Supply chain disruptions have become the norm in post COVID era and companies have realized that resilient supply chains are not just needed for business continuity but for gaining competitive advantage for future sales growth and higher market share as well. Supply chain can be classified into two areas - planning and operations. If things are planned well, then operations escalations can be minimized leading to prevention of lost sales opportunity, expedite freight costs and supplier escalations.
Many smaller companies either do not plan as they are dependent upon the planning inputs of bigger partner in the value chain or have a basic planning process. Bigger companies (>$2bn) usually have a sales and operations planning (S&OP) or sales inventory and operations planning (SIOP) process but very few have advanced to the integrated business planning (IBP) stage. The need of the hour is to develop responsive supply chains and the first step towards that is to have a robust and mature IBP process supported with technology to run various computations quickly and aid in faster decision making by Chief Supply Chain Officers and their teams.
What is IBP?
Integrated business planning or IBP is the advanced version of S&OP which incorporates deep integration of financial planning with supply chain planning too. The basic building blocks in establishing an IBP process are to setup process, people, technology, and change management project plan.
Process includes setting up demand, supply, inventory, and logistics planning process cycle with various predictive, optimization, statistical and metaheuristics planning and scheduling models; appropriate sequential workflow between models for data inputs and outputs; right visualizations and overall process orchestration with alerts/notifications to users. Depending upon business constraints complexity, modelling can be sequentially broken into strategic, tactical and operational modelling with each stage output acting as input to next stage of modelling. While tactical and operational modelling will be part of monthly IBP process, strategic modelling such as network design (supplier/production/warehouse footprints or transport mode selection decisions) can be done once a quarter or year depending upon business condition dynamics.
Demand planning includes external factors and historical data from systems as inputs to machine learning and artificial intelligence (MLAI) based predictive models with outputs at an aggregated level (location cluster-family of SKUs-month level) which can be further disaggregated using demand sensing models (location-SKU-week/day level). Various algorithms (Holts/Winters/ARIMA/Random Forest/ LSTM) can help in choosing the best fit model basis error minimization and model can be automatically trained for choosing best fit model on periodic basis.
Supply planning is an optimization process whose inputs are unconstraint demand plans, production constraints (3M - man, machine, and method), inventory norms and distribution constraints that can be solved with solvers. Powerful solvers are needed to do fast computation with thousands of constraints in a linear programming (LP) problem and they can be purchased or open-source solvers can also be used if constraint complexity is lower. Output of this model goes into production scheduling models that generate detailed output at an SKU-hour level.
Inventory planning models are mostly statistical to identify safety, cycle, transit and buffer stock norms at lowest possible level (Depot-SKU-Day level). Statistical models consider demand and supply uncertainty for standard deviation calculations and parameters such as lead time, forecast. Also, if demand pattern is not normal distribution, then Monte Carlo simulation should be used to generate stock norms for desired service level. Working capital acts as a constraint on overall stock norms.
Logistics planning is the last and most complicated model as well which requires metaheuristics modelling due to multiple non-linear constraints. Output of this planning flows into transport scheduling models such as Route Optimizer and Load Builder for a granular level output.
The entire planning cycle runs the entire month with sequential set of meetings – demand review, supply review, S&OP review, and executive review. The final plan is discussed in executive meetings supported by what if scenarios to analyse financial and supply chain trade-offs (cost vs responsiveness) and take best global optimal decisions for the organisation and resolve local optima conflicts between departments. Also, important is to conduct root cause analysis (RCA) of planning models. If there is no RCA, then we cannot measure effectiveness of running this IBP process. We use responsible accountable consulted informed (RACI) matrix to define right set of actors accountable for each step in the process.
Most important aspect of setting up any new process is change management and not just technology intervention. Changing human behaviour and making them motivated to accept newer ways of working is the biggest transformation and entire project has 75% chance of adoption failure if this is not dealt with utmost seriousness. Measuring adoption of new process usage and key behavioural indicators (KBI) metrics to capture adoption are critical to IBP success. While innovation comes from the bottom, drive to change must come from absolute top management.
How to setup IBP?
Conduct an as-is assessment of current process maturity (process mining tools can be used if there is no existing documentation), people skills levels and technology landscape. Benchmark existing processes with supply chain operations reference (SCOR) framework and blueprint the desired to-be process. Estimate the technology needed for data inputs, modelling, automated workflows, visualizations, and overall meetings orchestration and get right skilled resources on boarded. Setup right project management team and define entire project charter. ROI (Return on Investment) needs to be clearly defined that which KPIs will improve and timelines to recover the investments. Set clear milestone goals and celebrate each small success. IBP is a journey that brings the whole organization together to work towards one goal and breaks down siloed ways of working. Achieving IBP requires constant monitoring by CEO office. If top leadership is not involved thoroughly, then such a massive transformation will not lead desired results.
Driving Success in Businesses with Integrated Business Planning
In conclusion, IBP is an essential process that allows businesses to align their various functions to achieve a common goal. IBP enables companies to make more informed decisions and respond quickly as per market dynamics or supply chain disruptions. It promotes cross-functional collaboration and enhances visibility and transparency across the organization, facilitating better communication and alignment between departments towards one common organisation goal. By adopting IBP, businesses can improve their operational efficiency, increase profitability, and achieve sustainable growth in a rapidly evolving business environment.
About the Author
Solutions Architect – Manufacturing (Supply Chain) , Tech Mahindra
Biswaranjan has led digital supply chain transformations and brings in rich experience from Tata, Reliance, BASF and Vestas in supply chain planning and operations. He is currently helping manufacturing customers globally in their journey towards supply chain transformation. He holds a degree in Energy (Electrical) Engineering from IIT Kharagpur (2010) and an MBA in Manufacturing and Operations from SPJIMR (2015).