Moving from S&OP to IBP

Introduction

Supply chains are inherently fragile, volatile, uncertain, complex, ambiguous and risk prone. In this context, S&OP (Sales and Operations Planning), SIOP (Sales, Inventory and Operations Planning) and S&OE (Sales and Operations Execution) continue to play an important role in the overall planning landscape within supply chain organizations.

Several companies and their logistics and supply chain teams irrespective of their nature, industry and size, practice and deploy the principles and processes related to S&OP tacitly. In my previous article published in the winter 2023 issue of JBF (Journal of Business Forecasting), I touched upon the S&OP steps and their corresponding metrics.

Quick recap of metrics

In the classical and widely used five phase process, the metrics reviewed and discussed are as under:

Product Review

In this phase, metrics related to product phase-in, phase-out, new product launches, time to market are reviewed and discussed. This helps the supply chain planner to update the material master accordingly and keep track of products that need to be excluded from the planning cycle.

Demand Review

In this phase, forecasting error metrics, demand performance metrics related to product, geography, distribution channel, key accounts and customer service metrics are reviewed.

Supply Review

The supply review phase focuses on metrics related to overall resource capacities, rough cut capacity planning, capacity requirements planning and daily capacity control.

Pre-S&OP

The pre-S&OP phase focuses on summarizing and depicting the key performance metrics from the previous three phases in addition to the demand and supply plans for the next planning period which is typically the next month and quarter.

S&OP

The final S&OP meeting throws light on product availability during the previous planned period, sales loss metrics, planned vs actual inventory days of cover and overall inventory health.

S&OP Meetings

In the last three decades or so, the meetings usually comprise participants drawn from planning, sourcing & procurement, manufacturing/production operations and sales & marketing functions. The meetings and corresponding discussions take place in line with the five phases/steps mentioned earlier. The ultimate objective is to balance and align the demand and supply plans and corresponding numbers. In my view, the logistics team (warehouse and transport planning & operations) should also be an integral part of these meetings.

In the last 4-5 years, particularly post the covid’19 pandemic, an increasing need has been felt to assess the impact of operational decisions on a firm’s financial performance. Here is where the critical role of IBP (Integrated Business Planning) comes into the picture.

Moving towards IBP

The shift from the erstwhile S&OP to IBP would need certain modifications and adjustments.

The table below provides a comparative snapshot of the core characteristics that impact the S&OP and IBP landscape.

It is highly recommended to further build upon the basic S&OP philosophy that a firm has adopted and implemented already. This approach, in my opinion would facilitate a seamless and smooth transition towards IBP. Also, we need to keep in mind that the time frame for these transitions and related modifications would depend on the current level of S&OP maturity of the supply chain organization within a firm.

The key characteristics have been listed in the table below.

Execution challenges

As is the case with any change management related initiative, this exercise should be viewed and executed akin to a mini-project. There is bound to be resistance at the start, as the logistics and supply chain teams are normally comfortable with the status quo.

When looked at from a people, process, policy and systems perspective, the most challenging component to address is ‘people’. The other elements could be tackled relatively more easily. This is not to suggest that execution bottlenecks won’t crop up while addressing issues related to process and systems management.

Key success factors

The key success factors from a P-P-S (people-process-system) lens have been highlighted below. These proposed steps/approaches are not comprehensive and one can always fine-tune and add on to the thoughts/suggestions depending on the type of industry/sector and the relative complexity of the logistics and supply chain operations and corresponding activities.

People

The supply chain head needs to communicate the benefits of the revised structure to the team. Change management tools should be deployed so that the transition to the new way of doing things becomes smoother. Upskilling and reskilling plans should be developed across the board.

Members from the supply chain organization must be chosen to participate and contribute to the journey towards IBP. There is no magic bullet that could be utilized, however a methodical and structured approach would help in the medium to long term.

Moreover, such projects and related initiatives are bound to be met with some resistance and things could go haywire. Here is where the CXOs and the CSCO (Chief Supply Chain Officer) have a critical role to play. Needless to say that inter-functional and departmental collaboration would eventually prove to be critical to the success of the program.

Process

The first step in this area would be to carry out a thorough and end to end assessment of the existing processes, policies and SOPs (Standard Operating Procedures) across the end to end value chain. This should not take more than a couple of weeks. All the findings and observations should be documented and discussed among the supply chain team members. Other departments should also be roped in as required. The key point to note here is that existing processes should be revamped/redesigned instead of re-inventing the wheel and starting from scratch unless absolutely necessary.

Systems

When considering selection and deployment of systems and software tools - scenario planning, and ‘what-if’ analyses should top the list of capabilities. They help understand and interpret the impact of operational decisions on financial outcomes such as sales turnover, gross and net margins, ROCE (Return on Capital Employed), ROA (Return on Assets), inventory turns and working capital management.

Here again, an existing system can be refined or modified to enable the above capabilities. The tool deployed should be able to generate supply chain performance reports and corresponding dashboards covering upstream, midstream and downstream operations.

To summarize and conclude

There is no ‘one size fits all’ approach and solution during the journey from S&OP to IBP. Such transitions should be treated as ‘mini-projects’. The timeframes would vary depending upon the industry, products and service offered, supply chain complexity and organization readiness.

‘People’ and ‘change management’ come first in the pecking order. Process and system assessments should always come later. Finally, the critical role played by the top management should never be overlooked or undermined.

A few important questions to be asked and deliberated upon:

• Why are we doing this transition?
• What are the operational and business benefits?
• Can we continue with our existing S&OP, SIOP and SOE? For how long?
• What would be the financial impact and benefits of our mini-project?
• What are the pros and cons when we migrate to a new way of doing things?
• What are the potential risks during the transition phase that we need to be mindful of? ?
• What are the new competencies and skills that the supply chain and logistics team requires?
• Do we need to restructure our existing processes and policies?
• Are the existing tools and systems adequate and capable enough to handle the requirements of IBP?

Do watch out for my 'monthly news and articles' on 'supply chain and logistics management'.