integrated business planning

Integrated Business Planning (IBP)

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What is Integrated Business Planning? 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.

What is integrated business planning (IBP)?

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.

Similarities between IBP and S&OP

Integrated Business Planning and Sales and Operations Planning have several similarities between them. These are as follows:

  • Monthly process
  • Cross-functional approach
  • Driven by business strategy
  • Tactical planning at an aggregated level

Differences between IBP and S&OP

However, Integrated Business Planning includes content on top of Sales and Operations Planning:

  • Financial function involved
  • Integration financial planning cycle, like financial budget and forecast
  • From volume planning to volume and value planning
  • It drives the overall business performance

How does the IBP process work?

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 when 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. And actions could 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.

The challenges of IBP

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 in 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 that both functional areas are assessed differently with KPIs that they use. This calls for other participants in the IBP process, compared to participants in the S&OP process.

The 8 common pitfalls when implementing IBP

Be aware of the following risks related to integrated business planning:

  • Lack of commitment in some of the needed departments
  • If the S&OP process was not yet implemented or stable, IBP is a too big step to make
  • Targets and forecast are mixed
  • Information not available
  • Discussion about numbers instead of the underlying assumptions
  • Discuss only short horizon instead of midterm
  • Too granular plans and discussions
  • Thorough understanding of trade-offs is lacking

Want to know more? Experience IBP!

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 The Cool Connection we have incorporated the most important functions and decisions.

In this simulation 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 this simulation 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 TCO, strategic alignment and external alignment and collaboration