bridging the gap between finance and supply chain

Integrated Business Planning: Bridging the Gap between Finance and Supply Chain

Jan. 29, 2014
Integrated business planning lets companies conduct scenario planning with rapid, practically real-time simulation. Through this capability, companies can analyze risks and opportunities to make educated supply-demand decisions when the unexpected happens.

Too often, there’s an unbridged gap between financial planning and the supply chain. While the reasons are varied—marketplace volatility, supply chain complexity and overwhelming data sets, to name a few—the need remains the same: the fissure needs filling.

Bridging that gap begins when collaboration takes place. But to drive business forward and have a lasting effect, that collaboration must go beyond traditional sales and operations planning (S&OP). Integrated business planning (IBP) is a tactical and strategic process that does just that.

IBP operationalizes corporate strategy and objectives. It is a collaborative process that brings together internal functions and external trading partners to act as one—making forward-looking decisions to balance supply and demand, manage assets, prioritize products and customers, and manage supply chain risks. Simply put, it’s a better way of doing business by bringing planning and execution closer together.

Utilizing new technology that supports IBP, organizations can create a single, achievable “plan of truth” against which they can execute. This increases organizational agility beyond the confines of existing planning systems, spreadsheets and tools. Now, next generation IBP/S&OP solutions are providing the flexibility needed to achieve corporate objectives. Just as IBP canvasses an entire organization, the benefits of deploying next-generation IBP solutions are broad.

Work Well with Others

The cornerstone advantage of IBP is how it enables cross-functional collaboration among product development, sales, marketing, finance and supply chain functions, as well as collaboration with key suppliers and customers. It enables easy integration of multiple systems, including ERP, financial planning and supply chain planning systems.

As a tool that encompasses the entire organization, IBP goes beyond forecasting. Less-efficient tools (e.g., spreadsheets addressing individual departmental data) don’t take into account social collaboration or past data-based decisions. But IBP does that for the organization, incorporating its customers and suppliers into the process as well. In so doing, it effectively “sees” farther than traditional S&OP, preparing companies exponentially better.

Short-Term Pain, Long-Term Gain

With IBP, planning becomes simpler. But not at first, during the establishment of the IBP framework. There’s a great deal of coordination with IBP. To establish that, often it necessitates the breaking down of silos, delineating lines of communication and establishing reporting structures. It takes work, but like the first throes of any lasting endeavor, the muscle required to get things moving and set processes in place eventually finds its cadence.

Once established, key decision-makers gather monthly, biweekly in some cases, to assess risk and review scenario planning. Core personnel need to see the numbers quickly so they can make their decisions and set the company in motion.

What’s the Plan?

How far into the future IBP reaches depends on company needs. It’s a solution that can benefit any market or industry, but is particularly helpful to organizations in consumer products and industrial manufacturing—the rigor of IBP serves these markets best. On the other end of spectrum, tech companies might utilize IBP to forecast only a year out due to the speed of their industry.

To implement IBP, some sort of “planning maturity” is required. So the first step is to conduct an initial core assessment of the planning function. Unless companies have a solid framework—forecasting, demand planning, and related processes, systems and people—IBP might not do any good. Once the planning function is in place and its performance gaps are plugged, then IBP can be applied.

Simply Scalable

One of the advantages of IBP is its scalability in planning. Binding together disparate data—financial, demand and supply planning—IBP enables companies to focus where they need in order to enhance their planning capabilities. Honing in on particular data relationships in the supply chain, for example, is no longer an exercise in best guesses, but rather an exacting, repeatable action.

On the other end of the spectrum, IBP is readily applicable for planning on the aggregate level.

Lording Over Discipline

IBP requires rigor from your organization—coordination among departments and sharing of data. Yet as it does so, it infuses discipline into reporting and data collection. This discipline in turn prepares you in the compliance space.

The stronger your work flow and the more robust your data, the more readily you can report that data, saving both time and energy. Your reporting capabilities increase as well, to the market and to your stakeholders.

Be Prepared

With market forces changing daily, response time is critical when it comes to demand-supply balancing decisions. A natural disaster, such as the recent typhoon in the Philippines, is a supply chain disruption like never before, so preparation for such a calamity can’t be drawn from experience. However, IBP allows you to conduct scenario planning with rapid, practically real-time simulation. Through this capability, you can analyze risks and opportunities, positioning you to make the most educated supply-demand decisions possible when the unexpected happens.

While no company can see the future, that fact shouldn’t preclude every organization from planning for it to the best of their ability. That demands harnessing the perspective of the entire enterprise, working together to leverage all available information. As the synchronizing mechanism that can bring it all together, IBP is clearly at the fore.

Can A. Dogan is a principal with Ernst & Young LLP.

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