Seven tips for successful IBP implementation
In a recent cross-industry survey* (conducted by Oliver Wight EAME of over 500 Directors, Supply Chain Managers and Process Leaders, 75% of respondents said they believed either ‘forecast accuracy’, ‘inventory reduction’, ‘cost reduction’ or ‘perfect order’ is the primary benefit of Integrated Business Planning (IBP). This is a massive underestimation of the true potential of IBP. Its real purpose is to ensure your business achieves sustainable, revenue and margin growth; to sell more, more profitably.
So, why are so many organisations getting it so wrong? From experience, it’s either because organisations are setting their ambitions too low, or are failing to implement IBP correctly so they fall short of realising its full benefit – or both.
Birgit Breitschuh lists seven key tips to ensure your IBP implementation gives you the best possible return on investment.
- The IBP process is owned by the CEO
The CEO is the ultimate decision-maker for the organisation, so they must be the driving force behind IBP. CEOs are – or should be – responsible for setting the organisation’s strategy, articulating it through business objectives to deliver the company goals and it’s IBP which enables the deployment of the business strategy. So, by definition, the CEO must own and lead the IBP process. In this way, the CEO enables IBP to become accepted at all levels in the business, to gain momentum and eventually become the way the organisation operates.
- The Demand Plan belongs to Sales & Marketing
Having a good understanding of what generates customer and consumer demand is the key component to developing a reliable demand plan. Consequently, those who are closest to the customer and have the greatest understanding of activity at the point of consumption, must take ownership of the demand plan; this has to be the sales and marketing teams. And demand planning is more than simply producing a ‘forecast’. Many key business decisions are driven from what we believe we will sell. Organisations need a fully integrated demand planning process, with multiple inputs based on both volume and value, driven by demand analytics and market insights.
- Finance is fully integrated
A key differentiator of IBP is the integration of financial plans throughout the process. The active participation of the finance team in the monthly IBP reviews, contributing as ‘key business partners’ to the real-time testing of different scenarios and adjusting plans accordingly, safeguards the integrity of financial projections.
As finance collaborates with its business partners and the facilitators of each of the IBP core elements of demand product and supply, , greater value is delivered to the organisation, through the improved development and critique of plans at each review and the financial extrapolation. The outcome becomes a company-wide focus on financial gap identification and closure, and continuous re-planning and re-optimisation.
- Product Portfolio Management has its own dedicated review in the IBP process
Historically, in the days of S&OP, organisations included Product Portfolio Management as part of the Demand Review. This is a mistake. It needs to be treated as separate part of the overall IBP process, because successful Product Portfolio Management results in growth in sales and profit through product and service innovation. The most competitive organisations promote a culture of continuously introducing superior products and services to market, introducing the new, whilst phasing out the old. Naturally, this can play a crucial role in closing future performance gaps.
- IBP aligns the business to the strategic growth plans
IBP is the process which connects the strategy to the business plan and ensures the delivery of both, providing the foundation for effective decision-making to deliver future growth. However, organisations often incorrectly use IBP as a meeting-the-annual-budget process, rather than using it to look out over a 24 to 36-month horizon. This misguided focus on meeting the annual budget, creates ‘end-of-year-myopia’. It is impossible to plan effectively for the future if you’re not looking beyond the end of the financial year. In fact, successfully implemented IBP will naturally negate the annual budgeting exercise, replacing it with a continuously updated two or three year financial plan. Allocating resources to satisfy the just short-term is not only detrimental to long-term growth and profit, but also ultimately compromises the strategic ambitions of the business.
- Assumptions drive the numbers
There is a golden rule in a successful IBP process: “There is only one set of numbers”. Without belief and agreement in the numbers across departments and up through the organisation, businesses can’t start to make informed decisions.
There is a simple three-step process in creating one set of numbers:
- Agree on the basic assumptions behind the numbers e.g. disposable income growth, shopper habit trends, product versus distribution brand trends, market prices etc.
- Agree the values (percentage, numbers) in the assumptions.
- Agree on the effect the assumptions have on the numbers.
Driving understanding of step three is especially key, so that correlations are not only identified more quickly, but the people can articulate which assumption has changed if the planned numbers need to be adjusted. Get this right, it enables the decision-making crucial to achieving growth in sales and profit.
- Don’t get caught up in the details
IBP thinking is ‘roughly right, rather than precisely wrong’! Many organisations make the mistake of expending extensive efforts on drilling down into the detail, trying to determine precisely what is not going to happen in the coming months and years as opposed to focusing on the overall longer-term view. Not only is this a waste of resources, but getting bogged down in the detail is a barrier to extending the horizon beyond the short-term and breaking away from the ‘annual budget’ way of thinking. Looking at the bigger picture facilitates the forward-planning essential for building growth and increasing margin.
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NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”