The business planning process is essential to running a successful business. Earlier, the business planning strategies across the supply chain were disjointed, as disparate spreadsheets and standalone business intelligence solutions provided limited knowledge, due to which companies lacked unification across the entire organization. Due to a lack of interdepartmental synchronization between the planning of the activities that impact the financial bottom line, silos were created, leading to more resource utilization and less productivity.
The traditional business planning process lacks a collaborative approach, and hence there was no accountability for overall results; every division focused on their activities rather than considering a part of one business team. Integrated business planning was introduced to overcome the problems of traditional business planning. The organization uses that to create an agreed dependable market plan to which every department has contributed.
What is Integrated Business Planning (IBP)?
Integrated Business Planning (IBP) is the business planning process that uses financial and operational data from across the organization. In other words, IBP is an amalgamation of supply chain management, financial planning, and operational best practices. One of the primary benefits of integrated business planning is optimized output by linking strategic plans with sales, operations, and finances to provide better visibility of the relationships between results, resources, and capabilities. It aligns business goals and financial targets with decisions and execution across the entire business. Since this planning gathers data from across the enterprise, organizations are better at predictive analysis. Thus, if the analysis forecasts a parts shortage, supply and operations adjust and prevent customers from getting affected.
Most of the time, the argument arises that IBP is just an extended form of S&OP that includes finances and operations. While there are some similarities between IBP and S&OP, it is wrong to say that IBP is an extension of S&OP. Let’s discuss it further.
Similarities Between IBP and S&OP
Regarding the similarities between IBP and S&OP, both processes need extensive supporting data to make correct forecasts. Both align forecasts with the capabilities, and both techniques help senior management make the right planning decisions. While there are similarities between IBO and S&OP, there are certain things that cannot be attained through S&OP alone, and to bridge that gap, IBP is used.
Differences Between IBP and S&OP
One of the significant differences between IBP and S&OP is that IBP aligns the different departments of an organization towards a single goal. IBP measures the performance in terms of finances, which helps in planning the business activities according to the financial target of the organization. S&OP tends to focus on medium-term planning targets, whereas the IBP process supports long-term, short-term and medium-term strategies.
Who uses Integrated Business Planning?
Integrated business planning is ideal for any company to improve the forecast through IBS, maximize profits and reduce the risks associated with the company’s growth. Companies that adopt this planning obtain several practical benefits, such as reduced holding costs, proactive customer service, demand fulfillment, less time to market for new products, and better collaboration between demand planning and completion. It makes planning and operations more transparent. Thus, companies moving to just-in-time manufacturing find it ideal. IBP is also predictive, so once the company builds up some data, it will improve customer satisfaction. Seeing the future of IBP is expected to help companies to work on strategy planning, modeling, and M&A activities with great confidence. It will also allow companies to inform stakeholders of unanticipated events that affect the business using advanced technologies like machine learning pattern recognition.
How does the IBP Process Work?
There are mainly six steps towards integrated business planning process flow.
1. Determining Business Hindrances
The first step in Integrated Business Planning is determining the business hindrances holding the company back. It can be a lack of growth and profitability, a complex product portfolio, or a loss of competitiveness. Proper planning and implementation are only possible after identifying the problem.
2. Employee Education
Once the problem is identified and goals are set, the goals must be effectively communicated to the employees at different ranks. Unless everyone is aware of the goals set by Integrated Business Planning, attaining the business goals is not possible. Companies must organize employee engagement programs to educate employees about the company goal and keep them invested in the business’s success.
3. Setup a Specialized Team
The success of IBP greatly depends on tight coordination and constant communication among the teams and on maintaining the accountability of KPIs. It is a cultural shift that may take a long time to implement. Companies can identify employees most engaged in each functional area and ask them to get into a call regularly. This will communicate the information among departments faster, resulting in faster actions without delays.
4. Establish a Prioritization Process
It takes strict discipline to implement IBP into a business. There is a need to prioritize product and production lines that carry the company’s strategic goals forward. Anyone with a product or service idea needs to provide a cost-benefit analysis and justify whether the estimated benefits and cost align with the company goals. Any production line that is still giving sales but has no growth potential.
5. Keep Finance Central While Planning
To effectively implement IBP, the finance team needs to be involved in product planning, supply chain management, and sales strategy meetings. A finance team member with knowledge of the business and F&PA functions is an ideal choice. He will communicate the decisions made by the executive teams and form reports about whether the company goals are being met. If not, what is the reason for that and the remedial actions to be taken.
