What is Integrated Business Planning (IBP)? And what are the similarities, but also differences when compared to S&OP? In this article, Inchainge discusses everything you need to know about IBP.Topics in this article
Integrated Business Planning (IBP) is the business planning process that extends the principles of Sales and Operations Planning (S&OP) throughout the value chain. It is to create a bridge between strategy and execution. IBP is a next step for companies that already have an S&OP process in place. It is a next step because it integrates the Financial Planning Cycle. The financial function will become part of this cross-functional process. In most companies the business owner of this process will change as well.
Integrated Business Planning and Sales and Operations Planning have several similarities between them. These are as follows:
However, Integrated Business Planning includes content on top of Sales and Operations Planning:
Companies have an annual budget cycle, based on their strategic plans and targets. The annual budget projects planned revenues and costs for the year.
In traditional S&OP companies go through a monthly process during which they project for the next 6 to 24 months where demand will go, and what resources need to be available to meet that demand. When gaps are discovered between expected demand and available resources looking this far ahead into the future, this often provides ample time to balance supply and demand, so that by the time real customer orders are submitted, demand can be met.
Suppose that during this monthly S&OP cycle, one would also look 6 to 24 months into the future where expected revenues and costs will go. And how these financial figures would look compared to the annually budgeted revenues and cost. Most likely gaps will occur here as well between the annually budgeted numbers and the monthly updated numbers. Actions could then be taken to address these gaps. Integrating a financial view. When this happens, we actually practice IBP. In IBP the relationship with the financial performance management cycle is very important. Budget and financial forecasting must be aligned and integrated with the steps from the original S&OP cycle.
IBP is a next step in maturity after companies have implemented a proper S&OP process. Integrating finance sounds simple but is not easy at all. People from the physical supply chain side of the business, often speak a different language than people who operate on the financial side. Supply chain people often speak about units, products, and product families, whereas financial people often speak about money, currencies, etc. That also causes both functional areas to be assessed differently with the KPIs that they use. This calls for other participants in the IBP process, compared to participants in the S&OP process.
Be aware of the following risks related to integrated business planning:
Because IBP is simple but not easy, a real-life experience creates enormous value for learning about this topic. The participants will feel and recognize the important issues in this process. In our business simulation game, The Cool Connection, we have incorporated the most important functions and decisions.
In this business game the team is forced to make a yearly financial budget and quarterly forecasts. The objective is to close the gaps between prediction (the budget and forecasts) on one hand and attained performance on the other. The best performing teams are both profitable and predictable at the same time. In business game The Cool Connection the team is almost experiencing a real-life IBP process.
Besides our business games, you can learn more in our articles about topics such as Total Cost of Ownership (TCO), strategic alignment and external alignment and collaboration.
Now you know that IBP is a next step for companies that already have an S&OP process in place, by integrating the financial planning cycle in this cross-functional process. IBP prompts companies to include planned revenues and costs in their annual budget cycle. Budget and financial forecasting must be aligned and integrated with the steps from the original S&OP cycle. Integrating finance sounds simple but is not easy at all. Supply chain people and finance people tend to speak a different language. Make sure to be aware of the 8 common pitfalls when implementing IBP.
The Cool Connection is an innovative web-based business simulation game. It engages participants in making strategic decisions in the management of a manufacturing company of personal care products. Working in teams of four, participants will represent the functional roles of sales, purchasing, supply chain management and finance. They will be confronted with various real-life, real-time dilemmas.
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