Integrated business planning is what S&OP looks like when it’s all grown up. Or so the analysts tell us. But what exactly is it?
I could give you a definition – there are lots of them flying around – but I doubt that would help. Instead I’d like to show you what integrated business planning looks like by examining a situation where it was clearly needed.
I came across one of the most painful symptoms of life without integrated business planning while visiting a component manufacturer. This particular manufacturer had an extensive range of products and many customers. As I chatted with the COO, I expected him to mention difficulties with their delivery performance. Well, I was wrong. The thing that was keeping him up at night was sales – or rather the wrong kind of sales.
“Sales isn’t driven by what makes this company profitable!” he said, with a hint of exasperation.
“What do you mean?”
“They rarely make the most profitable decisions. Occasionally there’s a push from finance – ‘Look these products generate a higher margin so please sell them and, by the way, there’s an incentive for doing so’ – but that kind of guidance is pretty sporadic. Because sales rarely have a clue about what generates the most profit at any given time, it all boils down to selling as much as possible to make the numbers. I’m exaggerating of course – but only slightly.”
I was fascinated but not surprised. The two top pressures that drive C-level interest in integrated business planning are the need to improve top line revenue and reduce supply chain operating costs.
“Ok, let me see if I’ve got it. Sales personnel are meeting numbers rather than maximizing profit. Supply chain personnel aren’t consulted about sales promotions and are constantly wrong-footed. Finance offers fascinating post mortem analyses but very little guidance.”
The COO nodded glumly.
“So what would the ideal situation look like to you?”
As it turned out, his top three requirements were classic integrated business planning deliverables.
(1) If the supply chain has spare capacity somewhere, sales knows exactly which products they should be promoting, in which regions, and at what kind of discount. Similarly if sales has a promotion planned, the supply chain knows exactly how to flex to cope with the increase in demand.
(2) If certain products are more expensive to produce because they are a poor fit with the product mix for a particular week, sales avoids promising those products and accepts orders for complementary products instead.
(3) If a particular order or order quantity isn’t commercially viable, sales knows immediately – instead of after the fact.
I broke the news to him.
“You’ve just described what happens when your sales, finance and supply chain departments plan in an integrated way to maximize the profitability of your business.”
If that sounds like common sense to you, you’re absolutely right. Integrated business planning is just plain common sense. Join me next week as I discuss a staged approach to implementing integrated business planning.
