In my previous blog post, I shared a story about shaking things up in supply chain management. Truth be told, I think we’re overdue for a good shakeup in this industry. Since the mid-1990s, we’ve been striving to implement sales and operations planning (S&OP) and achieve its benefits.
Let’s give credit where credit is due: S&OP has been quite useful for those companies that have managed to incorporate it in some meaningful way. It got us all to look beyond the supply chain management function and involve other departments in our day-to-day tasks. Now, when an issue comes up with demand, supply, or reconciling, we go to different departments for their input and expertise.
That’s great — in theory. In practice, though, each department has its own information silos. This means resolution can take days for a simple problem or weeks for a complex one. In fact, by the time you’ve resolved the issue, it may already be moot.
The Need for Integrated Business Planning
At some point, SCM thought leaders started noticing that even with S&OP, things weren’t running as efficiently as they could be. For example, there’s this pervasive assumption in our industry that 50% of forecast errors are unavoidable.
Why should we accept that? What if we could reduce that number from 50% to, say, 20%? What difference would that make to the bottom line?
Seeking to achieve transformational results like these, companies are once again following the lead of consulting firm Oliver Wight (which invented the concept of S&OP) and embracing a new approach called integrated business planning (IBP).
Integrated business planning is a strategy in which companies don’t just try to involve more stakeholders in the supply chain planning process — they actually involve the supply chain in every business decision. So, for example, if Product Development is changing product design in a way that will make many parts obsolete, the supply chain team will contribute to those discussions and get information that helps them plan for the impact. Or if Marketing is running a special promotion that will likely increase sales, the supply chain team can give its input on what it’s going to need in terms of raw materials.
To sum up, IBP is about seeing challenges from more angles so that we can make better decisions. Makes perfect sense, doesn’t it? After all, supply chain problems aren’t really just supply chain problems — they’re business problems. As such, all decision-makers need to be accountable for solving them.
What Integrated Business Planning Requires of Us
With integrated business planning, the goal is to develop a single operating plan for which the management team will be held accountable. This plan is created based on information about demand, supply, new product development, strategic projects, and financial plans.
This, of course, calls for a technical transformation as well as a strategic one. Information can’t live in silos anymore — it has to be easily accessible across the enterprise. Business plans can’t just be reviewed by one set of eyes at a time — they require the input of dozens of collaborators. And supply chain partners must do more than just react to the information you send them — they must have a real-time view of your demand so they can tweak their own supply chains to meet it.
In these and other ways, integrated business planning differs from — and goes beyond — the S&OP approach that has delivered so many noticeable productivity benefits to supply chain companies over the past 20 years. It’s time for a change. More on that in my next post.
In the mean time, here is more reading I think you'll find to be interesting. Download our latest free white paper: "Achieving Supply Chain Excellence."
Bill Harrison, President of Demand Management, Inc., began his career in supply chain operations over 25 years ago on the loading dock of a True Value warehouse. He spent over 17 years with True Value Company, where he held a number of management positions, and personally designed and implemented a market-leading Replenishment Optimization System. He also has served as COO of Atrion/ClearCross, and held leadership positions at Manugistics and American Software before joining DMI in 2006.