to form one integrated, current operating plan. Organisations that have successfully adopted IBP find at budget time they are able to use the Integrated Business Plan as their starting point for the next financial year. Moreover, by the fourth quarter of the current financial year they will have seen the business plans for the next financial year nine times already. This familiarity with the integrated plan and the detailed action plans and assumptions that underpin it, as well as any resulting gaps between strategic targets and the latest estimates, removes a lot of the guesswork from the annual budgeting process. Thus eradicating a lot of the cost and stress from the process and reducing the burden on the finance department.
It removes waste that arises from multiple plans
Where silo mentalities and mistrust exist in organisations, inevitably there is much waste. By encouraging communication, discussing the truth ‘as we know it’ and establishing a single plan, IBP discourages gamesmanship and helps the entire company to pull together in one direction. Integrated Business Planning uses top-down messages from the strategy, business plan and measurement hierarchy to enable effective integrated decision-making and encourage bottom-up ownership. As a result there is a ‘we’ rather than ‘me’ mentality and a lot of the tension and conflict that arises from operating as individual, non-integrated departments is removed.
It provides the perfect platform for innovation
In the age of the consumer, innovation is key. Innovation requires good control, flexibility and, fundamentally, visibility. With a 24-36 month rolling horizon, IBP unlocks a holistic view of the market and customer demand, allowing an organisation to anticipate long-term trends, think ahead of the game, and anticipate what customers want, even before they know. Furthermore, an Integrated Business Planning process can provide the fundamental integration required between product, demand and supply teams, and the required maturity in business processes to define the precise response needed and align the firm’s business model to effectively satisfy the customer of tomorrow.
The tools now exist to support the process
More and more software providers are introducing solutions specifically designed to support Integrated Business Planning, including software giants Oracle, JDA, SAP and Infor. If implemented using an integrated approach – and in the correct order of people, processes, then tools – software can provide massive competitive advantage. Supported by data integrity, IBP software allows enhanced scenario planning capability so organisations can prepare multiple plans to deal with numerous potential activities in the extended planning horizon. Effective, regular scenario planning is not only essential for managing risk and contingency – a necessity in today’s dynamic business environment – it also provides a powerful mechanism for driving the business towards its strategic goals.