Integrated business planning

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Integrated business planning (IBP) is a process for translating desired business outcomes into financial and operational resource requirements, with the overarching objective of maximizing profit and / or cash flow, while cutting down risk. The business outcomes, on which IBP processes focus, can be expressed in terms of the achievement of the following types of targets:

Contents

Integration elements

Integrated Business Planning is defined in different ways. One challenge in developing a common definition of IBP is that there is no universally agreed way of describing different degrees and forms of integrated processes. Mature IBP processes enable organizations to bring together different elements of planning into a single process. This includes, but is not limited to, the following:

Vision of Integrated Business Planning

The essence of Integrated Business Planning (IBP) is a vision aimed at reshaping how organizations strategize and execute their plans by seamlessly incorporating various functions across the organization. This vision encompasses several crucial components:

1. Functional Integration: IBP aims to dismantle functional silos that often exist between different departments within an organization. It aims to establish a establish a unified planning process between and for R&D, Manufacturing, Supply Chain Management, Marketing, and Sales in order to create a common business plan anchored on a central supply chain planning process that takes inputs from all the above functions.

2. Harmonization of Planning Cycles: IBP goes beyond functional integration by synchronizing planning activities across different time horizons. By aligning monthly, quarterly, and annual planning cycles, IBP ensures a cohesive approach, eliminating discrepancies arising from disparate starting points and data sets.

3. Integrating across multiple Planning Horizons: Short and Medium-Term Planning: IBP facilitates collaboration between sales and marketing teams to capture demand and create a consensus plan.

Medium and Long-Term Financial Planning: IBP aligns demand forecasts with pricing data and inputs from marketing teams to develop financial plans and also uses the inputs to predict financial outcomes.

Long-Term Strategic Planning: IBP incorporates phases of New Product Introduction by leveraging input from Product Development Organization portfolios.

4. Capacity Expansion Planning: IBP includes capacity expansion planning by aligning plans with new product development, cost improvement projects, and management of existing product portfolios, with the long-term strategic plan serving as a crucial input. These demand elements are matched against mapped capacity data in the system to conduct gap analysis.

Outcome-Driven View of IBP

The role of IBP is to balance these different objectives in a way that achieves the best overall result. One way of accomplishing this is with prescriptive analytics. These tools are often employed in these processes to mathematically optimize parts of a plan, a classic example of which is inventory investment. The most mature IBP processes try to mathematically optimize all aspects of a plan.

History

The history of integrated business planning can be traced back to sales and operations planning (S&OP), a process that balances demand and manufacturing resources.

According to Gartner, there is a 5-stage maturity model for S&OP, and in this model, integrated business planning is denoted as Phased 4 & 5. [1]

Over time, IBP has evolved, combining Enterprise Performance Management (EPM) and S&OP to enhance planning capabilities for financial and operational professionals. [2] IBP platforms leverage predictive analytics. [3] and machine-learning technology to optimize plans across multiple constraints. [4]

Components

Key components of Integrated Business Planning include:

a) Enterprise Model:

b) Integrated Planning:

c) Enterprise Optimization:

Applications

IBP has been used to model and integrate the planning efforts in a number of applications, including:

All of the above can be summarized as Enterprise Optimization use cases . These are however to be seen as use cases only. The pristine vision of IBP is to integrate the organisation using a unified planning process across functions and across different planning horizons.

Criticism

Some argue that IBP is not any different from S&OP. Patrick Bower has described IBP as a marketing hoax,⁣ [5] a name developed to create confusion and sell consulting and system services. The main proponents of IBP are consulting companies. In response to this criticism, it has been asserted that IBP is not a marketing hoax,⁣ [6] but an important part of Enterprise Performance Management (EPM) system.

Another criticism is that IBP is not academically defined [7] and is supply chain biased in its definition. The lack of academic standard leaves room for interpretation to what IBP is, which is confusing practitioners. In a 2015 S&OP survey, [8] 32% of participants answered that there is no difference between S&OP and IBP, 20% "did not know", and 71% of participants answered that there is a need for more industry standards around S&OP.

It has been called out that IBP has a lack of governance and in need of an industry group to create a unified definition. Due to the lack of academic and industry standards, there has been an attempt to create an open source definition for IBP:

A holistic planning philosophy, where all organizational functions participate in providing executives periodically with valid, reliable information, in order to decide how to align the enterprise around executing the plans to achieve budget, strategic intent and the envisioned future.

