Posts Tagged ‘Integrated business planning’

Companies passionate about Integrated Business Planning. Supply chain risk management…not so much?

Published July 18th, 2013 by John Westerveld 3 Comments

Supply Chain Digest’s graphic of the week last week is from the 2013 Gartner Supply Chain Study.  It shows various initiatives that supply chain leaders feel passionate about like integrated business planning, government mandates, talent management, globalization initiatives, supply chain risk management and supply chain redesign.

Passion Index for the 2013 Supply Chain Top Priorities

Passion Index for the 2013 Gartner Supply Chain Top Priorities supply chain risk management

Two things really stood out to me: Integrated business planning is a very high priority and supply chain risk management is a relatively low priority.

Why does supply chain risk management score so low?

I can certainly understand why integrated business planning would score highly; it is the function within business that identifies strategic corporate objectives and aligns the company in achieving those goals.  What I (and the report author) found confusing is why supply chain risk management scored so low overall.

Perhaps, we have advanced far enough in supply chain risk management that it is no longer a concern (In my opinion, I don’t think so though…). Potentially, we think that there won’t be another Japanese tsunami or floods in Thailand or garment factory disasters in Bangladesh.  It seems to me that these types of disasters are getting more frequent, not less. Every time I turn on the news, it seems there is a story that has a global impact.
The only consolation I take from this is that any good integrated business planning process would include supply chain risk management as one of the factors considered in any decision made.    One can only hope so anyway.

What are your supply chain passions for 2013?

Why do you think supply chain risk management scored so low in this study?

Comment back and let us know!

 

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Posted in Supply chain management, Supply chain risk management


The barrier of integrated business planning isn’t technology. It’s trust.

Published September 8th, 2011 by Lori Smith 0 Comments

Just a quick post to let you know that Trevor Miles, director of thought leadership at Kinaxis is presenting at the Sales & Operations Planning Summit, which takes place September 15-16, 2011 in Boston.

Trevor will be presenting the session, “Integrated Business Planning–Fact or Fiction?” on Thursday, September 15.

Here’s the session abstract:
No matter which S&OP model we adopt–Gartner, Oliver Wight, Wallace & Stahl–they all stress the collaborative nature of working across different functions and different levels of granularity, and are therefore integrated. Others focus on business planning, emphasizing the need to have Finance involved in S&OP and to have executive participation and sign-off. All of the process consultants emphasize that S&OP adoption is a matter of maturity, and Gartner has pointed out that very few companies have evolved beyond Stage 2 (Anticipating) in its four-stage maturity model of Reacting, Anticipating, Collaborating, and Orchestrating. So what is the barrier? It isn’t technology, but trust.

Follow Trevor on Twitter at @Milesahead or on the 21st Century Supply Chain Blog to get updates from the event.

For more information on the Sales & Operations Planning Summit, visit: http://www.theiegroup.com/SOP_Boston/Overview.html

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Posted in General News


From S&OP to IBP – The discussion continues

Published June 30th, 2011 by Duncan Klett 2 Comments

A posting in Supply Chain Digest from a while back poses a question as to where Sales and Operations Planning (S&OP) might be going and do we need to move on to a more comprehensive concept called Integrated Business Planning (IBP)? The article references a diagram from Gartner and is shown below.

Source: http://www.gartner.com/it/content/1393400/1393424/august_18_supply_chain_jbarrett.pdf (page 17)

What I find most interesting in the Next Generation S&OP is implied, but not stated explicitly. That is that Integrated scenario analysis, Supply “what-if” and Base supply plan (in nine-step S&OP) are replaced with Supply “what-If”, Financial “what-if”, base supply plan and base financial plans.  What I believe is implied is that:

  • Integrated scenario analysis, which was looking at just the supply plan, is extended to include a financial plan.
  • The next generation approach will be much more interactive and integrated so that the financial and operational impacts from alternative demand or supply plans can all be considered (easily) in the S&OP process.

The diagram below is an attempt to show the evolution of the development of an integrated consensus plan which addresses and balances the interests of demand, supply, and finance.

In the “new world”, managers can see supply, demand and financial projections based on the current or potential supply and demand plans. By seeing the impact of change, they can develop a new “consensus plan” which represents the best balance between competing objectives.

My colleague Trevor Miles wrote a very interesting piece a while back called “IBP or S&OP: What’s in a name?” Check it out and provide feedback below.

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Posted in Sales and operations planning (S&OP)


IBP or S&OP: What’s in a name?

