S&OP or IBP?

10. Oktober 2024

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Helmut is a senior Supply Chain practitioner and IBP expert, having led S&OP/IBP at several multinational companies in the FMCG, medical devices and pharmaceutical industries including Johnson & Johnson, Merck, and Smith+Nephew.

Since 2019 Helmut has been running his own business, HELIBLICK, assisting corporations with IBP and S&OE implementation and other business critical transformations. Helmut is a founding member of the CSCMP Roundtable in Switzerland and founder of the IBP/IBSing practitioners’ network, a peer group of more than 300 S&OP/IBP experts from 15 industries for learning and knowledge sharing. He holds a master’s degree in Industrial Engineering from Technische Universität Graz, Austria.

What are the differences between S&OP and IBP?

S&OP, which emerged in the 1980s, was developed to better connect sales and manufacturing, balancing demand and supply over a tactical horizon of 3-24 months. At that time, most companies faced significant issues with siloed functions. The digital tools available were rudimentary. In this context, S&OP was a brilliant idea to align sales and operations. However, it soon became clear that S&OP’s potential was limited if other functions, especially Finance and Product Development, were not integrated and if it focused purely on the tactical space without linking to long-term strategic planning. Integrated Business Planning (IBP) takes a more ambitious approach by integrating all functions within an enterprise. IBP aligns functional strategy and execution with overall organizational strategy and financial results, encompassing a broader scope that includes strategic planning, financial alignment, and cross-functional integration, providing a more holistic approach to business planning.

What kind of companies is S&OP suited for?

Given the evolution towards more integrated processes, I wonder if it makes sense to invest in a good S&OP process at all in any company. In my view, an average IBP process often outperforms even a well-executed S&OP. S&OP might still hold some relevance for companies in the early stages of their planning maturity or those with simpler operational structures, but for those aiming for comprehensive organizational alignment and efficiency, IBP is the superior choice.

What kind of companies is IBP suited for?

All companies! Every business should have strong functional standard processes along the value chain from customer to supplier that are well-aligned and synchronized. They also need a process to actively manage any issues in execution. Often, this process is called Sales & Operations Execution (S&OE). I call it Integrated Business Sensing (IBSing) to highlight the importance of the human sensor network in this process. IBP is critical for proactively managing risks and opportunities in the tactical and potentially even long-term space. Additionally, transformational changes should be managed cross-functionally, meaning there should be an Integrated Business Transformation approach to consistently improve processes, systems, competencies, and organizational setup according to changing business requirements. This approach ensures that all functions within the company are working together seamlessly to achieve strategic objectives, making IBP suitable for any organization.

Does IBP start with a financial budget or a demand forecast?

The key role of the demand planning team is to facilitate the development of an honest and realistic high-quality demand plan in volume, including assumptions around risks and opportunities. This requires input from many functions, including Finance. In the Demand Review, price changes or gaps to financial targets may be discussed, leading to conscious decisions and actions affecting the volume plan. Thus, there is a chicken-and-egg relationship between the volume demand plan and the financial plan. Typically, we start with a base demand, including insights from product development, special events, and market trends. This forms the basis for an “IBP value forecast”. It’s crucial to distinguish between the bottom-up “IBP value forecast” and financial targets or commitments, which should be visible in the IBP process but clearly separated from the forecast. This clear distinction ensures that the planning process remains realistic and achievable, aligning operational capabilities with financial expectations.

Is IBP necessary for smaller companies or can S&OP be enough?

Yes, I think that any medium-sized company and even very small companies will benefit from an IBP structure. Let’s assume two people are setting up a small restaurant. They will definitely benefit from regular and proactive discussions about their service offerings, target customer groups, corporate material and branding, organizational setup in the kitchen and service areas, as well as in the procurement of ingredients and various administrative tasks. They will need a promotional strategy and must monitor its effectiveness and ensure that the financials are in order. All of this I consider part of IBP and can be done pragmatically in a small company. Unless they are both lousy cooks, it will definitely help in setting up a successful business.

What kind of strategic decisions does IBP facilitate?

IBP supports all strategic decisions necessary to manage the business within a 3-24 month tactical horizon. This includes product decisions around new launches or discontinuations, onboarding of new customers, service offerings based on customer segmentation, manufacturing and logistics footprint design, strategies around balancing a lean and agile setup of the value chains, team development, and more. By integrating these decisions into a cohesive planning process, IBP ensures that all aspects of the business are aligned with the overall strategy, facilitating better decision-making and execution. This alignment helps organizations navigate complex business environments, optimize their operations, and achieve their strategic goals.

Is it difficult to maintain both a strategic and tactical focus?

