What Is Integrated Business Planning And Why Is It Better Than S&OP?

Traditional Sales and Operational Planning (S&OP) often fails to deliver the desired results. Integrated Business Planning (IBP) offers a more business focused alternative to S&OP, where all planning efforts are fully synchronized and share a common goal – profit maximization.

This whitepaper looks at the main differences between S&OP and IBP and why IBP is a better alternative for companies wanting to maximize shareholder value. You will also learn what it takes to implement IBP successfully.

IBP — The Evolution from S&OP

All supply chain leaders want their planning to support the company strategy and help maximize profits. Many organizations already use some form of Sales & Operations Planning (S&OP), but do they achieve the desired results? Or does the process fall short in effectiveness, execution, and scope?

Integrated Business Planning (IBP) is a business-focused, strategic evolution of S&OP. IBP addresses the shortcomings of S&OP and brings significant benefits to the business – especially the bottom line.

The Intended S&OP Process

When first introduced in the 1980s by Oliver Wight, the idea behind Sales and Operations Planning was to:

  • Balance demand and supply

  • Integrate financial and operational planning

  • Link high-level strategic planning with day-to-day operations

The typical ‘5 Step S&OP Process’ includes a Product Management Review followed by a Demand Review, a Supply Review, a Pre-S&OP where most outstanding issues are resolved before the Executive S&OP. This process aims to provide a holistic and fully integrated plan, ready for execution

The Real S&OP Process

While most companies have some form of S&OP in place, few have implemented a process that integrates all aspects of the business. A common reason for this is a lack of strategic alignment. Senior management & functional departments often work cross-purposes as they try to meet their individual KPIs - all while unknowingly undermining overall enterprise value.

Instead of a focused forum for issue resolution, the Inter-functional Pre-S&OP cycle turns into a complex series of meetings, dogged by sub-optimal decision-making and internal power-plays.

S&OP value will remain limited without cross-functionally aligned KPIs and systems to help visualize the business impact of alternative plans. A recent Gartner survey defines ‘Five Levels of Maturity’ with regards to the effectiveness of S&OP implementations:

The majority of companies surveyed did not get past maturity levels 1 & 2. However, most of the value from S&OP is realized at Levels 3 & 4. So why have so many companies failed to progress further? The primary reasons identified by Gartner are:

  • Poorly communicated/lack of strategic direction

  • A poorly structured and integrated supply chain/business process

  • Poor management of lead times in the planning cycle (not making the right decisions at the right time)

  • Conflicting functional objectives

  • Fragmented, isolated systems and excessive use of spreadsheets that are not providing the depth of decision-support required to effectively plan today’s complex (often international) end-to-end supply chains

Moving From S&OP To Integrated Business Planning

While S&OP delivers value to businesses - especially in the demand management area - it is usually limited to an operational function. The process focuses on balancing supply and demand but struggles to link day-to-day operations to the company’s strategic objectives. However, things are starting to change. More companies are beginning to understand that S&OP offers far greater potential when aligned with overall financial and strategic plans. Integrated Business Planning’s (IBP) primary objective is to ensure synchronization across all business functions. With greater involvement from senior management, IBP aims to maximize overall business performance. IBP improves the effectiveness of S&OP through better organizational and functional alignment – a prerequisite to successfully linking strategic and operational planning with financial planning.

Key areas where IBP adds more value than S&OP:  

  • Better integration with financial plans

  • Plans that maximize profit

  • Includes strategic initiatives and activities   

  • Improved simulation and modeling

  • Quicker translation between detailed and aggregated plans  

  • Better decision making

  • Builds trust within the management team

The following section goes into more detail about IBP and how to implement it successfully.

Integrated Business Planning

Integrated Business Planning connects all the planning functions across the organization using a holistic model that aligns operations and corporate strategy with the organization’s financial goals.

IBP delivers three key benefits to an enterprise:

  • Strategy and operational alignment with financial goals  

  • Integration of all planning functions

  • The ability to plan for maximum overall profit

Companies get the most value from IBP when all planning decisions are aligned to maximize overall profit. The underlying enabler for this is a digital supply chain model – a digital representation of all demand, business rules, and supply chain constraints. This model can then be used to evaluate different scenarios and to drive profitability.