— Supply Chain Trend, 2015 [9]

Existing Academic Literature

According to Smith, Andraski & Fawcett, when two programs—Sales and Operations Planning (S&OP) and Collaborative Planning, Forecasting and Replenishment (CPFR)—are integrated, they provide the information we need for decision making. Key success factors and performance outcomes are also discussed. [10]

Teo & King argue that strategic planning for information systems (IS) involves combining IS planning (ISP) with business planning (BP). While this has been talked about a lot lately, there hasn't been much research specifically focusing on it. This study looks at four ways these plans can be integrated, from being separate to fully intertwined. The study looked at how this integration relates to organizational success by surveying both business planners and IS executives. The results show that the more integrated the plans are, the better the IS contributes to organizational success, and the fewer problems there are with ISP as per this paper. [11]

Pal Singh Toor & Dhir highlight the benefits of integrated business planning, forecasting, and process management. The paper focuses on need of advanced business intelligence and the crucial role of integrated business planning, forecasting, and process management. Various case studies are used to highlight benefits. [12]

See also

Related Research Articles

<span class="mw-page-title-main">Enterprise resource planning</span> Corporate task of optimizing the existing resources in a company

Enterprise resource planning (ERP) is the integrated management of main business processes, often in real time and mediated by software and technology. ERP is usually referred to as a category of business management software—typically a suite of integrated applications—that an organization can use to collect, store, manage and interpret data from many business activities. ERP systems can be local-based or cloud-based. Cloud-based applications have grown in recent years due to the increased efficiencies arising from information being readily available from any location with Internet access.

<span class="mw-page-title-main">Supply chain management</span> Management of the flow of goods and services

In commerce, supply chain management (SCM) deals with a system of procurement, operations management, logistics and marketing channels, through which raw materials can be developed into finished products and delivered to their end customers. A more narrow definition of supply chain management is the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronising supply with demand and measuring performance globally". This can include the movement and storage of raw materials, work-in-process inventory, finished goods, and end to end order fulfilment from the point of origin to the point of consumption. Interconnected, interrelated or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers in a supply chain.

<span class="mw-page-title-main">Supply chain</span> System involved in supplying a product or service to a consumer

A supply chain, sometimes expressed as a "supply-chain", is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers. Meanwhile, supply chain management deals with the flow of goods within the supply chain in the most efficient manner.

A value chain is a progression of activities that a business or firm performs in order to deliver goods and services of value to an end customer. The concept comes from the field of business management and was first described by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.

The idea of [Porter's Value Chain] is based on the process view of organizations, the idea of seeing a manufacturing organization as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits.

Service management in the manufacturing context, is integrated into supply chain management as the intersection between the actual sales and the customer point of view. The aim of high-performance service management is to optimize the service-intensive supply chains, which are usually more complex than the typical finished-goods supply chain. Most service-intensive supply chains require larger inventories and tighter integration with field service and third parties. They also must accommodate inconsistent and uncertain demand by establishing more advanced information and product flows. Moreover, all processes must be coordinated across numerous service locations with large numbers of parts and multiple levels in the supply chain.

<span class="mw-page-title-main">Manufacturing resource planning</span> Defined as a method for the effective planning of all resources of a manufacturing company

Manufacturingresource planning is a method for the effective planning of all resources of a manufacturing company. Ideally, it addresses operational planning in units, financial planning, and has a simulation capability to answer "what-if" questions and is an extension of closed-loop MRP.

Demand management is a planning methodology used to forecast, plan for and manage the demand for products and services. This can be at macro-levels as in economics and at micro-levels within individual organizations. For example, at macro-levels, a government may influence interest rates to regulate financial demand. At the micro-level, a cellular service provider may provide free night and weekend use to reduce demand during peak hours.

Oracle Applications comprise the applications software or business software of the Oracle Corporation both in the cloud and on-premises. The term refers to the non-database and non-middleware parts. The suite of applications includes enterprise resource planning, enterprise performance management, supply chain & manufacturing, human capital management, and advertising and customer experience.

The term demand chain has been used in a business and management context as contrasting terminology alongside, or in place of, "supply chain". Madhani suggests that the demand chain "comprises all the demand processes necessary to understand, create, and stimulate customer demand". Cranfield School of Management academic Martin Christopher has suggested that "ideally the supply chain should become a demand chain", explaining that ideally all product logistics and processing should occur "in response to a known customer requirement".

<span class="mw-page-title-main">Demand-chain management</span> Management of relationships between suppliers &customers to deliver best value to customer

Demand-chain management (DCM) is the management of relationships between suppliers and customers to deliver the best value to the customer at the least cost to the demand chain as a whole. Demand-chain management is similar to supply-chain management but with special regard to the customers.

<span class="mw-page-title-main">Enterprise modelling</span>

Enterprise modelling is the abstract representation, description and definition of the structure, processes, information and resources of an identifiable business, government body, or other large organization.

Revenue management is a discipline to maximize profit by optimizing rate (ADR) and occupancy (Occ). In its day to day application the maximization of RevPAR is paramount.

