After 8 years implementing, coaching businesses and designing Integrated Business Planning (IBP) processes I have accumulated a long list of common challenges that often plague IBP deployments. To understand all the challenges it is important to understand the intent and purpose of IBP.
To contextualize how IBP should work in a business it is best to illustrate with an example. Let’s say you want to grow your business from $500M to $1B in 3 years while maintaining a 15% EBITDA. This is the goal around which the IBP process is centered for all the 5 steps: Product Portfolio Review, Demand Review, Supply Chain Review, Integrated Reconciliation Review and Management Business Review.
Placing IBP in the Context of Strategic Priorities
The context of each step is the aim of achieving $1B in revenue growth. The following are questions and suggestions that reinforce that focus and provide valuable context to decision making:
1. Product Portfolio Review: Do we have enough product or service to reach our business goal? How will technology change or impact our business? What is our product plan over the long horizon? Do we have any constraints? What are our capital expenses and engineering expenses over the 3-year horizon?
2. Commercial Demand Review: This is not just about the numbers but understanding the consequences of the unconstrained demand plan. Do we have enough sales to achieve the business goal? Should we enter or exit selected markets? Do we have any gaps in terms of profitability, margins or volumes? What new selling opportunities exist? Do we need to adjust pricing?
3. Supply Chain Review: Do we have any constraints to meeting the unconstrained demand plan, either externally or internally over the 3-year horizon? Are we achieving our inventory and COGs targets?
4. Integrated Reconciliation Review: Reconcile the 3 core steps with a rolling updated 3-year profit and loss statement for the purpose of understanding gaps to the business goal. Review scenario plans to address gaps and agree on recommendations for the MBR.
5. Management Business Review: Drive business goal and deliver business commitments through decisions to close gaps. Are we on a trajectory to achieving the $1B target?
IBP sets a monthly cadence for the business to effectively align plans, understand gaps to the targets, and to make appropriate decisions to maintain that trajectory.
How IBP Loses Track of Strategic Goals
So what can go wrong? Here are a few common challenges in implementing IBP.
1. Strategic priorities are not clearly defined or change every year. If the business does not have this ambition stated clearly than the IBP does not have focal point to center the business with to facilitate gap closing actions.
2. The business is very short-term focused (perhaps a one-year horizon). This prevents the business from understanding the impact of short-term decisions on long-term goals.
3. Supporting process capability is often overstated or not fully understood, thereby decreasing trust in IBP’s ability to answer the right questions. If the demand planning process is not trusted, then any discussion surrounding long-term strategic growth simply doesn’t happen. Instead, the Commercial Demand Review becomes a debate about how the numbers missed. Another example is if Supply Chain does not have an effective supply planning process that identifies constraints over a longer horizon. This prevents the business from making the right reconciliation decisions and perpetuates mistrust in Supply Chain’s ability to execute demand plans.
4. The IBP process is viewed as a supply chain process and not a business process. In this case, business goals and gap closing are completely missed and the focus of the process through a supply chain lens and not an overall enterprise perspective.
To make IBP a reality in your organization, join us in Las Vegas for IBF’s S&OP/IBP Boot Camp. Running from February 15-17, 2023, it gets planning professionals up to speed with planning fundamentals and best practices. Complete with the chance to earn the world’s only S&OP/IBP certificate and 1-day Supply Planning Workshop.