What is integrated business planning (IBP)?

Mục Lục

Integrated Business Planning (IBP) is the business planning process that extends the principles of Sales and Operations Planning (S&OP) throughout the value chain. It is to create a bridge between strategy and execution. IBP is a next step for companies that already have an S&OP process in place. It is a next step because it integrates the Financial Planning Cycle. The financial function will become part of this cross-functional process. In most companies the business owner of this process will change as well.

Similarities between IBP and S&OP

Integrated Business Planning and Sales and Operations Planning have several similarities between them. These are as follows:

Monthly process
Cross-functional approach
Driven by business strategy
Tactical planning at an aggregated level

Differences between IBP and S&OP

However, Integrated Business Planning includes content on top of Sales and Operations Planning:

Financial function involved
Integration financial planning cycle, like financial budget and forecast
From volume planning to volume and value planning
It drives the overall business performance

How does the IBP process work?

Companies have an annual budget cycle, based on their strategic plans and targets. The annual budget projects planned revenues and costs for the year.

In traditional S&OP companies go through a monthly process during which they project for the next 6 to 24 months where demand will go, and what resources need to be available to meet that demand. When gaps are discovered between expected demand and available resources looking this far ahead into the future, this often provides ample time to balance supply and demand, so that by the time real customer orders are submitted, demand can be met.

Suppose that during this monthly S&OP cycle, one would also look 6 to 24 months into the future where expected revenues and costs will go. And how these financial figures would look compared to the annually budgeted revenues and cost. Most likely gaps will occur here as well between the annually budgeted numbers and the monthly updated numbers. Actions could then be taken to address these gaps. Integrating a financial view. When this happens, we actually practice IBP. In IBP the relationship with the financial performance management cycle is very important. Budget and financial forecasting must be aligned and integrated with the steps from the original S&OP cycle.

The challenges of IBP

IBP is a next step in maturity after companies have implemented a proper S&OP process. Integrating finance sounds simple but is not easy at all. People from the physical supply chain side of the business, often speak a different language than people who operate on the financial side. Supply chain people often speak about units, products, and product families, whereas financial people often speak about money, currencies, etc. That also causes both functional areas to be assessed differently with the KPIs that they use. This calls for other participants in the IBP process, compared to participants in the S&OP process.

The 8 common pitfalls when implementing IBP

Be aware of the following risks related to integrated business planning:

Lack of commitment in some of the needed departments
If the S&OP process was not yet implemented or stable, IBP is too big of a step
Targets and forecasts are mixed
Information not available
Discussion about numbers instead of the underlying assumptions
Discussing only short horizon instead of midterm
Too granular plans and discussions
Thorough understanding of trade-offs is lacking

Want to know more? Experience IBP!

Because IBP is simple but not easy, a real-life experience creates enormous value for learning about this topic. The participants will feel and recognize the important issues in this process. In our business simulation game, The Cool Connection, we have incorporated the most important functions and decisions.

In this business game the team is forced to make a yearly financial budget and quarterly forecasts. The objective is to close the gaps between prediction (the budget and forecasts) on one hand and attained performance on the other. The best performing teams are both profitable and predictable at the same time. In business game The Cool Connection the team is almost experiencing a real-life IBP process.

Besides our business games, you can learn more in our articles about topics such as Total Cost of Ownership (TCO), strategic alignment and external alignment and collaboration.