Companies possess smart plans and also smart people. However, there tends to be a gap between the intended outcome and general expectations. This gap can confuse people, waste resources, and even lead to unmet objectives. Integrated Business Planning (IBP) is the leading process that addresses this gap. It works as a connector between your top-level strategy and your operational activities to ensure that all parts of your business are working cohesively to achieve your objectives.
IBP is one of the few planning and operational methods that can be used. It focuses on all parts of a company. It brings together all of the departments, including company finance, sales, marketing, and supply chains, that have been siloed. When all parts are working towards a common goal, the outcome can be better than any single part could produce. It also allows leadership to create better plans and achieve them faster. It brings your operational objectives down from the shelf and puts them into action.
What Is Integrated Business Planning?
Integrated business planning, or IBP, is a contemporary business management method that guides a company to align its operations to meet its desired goals. Think of it like a business’s central nervous system. IBP gathers data from all the different parts of the business to properly coordinate the entire system.
The company’s market share and new product goals should coordinate the company’s activities. IBP formalizes this process. It involves a series of meetings where representatives from various functions of the business come together to examine the current state of the organization, identify potential future gaps, and make a plan to close the identified gaps collaboratively.
Cross-functional alignment of the sales goals, production plan, and financial objectives is achieved. The organization moves from traditional siloed planning activities to unified planning throughout the business.
Why IBP Is More Than Just Advanced S&OP
Sales and Operations Planning (S&OP) is an excellent process for balancing supply and demand for a time horizon of 3 to 18 months. S&OP primarily focuses on supply/demand matching in terms of production capability and customer demand.
Integrated Business Planning (IBP) evolves from S&OP by taking the fundamental principle of balancing supply and demand and enhancing it. IBP integrates operational planning with the company’s financial and strategic objectives. While S&OP is concerned with the question, “Can we meet the demand?” IBP focuses on answering, “Is demand fulfillment aligned with our strategic and financial objectives, and is it the most profitable opportunity?”
IBP is finance-centric. Every decision is taken and evaluated based on revenue, cost, and profit impact. IBP looks beyond the horizon, anywhere from 24 months and beyond, and ensures current operational decisions and activities are aligned with the desired future state of the organization. This is what qualifies IBP as a true business management process and not just a supply chain process.
Benefits of Integrated Business Planning
Implementing IBP in any company will create a more efficient, well-coordinated, and ultimately more profitable company.
Greater Financial Visibility and Control
Financial planning is most effective when it is integrated with the day-to-day decision-making process. For example, when the sales team projects revenue and profit, a separate process is not undertaken to consider the financing involved. Similarly, in operations, when the production levels are proposed to be altered, the cost and profit effect is evident.
This perspective is continuously maintained, and the leaders are able to view the impact on the profit and loss statement as a result of their decisions. This ultimately leads to better profit and loss control, improved resource allocation, and increased profitability.
Stronger Alignment Across Departments
The lack of collaboration across departments is one of the most critical barriers to success. IBP eliminates this barrier. It compels the sales, marketing, operations, and finance teams to operate on the same plan. This leads to more effective collaboration, as all team members know how their contribution impacts the overall success of the firm, and reduces interdepartmental conflicts.
Faster and Smarter Decision Making
The traditional way of making major decisions involves a lot of time and collaboration with multiple departments, and meetings need to be held to sort through different opinions and pieces of information. IBP simplifies this. It works with a ‘single source of truth’ that contains information that is up to date and data that all employees in the organization believe to be accurate. When using IBP data, employees are also able to make decisions in a timely manner and respond quickly to changes in the market, customer demands, and unforeseen disruptions.
A Clear Link Between Strategy and Daily Work
With the day-to-day activities that employees are performing, the company’s strategy may seem to be very distant. However, IBP makes the strategy feel close. It adjusts the framework of the various goals within the organization to different actions and targets for each specific department. As an illustration, within the IBP process, a strategy to be a market leader in innovation is translated into launching new products.
Employees will be able to view the specific project that they are working on as an activity that will also contribute to the organization’s most significant goals. This link will ensure that employee engagement is purchased and that the focus is on what actually holds value.
Many companies create a detailed business growth plan, but without an integrated system like IBP, that plan often stays on paper instead of driving daily decisions.
The Five Steps of the IBP Process
The Integrated Business Planning process is designed to be a monthly cycle with a flow where each step leads to the next, with the final step being a leadership meeting where pivotal decisions happen.
- Product and Portfolio Review: The first step keeps a pulse on the health of the portfolio of products. The teams look over new product introductions, check how the products are performing, and decide on obsolescence. The objective is to assess the mix of products and check their alignment with the business strategy.
- Demand Review: The planning team incorporates the new information on customer buying plans into the previous statistical forecast to give a demand plan. The demand plan also takes into account information from sales and marketing teams on promotions, competitor activities, and trends in the market, making it a demand consensus plan.
- Supply Review: The demand plan is the starting point for the supply team. The team looks over the structure to meet the demand and assesses capacity, inventory, and logistics. The team identifies gaps and creates plans to address them, all within a budget.
- Integrated Reconciliation: This meeting is extremely important. The leaders of finance, demand, and supply align. They look at all the discrepancies between the demand plan and the supply plan. Moreover, they look at the different financial impacts of each scenario. They draft the main problems and suggestions for the last executives’ decisions.
This structured evaluation also supports stronger risk management frameworks, as leaders can assess financial and operational risks before making final decisions. - Executive Business Review: In the last phase, the highest-ranking leaders of the company assemble. They analyze the integrated plan, the gaps, and the suggestions from reconciliation. They take the final calls on how to close the gaps and maximize the plan. These calls dictate the company’s priorities for the upcoming month.
Getting Started with Integrated Business Planning
IBP is not a quick-fix solution to your problems. Implementing IBP will take time and effort from your organization to make changes at an operational level. Focus on explaining parts of the process to the rest of your leadership team and securing an executive’s sponsorship of the change management process.
Look at the planning processes you already have in the organization. You may already have parts of S&OP as processes in your planning. Therefore, you will have some strengths to build from. Build from your strengths by involving your finance team early in operational planning and bringing in the financial implications of the operational plans.
Frequently Asked Questions
Q. What is Integrated Business Planning trying to achieve?
The objective of integrated business planning is to align the financial, operational, and commercial plans of the organization with its business strategy in order to enhance value.
Q. What distinguishes IBP from S&OP?
IBP is S&OP’s next step and, in particular, integrates financial planning and makes operational plans tied to the strategy horizon of the business.
Q. Which functions participate in IBP?
The critical functions are executive management, finance, sales, marketing, supply chain, and operations. There may be some involvement from product development and human resources.
Q. What is the frequency of the IBP cycle?
The IBP process typically runs on a monthly cycle, which provides the business with the ability to review historical performance and reallocate plans.
Q. What are the challenges in coping with IBP?
The largest challenges are building the necessary cultural changes, which are inclusive of collaborative work in formerly siloed departments.