6. Incorporate Technology in Planning
Companies must measure adequately to manage their business processes. A company has a static budget and inefficient forecasting; it is essential to work on data analysis and adopt a rolling forecast to keep the business on track. The data must be readily available for the finance team from each functional area for better analysis. Both rolling budget and data analysis require advanced technology to ensure productivity, accuracy, and transparency. Using integrated business planning software can make the process faster and, many times, more accurate.
What are the Challenges of Integrated Business Planning?
Once the company has appropriately implemented the S&OP processes, the next step is to implement integrated business planning, where the finance is integrated with all other departments involved in planning. Integrating finance may sound like a simple task, but it is not easy. A major challenge companies face while implementing the components of IBP is interdepartmental communication about the IBP elements and their importance. People involved in the physical side of the supply chain use a different form of language than that used by the finance people. Mostly, supply chain people talk in terms of units, product groups, and products, whereas finance people talk in terms of currency and money. This results in different KPIs used for measuring performance, creating a silo-like situation among the departments.
Other than that, communicating the goals with every company employee and maintaining the same motivation to reach that goal is another major challenge for the company management.
Common Pitfalls When Implementing IBP
When a company adopts integrated business planning to improve forecasts and enhance productivity, there are some risks the company must be aware of. Below are some of the pitfalls that companies need to avoid while implementing IBP.
- All department employees do not share the same level of commitment to achieving the financial goals set by the IBP process.
- Business planning is a step-by-step process. First, companies must ensure that the S&OP process is properly implemented and stable in the business processes. Without S&OP, implementing IBP is a huge step.
- Targets and forecasts may get mixed up and take the business process off track.
- Unavailability of proper data and information is one of the biggest causes of failure of IBP.
- Discussing only short-term goals and ignoring midterm goals and assumptions can reduce the efficacy of the IBP process.
- A lack of thorough understanding of trade-offs can lead to misunderstanding between departments leading to lagging operations.
- Not using Integrated Business planning solutions such as AI/ML-based software applications for decision making.
Importance of Integrated Business Planning
Research revealed that the major impacts of implementing integrated business planning are increased revenue, accurate forecast, and improved order delivery rates which signify the importance of IBP. Besides, there are several other factors of integrated business planning that ensure better performances across the business; some of the factors are discussed below:
- The primary feature of IBP is that companies buy the correct quantity of materials at the right time and at the best price to cater to market demand.
- Successful IBP also ensures more trust and better collaboration among departments, further leading to improved decision-making.
- Companies that adopt IBP have a direct line from purchasing, production, and inventory to sales and marketing, budgets, and financial targets.
- With IBP, companies can align supply chain projections, financial projects, and strategic plans into one strategy.
- With better visibility across all business departments, decision-makers can devise a single plan to drive the integrated business planning objective.
- With IBP in place, companies can easily focus on making an informed decision and reduce decision latency.
Looking for help in Integrated Business Planning Software?
As we discussed earlier, incorporating technology is the best way to consolidate and analyze big chunks of data more accurately and implement integrated business planning more efficiently. As advanced analytics technologies such as Artificial Intelligence have evolved and have been out of the lab, they are helping businesses in various ways. The benefits of using AI in business planning are proven by customer behavior analysis or business operation automation. At 3SC, we provide integrated business planning consulting services and supply chain management solutions tailor-made for businesses. We analyze the challenges faced by supply chains of different industries and find solutions to those challenges that can make business processes smooth and seamless. Our comprehensive AI/ML-based solutions, such as Visilog and Carbonex, not only optimize supply chain management and business planning but also help reduce businesses' carbon footprint and promote environmental sustainability in business.
What are the applications of Integrated Business Planning?
The application of integrated business planning makes operation and planning in different departments in a company more transparent which helps in better forecasting and implementation of data to ensure better customer satisfaction and lower business costs.
What are integrated business planning examples?
One prominent example of integrated business planning is the Uponor Group, which implemented IBP and brought down the number of SKUs from 120,000 to 10,000, bringing down the inventory costs by 50% and a 30% increase in one-time in-deliveries.
Another US-based technology company, Juniper Networks, implemented IBP, which helped them attain 55% lead time and reduce inventory costs by 15%.
What is an integrated planning tool?
An integrated business planning tool is an AI-based software that collects big chunks of data from different departments, analyzes it, and gives demand forecasts that help in the seamless and efficient planning of business processes.