Strategic Alignment

The first step is to align corporate and business unit strategies to the supply chain strategy and, subsequently, the operating model. This alignment provides context for the IBP process and the supporting technologies.

From a comprehensive understanding of corporate strategy and a deep sense of purpose, world-class companies design the optimal supply chain structure to deliver the strategy.

Integration Across Planning Functions

IBP addresses the main challenges that enterprises face when implementing a holistic planning process. A central component is the digital supply chain model, which provides stakeholders with overall value chain visibility and a platform for profit maximization. When everyone can see the big picture, the business can start moving in the same direction.

Planning For Profit

Most companies have already picked the S&OP ’low hanging fruit’ using existing methods and tools. But are these methods good enough to provide a competitive advantage in a time when “planning-for-profit” technology is readily available?

The value of profit optimization is hard to dispute. There will be times when a company wants to prioritize growth over profitability – for example, during a product launch or when entering a new market. But on the whole, the most profitable plan is generally the best one.

Successful IBP Execution

The key to maximizing IBP value is following a structured implementation approach and using proven methodologies. To succeed, you need to:

  • Analyze and document your existing situation (as is)  

  •  Define where you need to get to

  • Define success criteria

  • Focus on continuous improvement


Define Where You Are

Before you start implementing IBP, you need to understand all critical aspects of your company’s existing business and planning process, including:

  • Business and supply chain strategy

  • Existing supply chain and network structure

  • Strengths and weaknesses of the current planning processes

Once the strategy is understood and documented, you can define a model that supports it. If there is no clear strategy, you should still record what is there.

Understanding The Current Supply Chain Strategy

Designing an effective planning process starts from a clear definition of a company’s strategic and competitive position. Your target markets, customers, competition, and what drives value must be clearly understood. From here, a supply chain strategy and an ‘aligned business model’ can be derived.

The ‘current state’ assessment includes a review of strategic and supply chain plans. We recommend interviewing the executive team members as part of this exercise. The interviews ensure good quality input and build awareness in the organization.

It can often be beneficial to ‘refresh’ the strategic position. This effort can range from a full strategic review to developing a supply chain strategy (from the corporate strategy) or identifying the ‘drivers of value’ within the business.

Understanding The Current Supply Chain Network

It is necessary to understand the current supply chain network to improve planning effectiveness. This structure is effectively what the planning process is required to oversee and optimize and forms the basis for a digital supply chain model.

The network mapping effort depends on the availability and quality of any present documentation. The work may range from work-shopping a full definition of the supply chain to simply reviewing and complementing existing documentation. The network map defines each supply chain ‘node’ by its attributes, such as purpose, strategic objective, KPIs, capacity, costs, and constraints.

Once you’ve documented the supply chain structure, it can be critiqued and refined.

Understand the Current Planning Process

With the network map in place, you can analyze your current planning processes, including the process, people, and enabling technologies.

When documenting, we recommended using actual live documents (e.g., strategic plans and budgets, meeting agendas and minutes, and system screen-dumps). This helps draw stakeholders into the process and is a good way of securing constructive, high-quality feedback.

With the supply chain strategy, structure, and planning process documented, you’re in a much better position to answer the question “Where do we need to be?” and develop a vision for a future planning process.

Define Where You Need To Be

Now, let’s look at where your business needs to get to from an IBP perspective. First of all, you need a planning process that addresses the right questions at the right time. This requires clearly defined roles and responsibilities, processes, and KPIs that support your overall objectives.

The most critical areas to be defined are:

  • Planning horizons and review meeting frequencies  

  • Review meeting topics

Planning Horizon Review Meeting Frequencies

IBP provides your management with a structured process that ensures business focus and alignment across all business areas. The different planning horizons reflect the lead times associated with your company’s short-term, mid-term, and long-term planning decisions.

Regular review meetings are then associated with the different planning cycles, and their frequency needs to be defined upfront.