The Supply Chain Operations Reference (SCOR) model is a process reference model originally developed and endorsed by the Supply Chain Council, now a part of ASCM, as the cross-industry, standard diagnostic tool for supply chain management. The SCOR model describes the business activities associated with satisfying a customer's demand, which include plan, source, make, deliver, return, and enable. Use of the model includes analyzing the current state of a company's processes and goals, quantifying operational performance, and comparing company performance to benchmark data. SCOR has developed a set of metrics for supply chain performance, and ASCM members have formed industry groups to collect best practices information that companies can use to elevate their supply chain models.

Business analytics (BA) refers to the skills, technologies, and practices for iterative exploration and investigation of past business performance to gain insight and drive business planning. Business analytics focuses on developing new insights and understanding of business performance based on data and statistical methods. In contrast, business intelligence traditionally focuses on using a consistent set of metrics to both measure past performance and guide business planning. In other words, business intelligence focusses on description, while business analytics focusses on prediction and prescription.

Technology management is a set of management disciplines that allows organizations in managing their technological fundamentals to create customer advantage. Typical concepts used in technology management are:

<span class="mw-page-title-main">Sales and operations planning</span> Integrated business management process

Sales and operations planning (S&OP) is an integrated business management process through which the executive/leadership team continually achieves focus, alignment, and synchronization among all organization functions. The S&OP process includes an updated forecast that leads to a sales plan, production plan, inventory plan, customer lead time (backlog) plan, new product development plan, strategic initiative plan, and resulting financial plan. Plan frequency and planning horizon depend on the specifics of the context. Short product life cycles and high demand volatility require a tighter S&OP than steadily consumed products. Done well, the S&OP process also enables effective supply chain management.

Customer demand planning (CDP) is a business-planning process that enables sales teams to develop demand forecasts as input to service-planning processes, production, inventory planning and revenue planning.

Service chain optimization is the application of processes and tools that embrace all functions for improving the efficiency, productivity and, eventually, the profitability of service organizations. In this regard, profitability of a service organization is measured by the revenue generated from service demand, and by the costs due to activity of the enterprise's human resources. Service chains consider the full life-cycle of service demand from early stages of forecasting, through planning, scheduling, dispatch, execution and post-analysis.

Petrolsoft Corporation (1989–2000) was a supply chain management software company with a focus on the petroleum industry. Petrolsoft Corporation was founded at Stanford University in 1989 by Bill Miller and David Gamboa as Petrolsoft Software Group. It was later incorporated in 1992. Petrolsoft introduced demand-driven inventory management to the petroleum industry.

Trade promotion forecasting (TPF) is the process that attempts to discover multiple correlations between trade promotion characteristics and historic demand in order to provide accurate demand forecasting for future campaigns. The ability to distinguish the uplift or demand due to the impact of the trade promotion as opposed to baseline demand is fundamental to model promotion behavior. Model determination enables what-if analysis to evaluate different campaign scenarios with the goal of improving promotion effectiveness and ROI at the product-channel level by selecting the best scenario.

References

  1. ↑ "Gartner - Introducing the five-stage Sales & Operations Planning maturity model".
  2. ↑ "IBP Industry Week cite web". 4 September 2014.
  3. ↑ "Integrated Business Planning (IBP) - Camelot - Management Consultants". www.camelot-mc.com. Retrieved 2017-07-17.
  4. ↑ "SAP Integrated Business Planning (IBP)".
  5. ↑ "Integrated Business Planning: Is It a Hoax or Here to Stay?" (PDF). Retrieved 2024-05-14.
  6. ↑ "Integrated Business Planning Is Not Just a Marketing Hoax". industryweek.com. 4 September 2014. Retrieved 2022-06-25. Manufacturers can achieve step change improvements to how they plan and manage their business by developing strategies that combine EPM and S&OP.
  7. ↑ "The rise and fall of S&OP". 27 February 2015.
  8. ↑ "The S&OP Pulse Check 2015" (PDF). Retrieved 2024-05-14.
  9. ↑ "A new definition for Integrated Business Planning". Supply Chain Trend. 2015-11-25. Retrieved 2022-06-25.
  10. ↑ Smith, Larry; Andraski, Joseph C; Fawcett, Stanley E (Winter 2010). "INTEGRATED BUSINESS PLANNING: A Roadmap to Linking S&OP and CPFR". The Journal of Business Forecasting. 29 (4): 4–7, 9–13. ProQuest   853877288.
  11. ↑ Teo, Thompson S.H.; King, William R. (September 1996). "Assessing the impact of integrating business planning and IS planning". Information & Management. 30 (6): 309–321. doi:10.1016/S0378-7206(96)01076-2.
  12. ↑ Pal Singh Toor, Tajinder; Dhir, Teena (8 November 2011). "Benefits of integrated business planning, forecasting, and process management". Business Strategy Series. 12 (6): 275–288. doi:10.1108/17515631111185914.
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