After 8 years implementing, coaching businesses and designing Integrated Business Planning (IBP) processes I have accumulated a long list of common challenges that often plague IBP deployments. To understand all the challenges it is important to understand the intent and purpose of IBP.
To contextualize how IBP should work in a business it is best to illustrate with an example. Let say you want to grow your business from $500M to $1B in 3 years while maintaining a 15% EBITDA. This is the focus to which the IBP process is centered for all the 5 steps, product portfolio review, commercial demand review, supply chain review, Integrated reconciliation review and Management business review. Each step review is contextualized based on the business ambition to achieve $1B in revenue growth with the following example of questions:
- Product Portfolio review – Do we have enough product or service to reach our business ambition? How will technology change or impact our business? What is our product plan over the long horizon? Do we have any constraints? What are our Cap expenses and engineering expenses over the 3-year horizon?
- Commercial demand review – Not just about the numbers but understanding the consequences of the unconstrained demand plan in terms of, do we have enough sales to achieve the business ambition? Should we enter or exit selected markets? Do we have any gaps in terms of profitability, margins, volumes? What new selling opportunities exist? Do we need to adjust pricing?
- Supply Chain review – Do we have any constraints to meeting the unconstrained demand plan either externally or internally over the 3 -year horizon? Are we achieving our inventory and COGs targets?
- Integrated reconciliation review – Reconciling the 3 core steps with a rolling updated 3-year profit and loss statement for the purpose of understanding gaps to the business ambition. Review scenario plans to address gaps and agree on recommendations for the MBR.
- Management business review- Drive business ambition and deliver business commitments through decisions to close gaps. Are we on the trajectory to achieve the $1B ambition?
IBP is a monthly cadence for the business to effectively align plans, understand gaps to the business ambitions and to contrive appropriate decisions to maintain that trajectory.
So what goes wrong? Here are a few very common challenges in implementing IBP
- Business strategic ambition is not clearly defined or it is something that changes every year. If the business does not have this ambition stated clearly then the IBP does not have focal point to center the business with to facilitate gap closing actions.
- The business is very short-term focus, (typically a one-year horizon) this prevents the business from understanding the impact on long term ambitions with short term decisions.
- Supporting process capability is often overstated or not fully understood that prevents the business from trusting the information in the IBP process to answer the right questions. For example: If the demand planning process is not trusted than any discussion on the commercial consequences to a long-term strategic growth target is just not done and instead the commercial demand review becomes a debate on the numbers missing the true intent. Or supply chain does not have an effective supply planning process where constraints over a longer horizon are identified. This prevents the business from making the right reconciliation decisions and perpetuates mistrust in supply chain’s ability to execute demand plan for growth.
- The IBP process is viewed as a supply chain process and not a business process. In this case the business ambition and gap closing is completely missed and the focus of the process is centered around a supply chain lens and not a business perspective.
These are just a few challenges I have experienced among the many deployments I have been involved in. Would you like to learn more? Leave a comment.
