Stripping back all the frills and thrills you are left with the core purpose of IBP; to converge, align and integrate the financial plan, demand plan and supply plan. So, what happens when the supply plan changes daily, that is, there really is no static supply plan? However absurd this might sound, it’s not as uncommon as perhaps you might think. For business with large SKU proliferation, servicing a large distribution network or customer base, typical of FMCG organizations or OEM aftermarket channels, it is not unusual to allow orders to flow directly into the production planning processes. Perhaps, there are cursory checks performed by an intermediatory function to validate SKUs have not been obsoleted or delivery request dates are within published leadtime however, the vast majority of orders are routed and released directly to production planning. I refer to this design as ‘single level planning’ and it means supply plans evolve as orders are received. Ah, you say, that’s where ‘make to forecast’ helps as it provides supply with a forward looking view of demand to drive manufacturing plans. However, from the one aspect of the demand plan we can depend, inaccuracies, there will inevitably be uncertainty in production planning and scheduling. The consequence of these characteristics is the necessity to maintain a dynamic supply plan, or alternatively build inventory to hedge for all SKU eventualities, probably not a good scheme if the objective is to turn inventory at double digits and avoid significant write-offs. So how to drive adherence to a plan when daily variation is almost inevitable?
Return to the original core purpose of IBP; to converge, align and integrate the financial plan, demand plan and supply, yet the supply plan is permanently changing. A more sophisticated option requires evaluating normal variation in both the demand plan and supply plan, prescriptive analysis provides a means to understand the alignment between the two however, this is a not a core competence you would expect to see in most planners’ toolbox, furthermore monthly SKU by SKU analysis is practically impossible. Recalling the differentiation between S&OP and IBP, operational challenges associated with supply plan attainment fall squarely into the S&OP horizon. From an IBP perspective, measuring supply plan attainment only validates the financial plan thereby confirming the mid term projection. Introducing the concept of a ‘pseudo supply plan’, a formal commitment by Supply to maintain or continuously improve supply performance metrics over a specific time horizon, pushes detailed supply planning firmly into the S&OP space. That’s not to say supply planning challenges are ignored but it prevents IBP being bogged down or derailed because of operational supply capabilities and accountabilities. Just as for Portfolio and Demand, the pseudo supply plan is predicated on assumptions, expectations, risks, and opportunities, all of which can be approximately quantified, forming the basis of the monthly IBP supply review.
