Five Success Factors for Integrated Business Planning
APICS Magazine – May/June 2017
Integrated business planning (IBP) transformation has become a strategic mandate at many of today’s most successful companies. IBP is a best-practice model that extends the principles of sales and operations planning to delivery a seamless management process. It aligns company plans to help decision-makers allocate critical resources to effectively satisfy customers and enhance profitability. IBP also enables executives to evaluate plans and activities based on changing conditions and potential economic impacts. These business decisions are aided by dashboards and reporting, which help professionals identify any plans that may be jeopardized—and then respond in a timely manner. IBP transformation programs are proven to deliver multiple competitive advantages and benefits, including:
- enhanced financial predictability
- increased top-line revenue growth driven by improved customer service and fill rates
- significant cost reduction through a more efficient and effective supply chain
- asset optimization via better inventory deployment
- a balance of short-term profitability and a more competitive stance throughout the long term
- improved customer satisfaction as a result of more accurate demand planning and inventory availability
- end-to-end visibility into the financial and operational implications of decisions and actions related to demand and supply
- streamlined annual planning and budgeting processes.
That’s the good news. The not-so-good news is that a large number of organizations still are struggling to properly execute their IBP transformation programs. These businesses often underestimate what it takes to implement such a program and face challenges with human resources and relationship management. Not surprisingly, research consistently shows that more than half of IBP transformation programs fail to achieve their stated goals. To realize the potential benefits of IBP, executives need to know how to increase the probability of a successful transformation. Following are five key factors of effective IBP transformation programs and the expected benefits.
- Displaying unflinching executive commitment and championing
Because IBP transformation requires difficult and inherently unsettling change, stakeholders will turn to top executives for direction and answers. Organization leaders must embrace change first and then display their unflinching commitment to the new process.
In addition, top executives must represent a unified front and model the desired behaviors. IBP transformation requires intensive cooperation and cross-functional collaboration among executive peers, so they too will need to leave their comfort zones and make time to work together to develop a vision of an entirely new business process.
Short, one-on-one meetings with all executives can help verify their buy-in to the IBP initiative. Executives reluctant to come aboard and support the IBP transformation program will disrupt the speed of the company’s progress and significantly undermine the transformation.
- Leveraging an IBP-enabled technology strategy
It’s a crucial strategy to equip the best-practice IBP process with the appropriate technology to fully realize the expected benefits. This enables firms to optimize the process by bringing together and reconciling demand, supply, and financial plans in order to effectively identify gaps and provide a platform to resolve imbalances in a cross-functional, collaborative environment.
Technology can replace the manual efforts of collating and reviewing siloed data with streamlined automation and facilitate top-down or bottom-up reconciliation. This frees up resources that can be applied to higher-value analysis. Technology also can be used to create process timelines, orchestrate the IBP process, and enforce deadlines through user notifications. In addition, it can provide deep visibility into the overall supply chain across multiple functions, helping to support advanced planning and analytical capabilities by unifying data models and integrating different source systems.
In an ever-changing environment, technology can ensure that the current demand picture is balanced accurately against constrained supply allocations and inventory projections. It also can facilitate an immediate, proactive response to gaps, changes, and disruptions by enabling root-cause analysis and corrective action capability or process playbooks.
Finally, advanced technology can be used to conduct rapid what-if simulations to check the impact of different scenarios on profitability and key constraints. Scenarios such as offloading, adding capacity, adding blanket purchase orders, supplier collaboration, or the use of alternate suppliers can be simulated and evaluated in real time.
- Articulating the case for change
Building the business case for change is crucial to ensuring alignment between leaders and stakeholders. Success depends on developing a convincing need for change based on the company’s current situation and market opportunities. IBP goals and objectives need to be clearly articulated. The business case should quantify the expected operational and financial results and identify metrics that will be used to show progress, including balanced scorecards with cascading metrics.
A tier-one automotive supplier facing some forecast accuracy challenges turned to this method to improve its business. In the past, sales employees would underestimate forecasts before finalizing the budget so that they could more easily meet quotas. Then, they would overestimate after finalizing the budget to ensure that there weren’t any stockouts. Company leaders chose to add a forecasting accuracy metric to the executive performance dashboard. This helped eliminate the problem and improve the forecasting process and forecast accuracy.
The right selection of metrics is critical to making correct decisions and addressing areas of opportunity during the IBP process. Establishing a true, metric-driven IBP process is the foundation for maximizing the efficiency and agility of any organization.
- Employing a proven IBP transformation methodology
Having a structured and proven methodology to lead the transformation journey also is a must. A formal plan for implementing the IBP process—beginning with the transformation team and then engaging key stakeholders and leaders—should be developed early and executed effectively as changes move through the organization. The plan must be comprehensive enough to cover planning, implementing, and sustaining the changes.
A structured methodology demands as much data collection and organization readiness assessment as the redesign of strategy, processes, and systems. For IBP transformation programs to work, there must be a convergence among the new process and technology capabilities, the right people with the required skills, and organizational structure alignment changes.
- Having effective governance and maintaining a high level of energy
Having the right organizational talent and governance mechanisms in place is as important as having the right processes. This includes incorporating members of finance, engineering, supply chain, sales, demand planning, and supply planning, among others, with the required knowledge and skills to manage the IBP transformation process.
Governance should help establish clear ownership, ensure regular attendance at meetings, and support decisions made as part of the IBP process. Stakeholders need to know why change is happening, how their work will transform, what is expected of them during and after the transformation program, how they will be measured, and what benefits success will bring to them personally. Transformation team leaders should address all of these questions explicitly and keep stakeholders informed in order to maintain energy.
Highly visible incentives and recognition also should be provided as reinforcements to maintain enthusiasm and sustain change. Continual reassessment of the achieved benefits of the program and stakeholders’ adoption of the new process is another way to keep everyone interested. Disengaged stakeholders can slow down any progress and ultimately be the reason for transformation failure.
The success factors described in this article are based on proven best practices for processes, people, systems and data, and technological capabilities. When applied appropriately, they can help unlock a range of benefits as part of a highly effective IBP transformation journey.