Long Term Planning — Strategic

Questions addressed at the strategic level include new markets, new distribution channels, and additional storage, logistics, and production capacity. Other items are supplier agreements and new product introductions. The time horizon is 1 – 5 years with quarterly review meetings.

Mid Term Planning — Tactical

Examples of topics often addressed at the tactical level include shift patterns, forecast performance, production performance, short-term storage, overtime or casuals’ requirements, stock levels and expiry issues, product and customer tails, and supplier reviews. The time horizon is typically 2 – 12 months with monthly review meetings.

Short Term Planning — Operational

Balancing supply and demand is the primary concern and focus at the operational level. Questions addressed may include load balancing, shift schedules, batch sizes, short-term promotions, stock expiry issues, and supply adjustments. The time horizon is usually 1 – 12 weeks, with review meetings 1-2 times a week. Note that the planning horizons and meeting frequencies will differ depending on the nature of the business.

Review Meeting Topics

Each planning horizon has an associated set of review meetings that deal with specific topics. The following list is by no means exhaustive but covers some common issues addressed.

Long Term Planning — Strategic Reviews

Demand / Product Review

This review looks at issues such as new product line introductions and moves into new markets. Questions may include - Should we change the product/market mix? What would this do to my overall supply chain cost/profitability? Market condition and competitor assessments can also be items on the demand review agenda.

Supply review

The supply review meetings address questions such as - How are our suppliers performing? What are the options for alternative supply? Are there more profitable options to consider?

Capacity review

The capacity review involves testing different scenarios to identify the most profitable ones. Questions to be answered may include - Given the demand review, do we need to make any changes to production? Do we need an additional production line? Are productivity improvements possible, and if so, at what cost? Should we outsource part of the production? Should we add/consolidate warehouses, and if so, where?

Mid Term Planning — Tactical Reviews

Gross Profit review

The primary focus of IBP is profitability. Maximizing profit must therefore be the primary objective in all review meetings. To optimize profitability across the entire planning horizon, it is essential that you consider all revenues and fixed/variable supply chain costs for the whole period.

Demand Review

The demand review may address some of the following questions: Given our current supply chain constraints, can we meet all demand? If not, what should we drop to maximize profit? How’s our forecast accuracy?

Product Review

The tactical product review looks at new product introductions and what products to keep vs. cut.

Inventory review

Examples of inventory-related questions that need to be addressed: Do we have any expiry date issues? Are we overstocked? Should we run any promotions? Do we have the right inventory in the right locations to meet demand? Is our safety stock optimized?

Operations review

On the production side, we’re mainly concerned with lead times vs. capacity. What is the optimal number of shifts for the next planning period? Are our bottleneck resources and core assets optimized?

Supply review

Topics for the mid-term supply review may include: How are we tracking against our supply agreements? Are we optimizing logistics between all supply points? Are we optimizing order quantities and frequencies?

Short Term Planning — Operational Reviews

Operational reviews are very different depending on the company’s supply chain lead times. A fresh-food business with short lead times will have a different agenda to a company with longer shelf-life products.

Demand Review

The short-term demand review may deal with questions such as - Considering the current constraints, are we meeting all demand? If not, what should we drop to maximize profits?

Inventory review

Example topics include - Does the projected inventory profile highlight any shortages? Can we expect any expiry date issues? Are there any short-term sales opportunities? Should we run

in-store promotions?

Operations review

Similar to the tactical operations review, you will look at lead times vs. capacity. Do we need to prepare for overtime? What are the optimal production batch sizes for the next few weeks? What’s the optimal number of shifts for the next planning period?


Other Definitions

Process flows - A detailed business process map creates clarity and helps with internal communication.

Accountability - There must be absolute clarity about who is responsible for what.

KPIs - Successful IBP relies on a carefully considered set of KPIs that align with the overall business strategy. If KPIs are not synchronized across the business, there’s a high risk of falling back into suboptimal silo planning.