Published May 11th, 2011 by Trevor Miles @milesahead 2 Comments

I have been following the debate about the use of the terms IBP (Integrated Business Planning) and S&OP (Sales and Operations Planning) over the past few months with a lot of interest.  It is with much trepidation that I step into this proverbial hornet’s nest after Lora Cecere wrote a blog titled “What Happens in Vegas should not Stay in Vegas!” in which she argues that:

To get started, let’s get beyond the nuance of the debate. This debate is not about the TERM. I REALLY don’t care what term is used or what process is called. I agree with Shakespeare, “A rose by any other name would smell the same….” But, I don’t agree with the conventional views on Integrated Business Planning (IBP) in three areas: focus, emphasis, and readiness.

Basically Lora argues that IBP is simply sophisticated S&OP. I’m not sure I agree. I think this characterization misses some subtleties between the two terms. Let’s start with Lora’s argument:

The number one change management issue with S&OP is and continues to be the role of the budget. If the company wants to maximize opportunity, the budget should be an input into the process, but not constrain the process.

Yes, I agree, but this is looking at the issue from the wrong perspective. What is broken is the budgeting process, which should be a continuous process driven by the operations forecast.  And there is a lot of discussion in the Financial Planning and Analysis (FP&A) space about this, starting from an article titled “The Inherent Folly of Cash Forecasting” by Gavin Swindell in BusinessFinance. Gavin states that:

… The Hackett Group, recently published a survey of CFOs, and 70 percent rated cash flow forecasting as their top priority to be worked upon in 2011. Now, maybe I am being a little simplistic, but I find this strange.

Gavin argues that cash forecasting should be a “dependent” forecast based upon the operations plans for demand and supply. In fact he states:

The point is there is no need to forecast cash in a well-run business. It should be calculated. Anyone who is applying serious effort or cost to do so is papering over a business weakness presumably because they feel they have to or because they cannot fix the underlying causes. In many businesses, the cash flow from operations and the inherent working capital will week in week out account for the majority of transactional volume and value that businesses find hard to plan and predict accurately.

I agree. As importantly so do many others, for example in CFO Russ Banham states in a blog titled “Let It Roll” that:

Unilever parted with its annual budget in 2010, with no tears. So did Norton Lilly International. Statoil and American Century Investments have scrapped their budgets; others are expected to follow suit.

Russ is arguing that the annual budgeting process is broken and needs to change to a rolling process, and gives as an example Unilever which has moved to a quarterly budgeting process with a forward view of eight quarters. Russ has a great quote from Statoil:

Statoil, the large Norwegian oil-and-gas producer, decided to abolish the traditional annual budget in 2005. “We still do what the budget unsuccessfully tried to do for us: target-setting, forecasting, and resource allocation,” says Bjarte Bogsnes, vice president of performance-management development. “We used to try to force these three purposes into one set of budget numbers, which created serious problems. For example, how can you expect an unbiased sales forecast from a sales manager if that number also will become a target? And how can you expect unbiased cost or investment forecasts from the organization if those forecasts also serve as an application for resources, and everybody sandbags?”

Who am I to disagree when even the McKinsey Quarterly in an article titled “Just-in-time budgeting for a volatile economy” published in the Spring 2009 edition in which the authors, when commenting on the budgeting process, state that:

Managers often spend significant amounts of time on it, only to be dismayed by how little value comes from four to six months’ effort. Under volatile conditions, when economic forecasts change from week to week, developing one reliable budget to coordinate business units and track performance for an entire fiscal year is very difficult. Following the traditional budget process may even be unproductive.

In fact they argue that the budgeting process needs to include the following:

  1. Scenario planning with trigger events
  2. Zero-based budgeting
  3. Rolling forecasts
  4. Quarterly budgeting

Perhaps even more importantly budgeting as part of FP&A covers a lot more than demand/supply balancing, which is the cornerstone of S&OP. Lora may argue with me that a mature S&OP should include much of what I discuss above, which is true, but the breadth of S&OP does not usually cover workforce management, R&D spend, capital expenditure, indirect procurement, and a whole host of other areas of interest to the budgeting process.  Perhaps the most important of these is workforce management because so much of a company’s cost base is salaries for it employees. Deciding how many people should be in Marketing in a certain region should be based upon the forecast for that region. The manner in which the Marketing budget is spent should depend on the make-up of the projected revenue for that region. The same is true for Sales and Admin, Procurement and Warehousing, etc…

Bringing all of these different cost elements together based upon the revenue forecast is integrated business planning, whether we call it IBP or not, and has a much wider scope than does S&OP. But, for all the reasons others have given, the budgeting process should be driven by the revenue forecast generated as part of the S&OP process, not the other way around.  And of course adjustments to the S&OP plan may need to be made because of financial constraints that force, for example, a delay in hiring in R&D or expenditure on capital equipment, which impact the revenue projections.