In the HELIBLICK framework, I suggest four key elements to manage an integrated business holistically: Integrated Clockwork (standard functional planning processes), Integrated Business Sensing (responding to short-term challenges aligned with the organizational strategy, avoiding firefighting), Integrated Business Planning (both tactical and strategic focus, especially in industries like pharma with long lead times), and Integrated Business Transformation Governance (managing structural and strategic transformation, continuous improvement of processes, systems, people, and organization). By integrating these elements, companies can maintain a balance between immediate tactical needs and long-term strategic objectives. This holistic approach helps in making informed decisions that align with the company’s vision while addressing day-to-day operational challenges effectively.

Does IBP have the same 5-step process as S&OP (Data Collection, Demand Review, Supply Review, Pre-S&OP and Executive S&OP)?

While S&OP’s 5-step process is effective for balancing demand and supply in the tactical horizon, IBP typically involves a more comprehensive approach, integrating broader functions and aligning with long-term strategic goals. The IBP process includes similar steps but expands to incorporate financial planning, product development, and other critical functions, ensuring a holistic approach to planning. This broader scope ensures that all aspects of the business are considered, leading to more robust and effective plans that align with both tactical and strategic objectives.

What are the benefits of measuring performance in financial terms rather than in forecast accuracy, inventory turns, etc.?

The main purpose of IBP is to ensure the organization’s success by realizing its purpose while maintaining financial health. Financial KPIs provide a comprehensive picture of achievement but need to be combined with a consistent set of secondary KPIs to indicate areas for improvement and highlight functional accountabilities. Ideally, secondary measures should be lead indicators, allowing improvements before financial outcomes are affected. This balanced approach ensures that while financial health is monitored, operational efficiencies and effectiveness are also tracked, providing a complete picture of organizational performance and areas needing attention.

Mature S&OP processes include Finance. What does Finance do in IBP that’s different?

My advice would be to call the process IBP if a company has achieved that level of maturity. When I had my first job as an “S&OP Manager,” the term IBP was not yet popular. We focused on revenue, profit, and product life cycle management. I believe the title “IBP Manager” would have better reflected our vision. However, calling the process “S&OP” did not stop us from thinking holistically from the beginning. In IBP, Finance plays a more integrated and strategic role, ensuring that financial considerations are embedded in all aspects of planning and decision-making, thus aligning financial targets with operational realities and strategic goals.

Does the financial focus of IBP reduce focus on the demand element of planning?

No, if all functions are well synchronized, workload decreases, and focus increases. This holistic alignment ensures that the financial focus enhances rather than detracts from demand planning. By integrating financial and demand planning, IBP creates a more cohesive and effective planning process, enabling the organization to achieve better overall results. The alignment of financial goals with demand planning ensures that all parts of the organization are working towards common objectives, leading to improved efficiency and performance.

Is an existing S&OP process a requisite to launching IBP?

No, an existing S&OP process is not necessary for launching IBP. Companies can implement IBP directly to benefit from its integrated, strategic approach. While S&OP can serve as a key element, the comprehensive nature of IBP allows it to be implemented independently, providing immediate benefits in terms of alignment and efficiency. Starting directly with IBP enables companies to leverage its full potential from the outset.

What benefits have you seen companies gain from moving from S&OP to IBP?

It is less about switching from S&OP to IBP and more about shifting from a predominantly supply chain-driven process to an enterprise planning process where all functions are fully engaged. Companies that move towards this vision are rewarded with better financial performance, improved collaboration, increased engagement, and enhanced personal well-being. Observing the enthusiasm and positive body language of participants in IBP meetings can indicate the process’s success and maturity. This comprehensive engagement drives better decision-making and overall organizational success. Companies moving towards this vision experience a marked improvement in their ability to respond to market changes, manage risks, and capitalize on opportunities.

Does it matter what we call our planning processes, and do we need such rigid frameworks?

While I recommend using “Integrated Business Planning” as a term because it is more inspiring, the name itself is less critical than the process. If there are reasons to stick to “S&OP,” that’s fine, but the focus should be on adopting a holistic, integrated approach rather than rigid adherence to terminology. The goal is to achieve comprehensive alignment and engagement across all functions, driving better strategic and operational outcomes. The flexibility in naming allows organizations to tailor the process to their unique needs and culture, ensuring maximum effectiveness. Ultimately, what matters is the effectiveness of the planning process in aligning organizational goals, optimizing resources, and driving continuous improvement.

For planning professionals looking to drive their careers in an IBP environment, what advice would you give, and are any new skills necessary?

Planning professionals should be system thinkers who understand interdependencies along the value chain and possess strong business acumen. Additionally, investing in personal development to enhance self-awareness, intrapreneurship, conflict resolution, and a mindset of experimentation and continuous learning is crucial for success in an IBP environment. Professionals should develop strong analytical skills and the ability to integrate financial and operational data to support strategic decision-making. Building collaborative relationships across functions and developing a deep understanding of the overall business strategy will also be key to advancing in an IBP environment. Embracing technology and staying updated with the latest industry trends will further enhance their ability to contribute effectively to the IBP process.

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