It’s no secret these two groups don’t always see eye-to-eye
Finance and supply chain operations—both have a huge impact on your company’s bottom line, but oftentimes there’s conflict between these two organizations, especially when it comes to the numbers. Disparate data, siloed processes and discrepancies between the operational forecast and the corporate budget are all contributing factors. But is there a way to bridge the gap? Integrated business planning (IBP) may be a possible solution.
What is IBP?
IBP is a next-gen planning process often referred to as advanced S&OP. Consulting firm Oliver Wight describes it as, “… the business planning process that extends the principles of S&OP throughout the supply chain, product and customer portfolios, customer demand and strategic planning, to deliver one seamless management process.”
Contrasting the early stages of S&OP that focused on internal processes, attention has shifted to a more collaborative planning practice aimed at better influencing and managing demand. As a result, a more strategic business planning model has emerged.
Best-in-class organizations have evolved across the decades and are now leading the way when it comes to the continued expansion of S&OP, taking it past the basics and into the realm of IBP. IBP isn’t just a seamless extension of the already-developed S&OP branch. It takes S&OP processes well beyond its original scope, and focuses on continually realigning the day-to-day decisions of functional groups with the overall corporate plan.
IBP creates a powerful, up-to-date consensus where everyone works toward the same goals. It extends traditional S&OP with:
- Robust financial integration
- Vigorous product and portfolio review
- Better visibility and management of risk
- Improved gap identification and correction
How IBP helps integrate finance and supply chain operations
IBP aligns sales, marketing, research and development, operations, logistics, finance, human resources and IT, shifting the focus to external supply chain influences and internal functional synchronization. It’s bringing strategic and operational execution together, and driving big business benefits in the process.
Focusing on the hard numbers, finance is concerned with concrete measurement of profit and loss across all aspects of the organization. It’s their job to make sure your business has a strong bottom line. Supply chain management deals with constant fluctuations in supply and demand, driving its decisions primarily on monthly sales and operations planning (S&OP) meetings.
Their objective is to get the right product, to the right person, at the right time, and make a profit at the same time. In an ideal world, the budget and the operational forecast would align perfectly, but as most of us can agree, perfection is very rarely attainable (or sustainable long-term). Bridging this disconnect between finance and supply chain operations requires a heavy dose of collaboration, and a new outlook on how these two functions can operate harmoniously.
Success requires the development of an overall corporate plan that drives the decision-making process of all functional groups—from finance to supply chain and everywhere in between, including marketing, sales, research and development, human resources and even IT.
Reverse engineering your demand plan from the budget is a surefire path to failure. You must integrate finance with your S&OP processes to develop a realistic number to work from in the near term, with that time horizon ranging from 3 months to 10 years depending on your industry. In the long term, demand-shaping activities, ranging from new product introductions to promotions, should focus on risk (including potential legislative changes), and how to execute at an operational level to meet corporate financial goals.
As Scott Roy, Collaboration Planning Manager with Wells Enterprise Inc., explains, you have to “… plan to the demand plan and manage to the gap in those other numbers; call them out, make them visible but don’t force all the numbers together for the sake of having one number.” Stay tuned for my next blog on IBP, where I explore some of the biggest hurdles you’ll have to overcome to successfully integrate finance and supply chain operations.