“We have implemented Integrated Business Planning (IBP) but our performance doesn’t seem to be improving, why is it not working?” This is a common frustration for many organizations that have embarked on the journey of IBP to obtain this miraculous alignment between supply and demand only to be left with minimal performance improvement. In the early days of an IBP implementation the focus is hyperinflated on the business’s ability to demand plan within reasonable level of accuracy and eliminating bias, however determining the reasonable level of accuracy can often be subjective. A supply chain manager that expects 98% accuracy in the demand plan is bound to be disappointed. Many organizations began their IBP journey under the supply chain umbrella which places supply chain related issues as the fundamental drivers of the success or failure of the entire IBP process that often allows supply chain to continue with rose tinted glasses on the fundamental issues in supply chain. A few common potential issues in supply chain include:
- Incomplete supply chain fulfillment strategies for the different demand profiles. Demand plan capability often varies market to market with some capable with a +/- 10% variation and some only at +/-40%. Supply chain will often establish a generic 10% surge capacity and cap it there. For some markets this may be ok but others clearly will receive poor performance. Supply chain needs to recognize that demand plan performance will vary and establish supply chain models to respond to the different demand profiles. Supply chain needs to stop chasing for that elusive perfect forecast and accept the normal variation that is the business reality.
- The lack of a supply plan in response to the demand plan. In many systems the demand plan is linked directly into the ERP system with no realistic supply plan. This means that an unconstrained demand plan feeds directly into the ERP and essentially is the supply plan with little to no capacity constraints driving back logs, arrears etc. Or supply will artificially “lower” the demand plan to align with supply constraints or to control inventory resulting in complete misalignment with the sales and marketing demand plans. In the IBP business process supply chain is accountable for creating a supply plan response to the unconstrained demand plan with constraints identified over the IBP horizon. In many organizations, supply chain does not have this capability. This further alienates finance as they may not have a credible way to develop a financial forecast.
- The business owns IBP, not supply chain. Supply chain is subservient to the needs and requirements of the business for long term success. In some organizations the business feels hostage to what supply chain demands. Supply chain sets the rules that the business must manage around. It is important that supply chain understand that they need to respond with what the business needs to win in the market place. Supply chain needs to determine how they can achieve those requirements and identify what it will cost.
The real success of IBP is measured by the ability of the organization to understand the reality of reconciled plans, reflect on current capability and the ability to hold those accountable for the decisions that will enable the organization to achieve their long-term business goals and ambitions.
Debbie, to your points:
1. In certain industries like CPG, we segment new products and promotions from products that are regularly sold. Therefore, we recognise that the precision of demand is lower in the introduction of new products, it should be greater in promotions, and optimal in regular products – with due analysis of cannibalisation between similar products or bases. The above translates into rules of the game for its supply, such as producing or buying the first 3 months of demand for new products, the implementation of quotas for promotions, and quick capacity reviews for equipment that are over 70-80% utilisation. .
2. Supply plans from a demand plan without restrictions are calculated in SAP ERP, for example, through MRP runs in MM (Material Management). And if the company has SAP APO, through its SNP (Supply Network Planning) module. These reflect the lead times of production or delivery, and keep safety stock, if applicable. That supply plan is reflected as production requirements in PP (Production Planning), or PPDS (Production Planning & Detailed Scheduling) if you have APO. It is in this last module, is where the production planner confirms or not the availability of equipment and materials to meet the requirements through production orders after running heuristics. In my experience, a plant is more agile when it has low / medium capacity equipment, it is flexible with the number and rotation of personnel, and raw materials have a short lead time for delivery. This is also reflected in the reduced need to freeze the production schedule in 1 to 2 weeks.
3. Certainly, all areas should focus on actions for the profitable growth of the company, and ensure that the demand plan reflects the consensus between the areas of sales, marketing, supply, and finance. However, IBP’s maturity models clearly show that it is an impossible journey when unwritten rules and functional silos persist. It may be worthy to continue working on integration activities between directors and managers of all areas so that these two points are openly discussed and greater trust is generated among all.
As a final comment, observing how the level of interruptions in demand and supply increase more and more, such as the change in consumption from restaurants to home, online purchases vs brick stores, the supply cut due to jamming in the Suez Canal, the lack of chips for the automotive industry, etc. is a reflection of the need for greater integration and alignment of goals and priorities among work teams now.