Lastly supply chain management (SCM) is very manufacturing focused and, as a consequence, so is S&OP. Of course we can talk about SCM in Retail, but the heart and soul of SCM is manufacturing. So what is the equivalent of S&OP for say a Financial institution or a consulting organization? What about bio-pharmaceutical companies which while still having large manufacturing divisions are primarily focused on research and development on one side and sales and marketing on the other side, which is reflected in the fact that their cost of goods sold is often less than 20 percent of revenue and Selling, General and Administration can often be more than 40 percent of revenue? I’m not convinced that S&OP is sufficient to run these organizations optimally.

So I don’t think IBP is simply sophisticated S&OP. So who do you agree with: Lora or me?

Posted in Milesahead, Sales and operations planning (S&OP)


If I had asked people what they wanted, they would have said faster horses (Henry Ford) – Applies to S&OP?

Published March 16th, 2011 by Trevor Miles @milesahead 0 Comments

Here is part two of an interview I had with P.J. Jakovljevic from Technology Evaluations Centers (TEC) on sales and operations planning (S&OP). If you missed yesterday’s post, check it out.

As mentioned yesterday, the entire Q&A along with PJ’s introduction and commentary on Kinaxis can be found here (free registration required).

PJ: How important is a maturity model for S&OP? Do companies have to be at the most advanced stages of S&OP to claim to be doing S&OP?

TM: An S&OP maturity model is important for companies to understand how their process, people, or technology needs to evolve over time to achieve maximum benefits. The maturity model helps them to identify both goals and gaps. Companies do not have to be at the most advanced stages to claim to be doing S&OP, but I do think there is a floor below which it is difficult to make that claim.

PJ: Many analysts are advocating the evolution of S&OP into IBP? Are you a proponent of IBP, per se? Tying the financial plan or measures directly into the process is a key component of IBP—what else distinguishes IBP from S&OP?

TM: I see S&OP and IBP as separate topics. One of the greatest fallacies in the industry is that each planning process is unique and isolated, and that each requires a separate tool with a separate data structure, analytics, and user interface (UI). In reality, planning is a continuum, and each stage should be feeding the next and being informed by the previous.

It is this continuum of planning that I think of as IBP, which should be supported by a single data model and a single set of analytics. The level of aggregation in the time, product, and geography dimensions as well as the time horizon over which the data is viewed will depend on the process being carried out, but at all times, any changes made at the more aggregate levels during S&OP should be immediately visible to anyone working at a more detailed or tactical level. Similarly, any changes made at the more detailed or tactical level should be aggregated up immediately to the S&OP level.

One of the steps in the planning continuum is S&OP (figure 2). So while I empathize with the idea that the inclusion of finance in S&OP magically transforms S&OP into IBP, I think this is too limiting a view of IBP. Why is finance not included in tactical planning too? Why is the tactical demand plan not part of the business planning/budgeting process?

Figure 2. Integrated Business Planning—the Goal

PJ:
Organizational thinking is often inherently bound by the dimensions of the “box” it is currently in because people don’t question working assumptions strongly enough. Do you believe “process inertia” is a barrier to advancing S&OP processes?

TM: I do think ‘process inertia’ is a barrier to advancing S&OP processes. I also challenge the idea put forward by many process consultants that S&OP is 75 percent process, 20 percent people, and 5 percent technology. While change management is of course a critical part of any S&OP deployment, the process that is put into place must make use of the latest technologies, particularly the more mature S&OP processes.

But even this statement is false, because if a less mature S&OP process is not designed with the ultimate goal in mind, which requires technology, how will it be executed? Technology will change nothing until we use it for that purpose. Henry Ford captured this very well in his statement ‘If I had asked people what they wanted, they would have said faster horses.’ The automobile, both as a means of transporting the consumer to large retail locations as well and as a means of transporting goods to these large retail locations, has changed the shape of cities dramatically over the past 100 years. Similarly, the Internet is having a dramatic effect on the buying patterns, with some analysts reporting as much as 40 percent of sales by revenue over the last Christmas season being carried out over the Internet.

It is time for planning processes, particularly S&OP, because of its inherent collaborative nature to drive consensus and compromise, as well as to adapt to new technologies. I believe the arrival of the Millennials to the labor market will drive the adoption of more collaborative technologies, particularly concepts from the social networking world, into the corporate world, particularly for S&OP.

Stay tuned for part three tomorrow!

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Posted in Milesahead, Sales and operations planning (S&OP)