Finance in Integrated Business Planning

 “One Integrated Business Plan” is the new reality not just a vision - unlock value of connecting commercial, supply chain with financial planning on SAP IBP & SAC!

Introduction: Covid-19, has forced us to operate in more integrated, more frequent way. Some companies struggle with radically decreased sales, and in order to survive, they need to plan their operations better and focus on generating cash flow. In a typical monthly Sales and Operations Planning (S&OP) process, outcomes are used as an input for financial plans, whereas now companies are forced to plan sales, supply, financials and cash simultaneously and in an integrated way, with better connection to short term activities.

Challenges of the past and present: Managing risks & opportunities in the business has become more complex, requiring processing and interpreting more information & data, stronger alignment between stakeholders, and a shift from monthly and quarterly cycles to more flexible ones.

Solution in the new reality: Integrated Business Planning with embedded financials (Figure 1), helps to address these challenges by:

• Connecting supply chain & operations planning, typically focused on volume and time, with financial planning, typically focused on values e.g. revenue, costs and margins, fin. items
• Aligning cross-functional stakeholders on assumptions for “One Integrated Business Plan” in P&L structure updated in rolling manner
• Considering short term disruptions and impacts on the mid to long term
• Having all relevant data and connected processes deployed on a coherent technology platform to enable sc planning and financial planning integration on SAP technologies (see video https://youtu.be/Xsg40VkOcJc)
• Helping to make business decisions based on P&L impact

Fig.1 Integrated Business Planning with embedded financials is a new reality:

Traditionally volume-based process should be complemented with activities which help to monetize all processes and data streams (refer to Fig. 1) e.g.:

1.   Product planning dates & volume connected to introduction costs, budgets and costs to boosts its sales e.g. samples, marketing spends

2.   Demand plans in volume complemented with gross to net drivers, price tactics & discount planning, other sources of revenue, commercial provisions to calculate full view of net revenue

3.   Supply and distribution plans in volume, hours, kilometers expanded with planning of variable COGS elements based on supply planning engine data, planning fixed costs as additional overheads, planning supply provisions like write offs to end up with full view of COGS. COGS should be complemented with other costs of sales e.g. cost of services.

4.   Connect ,in Integrated reconciliation, product-demand-supply volumes with revenue, costs to propose most profitable scenarios on gross margin level.

5.   Finalize scenario-based P&L for purpose of approval In Management Business Review.

6.   Often prior MBR meeting execute a lean fin. forecasting to calculate financial items, SG&A costs, R&D costs, investments, fin. gain & losses …

In Fig. 1 IBP process steps marked in yellow are connected to strategic / long term planning processes. It helps to develop rolling fin. forecasting process and form a baseline in the budget complemented with target setting from strategic processes.

When planning the volume and value worlds at once, consider having a fully integrated data model composed of supply chain planning and financial planning & analysis functions. Integrated data model helps you to better understand the impact of a given situation or the effects of a possible measure. Such an approach was taken in the Integrated Business Planning model shared here enabled SAP tools SAP IBP and SAC (Figure 2).

Fig. 2 Integrated Business Planning model enabled with SAP IBP and SAC :

If we peek under the hood of the SAP IBP and SAC, we will understand its comprehensive planning functionalities, seamless data integration capabilities. We should rather talk about enabling data model from SAP IBP into SAC. People within the business who model risks & opportunities will find themselves intuitively familiar with it combined capabilities of SAP IBP and SAC (see Figure 3).

Fig. 3 SAP IBP + SAC model deployment examples:

We encourage you to look on video where we explain how process integration between supply chain planning and financial planning can be enabled with tech. solution on SAP IBP + SAC: https://youtu.be/Xsg40VkOcJc

Why transform S&OP to IBP ? Why to embed finance function and activities in Integrated Business Planning ?

As learning from transformation projects, significant benefits being reported see Figure 4. Fig. 4 Drivers for change:

Key drivers for the change come from gaps in effectiveness, efficiency, adherence & alignment. Effectiveness improvement come from deployed process change, efficiency mostly from implemented technology & automation and finally degree of organizational adherence should be measured as part of alignment KPIs. Tangible benefits can be realized by using a transformation approach which has been successfully deployed in many projects, therefore transformation should cover process changes, accountabilities/roles changes and finally technology enablement e.g. on SAP IBP & SAC.

How you should plan IBP transformation?

Following transformation approach was successfully deployed on e2e IBP, see Figure 5. Fig. 5 IBP approach: Make it real & Make it happen & Make it stick: 

In practical terms, the transformation approach can consists of the following activities:

1.   Map existing meetings and decision-making processes and levels

• Taking inventory of typical decisions / objectives / participants / frequency is a good starting point to decide what can be leveraged in your IBP journey and what can be jettisoned.

2.   Agree on vision “North Star” / degree of financial integration in process, organization/competencies, technology

• Run a set of workshops with senior stakeholders to define a Vision / “North star” of Integrated Business Planning and process steps. Also agree on design principles and fundamentals of the IBP operating model (horizon, characteristics, roles of key decision makers, org. levels on which decisions should be taken and inputs provided)

3.   Leverage the five review meetings framework and connect them to Financial Forecasting

• Backward schedule your IBP review meetings from financial reporting dates (monthly updates and quarterly financial outlook planning), ensure focus of review meetings to consider financial simulations and impact, re-align existing meetings to new framework.
• Build P&L trough activities in IBP enabling processes not just review meetings e.g. monetization of supply costs

4.   Connect short term weekly routines with IBP

• Establish connector role and process integration between short term planning and monthly IBP process to enable escalations/cascading of decisions between processes.

5.   Re-define financial controllers’ role and activities in IBP review meetings

• Ensure controllers participate and contribute in the five process review meetings by addressing required questions, capture assumptions to align with cross-functional stakeholders on financial impact. Financial controllers should own the integrated reconciliation step.

6.   Consider changing ownership of the IBP process from Supply Chain to Business Management and/or Finance

• Integrated Business Planning should no longer be considered as a Supply Chain Planning process but as process to manage business. Ownership and sponsorship from management is essential.

7.   Build process and change leads from Supply Chain & Finance to instate a link between supply chain and financial planning on decision making levels

• Establishing leads of the process as whole (business unit/ divisional) and establish leads for each IBP process (to manage "field of play" improvements" in the process-organizational-technology dimensions and keeps community of stakeholders together.

8.   Design the data model and system integration to cover needs from finance

• Ensure that supporting technology provides attributes, key figures, and planning levels to capture inputs from business “on the best insightful level” and build end to end scenarios with full financial impact. Define data integration between relevant systems, ensure data objects are mapped as “master and slave” across the entire e2e process to timely execute IBP process and keep data models coherent.

9.   Build and rollout SAP IBP + SAC technical solution to enable full visibility and impact on P&L from cross-functionally aligned “One Integrated Business Plan”

• Proven methodology, blends program governance and risk management, you will be able to introduce agile concepts into your project and thereby increase the velocity of the project, limit disruptions and decrease the risk for the customer. 

I hope above content will inspire some thoughts.

Best regards

Robert Kepczynski & Vasileios Ieronymakis