Professional Documents
Culture Documents
Five Steps
to Successful
Integrated
Business
Planning
In 1996, the average beer distributor carried 190 unique stock keeping units (SKUs) from
nine suppliers. By 2010, the averages had risen to 536 SKUs from 18 different suppliers.1
The average food retailer stocks 45,000 SKUs and introduces about 10,000 new items each year.2
Visit a grocery store, and youll notice that Crest offers 40 toothpastes and Gatorade offers
59 flavors in the U.S.3
The numbers boggle the mind, but the message is clear:
due to a proliferation of products, supply chains are becoming
more complex. This complexity will only increase as
companies outsource production and expand globally.
At the same time, greater demand for customized or
build-to-order products puts more pressure on companies to
produce on much shorter lead times.
In response, many companies have begun to transform their
forecasting models. Companies have traditionally based their
operations plans on forecasts built around sales and
operations planning (S&OP). S&OPs primary focus is on
future actions and anticipated results. Plans generally include
strategic views that look out up to seven years in the future and
usually focus on local supply chains. But this long-term
outlook has often left companies with two primary challenges:
Scrambling to meet demand when it was higher than
expected.
Holding excess parts and finished goods when demand
was lower than anticipated.
1. Best Practices in Managing an Expanded Product Portfolio. Sponsored by the Beer Industry
Electronic Commerce Coalition. 2012.
2. Subramanian, Radhika. Conquering Product Proliferation: The Case for SKU Rationalization.
Emcien blog. August 2, 2012.
3. Honig, Adam. Product Proliferation Can Kill Your Sales Team. Cloud Sherpas blog post.
April 22, 2013.
4. Gilmore, Dan. Supply Chain News: Where Do We Stand in S&OP? SupplyChainDigest. September
20, 2013.
1 demandsolutions.com industryweek.com
White Paper
1. Sensing Demand
If youre serious about building an integrated business plan,
start by building a good demand plan. Your first challenge will
be to understand, or sense, how demand for your products and
services impacts your plants and local supply chain. Once
youve developed a demand plan, youll want to be sure that the
plan is being fulfilled at least at the departmental level of your
organization.
Sensing demand is a key step in avoiding both inventory
shortages and overstocked items. For too long, finance
managers have created forecasts in isolation, with little or no
input from other departments. This approach inevitably leads
to inaccuracy. By contrast, IBP process takes a much more
strategic approach to demand planning by involving multiple
stakeholders throughout the organization.
During the sensing stage of IBP, a demand planner or analyst
will review the forecast at the beginning of each month. The
planner will check for forecast accuracy against customer
service levels and inventory levels. This allows company
leaders to sense challenges from more angles, so that the
organization can establish a forecasting figure that reflects all
potential variables.
2 demandsolutions.com industryweek.com
White Paper
3. Collaborate Globally
When your demand and supply plans are in place, shift your
focus to expanding your planning horizon across your
company. To do that, youll need to establish seamless,
real-time communication with your entire supply network.
Global collaboration gives your supply chain leaders the
visibility they need to monitor any potential risks or disruptions
that could impact your demand plan. According to McKinsey:
3 demandsolutions.com industryweek.com
White Paper
As you can see, executing against a global view plan isnt a set
it and forget it activity. It requires constant vigilance and
continuous improvement. This is where traditional S&OP falls
shortbut IBP delivers.
5. Orchestrate Success
If youve followed the four steps up to this point, youve
essentially enabled IBP at your organization. Youve published
a global view plan that has been vetted and approved by your
executive management. But your work isnt done yet. To
orchestrate sustainable success, you must monitor, measure,
and modify your supply chain activities on an ongoing basis. By
doing so, youll keep your companys financial performance on
track during the next 30 days until the publication of a new
monthly plan.
To measure your companys performance accurately, youll
need to come up with a meaningful set of key performance
indicators (KPI) that let you know whether youre tracking in an
acceptable range to meet your financial goals. If your numbers
fall out of range, youll be able to identify and address issues
immediately, rather than waiting until youre preparing your
next monthly plan.
For instance, if one of your products isnt selling as well as it
should, your senior management will be able to get input from
all your departments. Your sales team might then consider
whether a lower selling price would work, while your marketing
organization might ask why consumers prefer competing
products. Meanwhile, your product development team could
consider whether a design change might increase demand. You
can also pull your supply chain partners into the discussion. By
running what-if analyses, your senior management can weigh
their options and choose the best course of action.
5. Correll, James and Palmatier, George. How Good Is Your Sales and Operations
Planning/Integrated Business Planning Process? Oliver Wight white paper. 2013.
4 demandsolutions.com industryweek.com