Keys To Success

Below are some guiding principles for a successful IBP implementation:   

  • Don’t underestimate the effort it takes to change

  • Assemble the right team

  • Plan it

  • Use the right data   

  • Implement enablers   

  • Walk before you run

When moving from a situation with functional silos and planning guided by gut feel and old habits rather than data and science, there’s always a challenge ahead. Change management is a matter of people, process, and technology – and IBP is no different. You can have the best process and state-of-the-art technology, but you will still struggle without the right people.

The Path To Effective Change:

  • Communicate the vision and ensure management is on board   

  • Involve the right people with the right skills

  • Make sure you have the right incentives for the team   

  • Dedicated enough time for the team members

  • Make sure there are enough people assigned  

  • Act

Team

Project Lead

The IBP implementation is a significant undertaking. Because the process aims to align all business functions with the overall strategy and connect them through one process, the project lead must be from the senior management team - either the CEO or a direct report.

Project team

Make sure that all business functions are represented on the project team, including:   

  • Sales

  • Operations/Production

  • Logistics   

  • Planning

  • Sourcing/Procurement   

  • IT

Many companies will use an external consultant to facilitate the project.


Plan

It is essential that the project plan is well-communicated and that everyone understands their role. Moreover, the project plan should have a realistic timeline and a series of well-defined milestones. Note that discipline is key to successful IBP execution. It is good practice to use the implementation phase to lay the foundation for this behavior.

Data

Successful IBP depends on reliable data from a single data source. There can be no shortcuts here, as incorrect and inconsistent data will risk the credibility of the process. Depending on the quality and completeness of your existing data, data cleansing can require a significant effort. While time-consuming, a good job is essential to success.

Enablers

IBP is not a quick fix for a failing S&OP process. Suitable systems and infrastructure must be put in place to succeed. Excel spreadsheets and Business Intelligence solutions have neither the functionality nor the power required to support the process in a meaningful way and are among the main reasons many S&OP initiatives fail to deliver value.

Choose instead a modern supply chain planning and optimization solution. With built-in support for multiple scenario analysis and profit-driven decision making, the solution enables the entire IBP process — including all functional reviews and timeframes. And because the optimization algorithms simultaneously consider the whole supply chain, the system will always find the most profitable overall plan.

Walk Before You Run

First of all, make sure that the process and all supporting infrastructure are in place. Once that’s taken care of, start with the “low hanging fruit” and work your way down the list. A fully integrated IBP process will take a bit of time to fine-tune. Taking on too much at the start can make it hard to determine what constraints and rules impact what parts of the resulting plan. Instead, start small and add constraints and business rules as you are learning to execute the process.

Continuous Improvement

When you have implemented and gone live with your IBP process, you need to make sure that the business “lives” the process. It is surprisingly easy to slip back into old habits. Establishing an IBP process governance model will ensure process consistency, integrity, and a continued focus on improvements. We suggest introducing the following:

A six-monthly review of the IBP process

Conduct a formal IBP review every six months. This gives you a chance to reflect on how the process is working and make any necessary adjustments.

It may be beneficial to bring in an external consultant to facilitate the review. An independent advisor can often help break down any departmental barriers that still exist.

KPIs to track IBP progress

It is important to understand how your IBP process is evolving. Standard KPIs to be tracked include:

  • Forecast Accuracy

  • Order fill rates

  • Obsolete stock

  • Inventory turnover rate   

  • Overtime

  • Procurement cost to sales   

  • Utilization rates


Conclusion

Despite efforts to implement S&OP, many companies still find themselves operating in silos and managing the process on spreadsheets. This defeats the intended purpose of S&OP and significantly reduces the value of the process.

To stay competitive, companies need to re-think their planning process. The obvious way is to define and implement an Integrated Business Planning (IBP) process.

IBP gives companies control over the entire supply chain and ensures that it is operating to best support its strategy. IBP also provides a foundation for continuous innovation and improvement, including the critical ability to focus on overall profitability.

IBP is a proven planning approach and has delivered significant benefits to many businesses. According to a study conducted by Aberdeen Research, companies with a well-implemented IBP process achieved:

  • 17% improvement in profitability over the last two years

  • 10% increase in gross margin over the last two years

  • 7.5% increase in Return on Net Assets (RONA) over the last two years