Let’s talk about capability, I don’t mean people skills, I mean the systems, processes and tools which govern and control an enterprise. Conceptually, the objective of integrating a business is simple; integrated business planning aims to align the financial plan, demand plan and supply plan (‘align’ not necessarily meaning ‘make the same’). Business planning is predicated on the capability to facilitate change and steer the business to a desired destination. If the suite of business management systems are not capable, or have been wired in a way which impedes decisions to follow a desired course there is a significant challenge to integrated planning (over any time horizon).
A financial system (FSoR) which does not define targets allied to the hierarchy of accountability. Demand planning systems which rely entirely on historical sales. MRP and MES configuration which do not provide real time inventory status. Not wanting to get drawn into a detailed discussion of all attributes of operational systems and process, I want to highlight just one; the capability to compare customer orders against a demand plan and, when necessary, take action to constrain inbound orders.
Why is this such a critical capability? It’s the culmination of a multitude of underlying systems, processes and behaviors which win customer respect and secure long-term partnerships. To tell customers, ‘yes…and when’ rather than ‘yes… sometime’. This may be relatively straight-forward for an enterprise with few SKUs and low volume, considerably more challenging for an enterprise with thousands of SKUs and volumes ranging from one to a million (typical for fast-moving-consumer-goods; FMCG). How to configure systems and design processes to substantiate customer orders against the demand plan thereby validating inventory settings, facilitating continuous improvement in demand plan accuracy and winning respect in the industry for reliable delivery against a promise.
It is imperative the ERP system is capable of comparing customer orders against the demand plan, at a similar level of aggregation, calculating anticipated variation (demand plans are always inaccurate) and holding unusually high demand for approval. Planning systems and processes which allow all orders to flow into the supply plan will always be vulnerable to backorders and consequent low service levels. Furthermore the opportunity to drive improvements in demand planning capabilities are lost in the subsequent supply-demand blame game. An alternative is to look for orders which significantly deviate from historical supplied quantities however this fails to facilitate ownership and continuous improvement in demand accuracy as shipped volumes are the consequence of many variables.
Although this capability may be classified as operational and therefore outside the scope of IBP, there is the argument that being in control of order entry and fulfillment brings demonstrable credibility to execution which in turn builds the runway for strategic planning process associated with IBP. Therefore, effective order management, often lost within the myriad of operational processes, is essential in forcing demand plan ownership and accuracy, correctly setting safety stock and providing supply with a definitive demand plan. As importantly, in so many industries where supply is a critical competitive advantage, the ability to manage orders is rapidly becoming a core business building capability.
