How do you know if your IBP Process is working

For many organizations reflecting upon their IBP performance, demand planning is considered as the primary indicator on determining a successful IBP process. A demand plan that achieves utopia by perfectly aligning demand with supply and when this does not occur it must be a demand planning issue and therefore IBP must be broken.  Conceptually we can all accept that there is no such thing as a perfect forecast, in practice however many organizations expect this elusive perfection and as an IBP practitioner, I am often besieged by supply chain leaders on the failures of supply chain performance as a result of inadequate demand planning. Although, there are always opportunities to improve demand planning, supply chain’s capability is often overlooked or rarely discussed.   Some common issues in Supply chain that are often ignored when evaluating IBP include the following:

1. No ability to understand capacity constraints over the longer horizon. In the IBP process the supply review is required to evaluate the demand plan over the long horizon and identify constraints (both internal and external) and then resolve those constraints. This can be done by increasing capacity, building ahead etc.  Some organizations do this well, others don’t have any ability to highlight a future constraint and therefore wait for back orders to arise.  This type of business will more typically be focused on back orders and last month’s performance and are frequently so consumed with short term issues that reflecting on the future is seen as less important.
2. Lack of a realistic supply planning process that effectively responds to the demand plan. In some organizations they essentially use the demand plan as the supply plan and when delivery is not met then it is of course demand planning’s fault.   The supply plan does not equal the demand plan as the supply plan needs to consider variation in the demand, customer order patterns, inventory on hand, capacity constraints etc.  The litmus test is what is finance using to craft their financial forecast?  If your organization is running large back orders, finance is likely looking at the demand plan, number of back orders and providing an estimate for the forecast.  If the supply chain organization had a realistic and achievable supply plan, then finance should be able to financialize the supply plan, if finance can’t use it then there might be something wrong with your supply planning process.
3. In some organizations, supply chain insists on demand planning at too low of a level. SKU level demand plan from sales and marketing is likely to have the least level of accuracy and result in increased inventory.  In the IBP process the demand plan needs to be at as high level as possible to facilitate rough cut capacity planning and supply chain at month 4 to disaggregate using history.

These are just a few common issues where supply chain can negatively impact the IBP process that are often overlooked.  It’s important to not lose sight of what IBP is meant to do for an organization, demand planning is an important element but not the measure of success.  IBP is a monthly business management process within a specific business which aligns and optimized core business plans, (Product, commercial Demand, and supply chain) to deliver the business strategies over the IBP planning horizon.  The true test of IBP, are we delivering on the business’ ambition.