“Now, absolutely everyone’s convinced of the value of our new IBP process!” said the IBP manager at a client where we set up an Integrated Business Planning (IBP) process last year. The company is now gaining a competitive edge by making smart choices related to market segments, customer focus, production capacity and inventory management with a six-month horizon plus an estimation for the longer term. “We could never have done this a year ago. Back then, we were spending all our time firefighting and constantly playing catch-up. That could have been our downfall in the current coronavirus situation.”
It’s a familiar story. During this crisis, many companies have gone into survival mode. They are focusing on short-term responsiveness and taking action… and rightly so, of course, because it often really is a battle to survive. In times of crisis, it is indeed crucial to focus on opportunity management – to look for short-term opportunities, options and ways to mitigate risk in terms of supply, demand, production and logistics.
Unfortunately though, in these hectic and uncertain times, many organizations neglect the tactical planning. After all, there is too much uncertainty and no one knows how things will pan out. Besides that, the stress level is so high and there is so much to do that they don’t have time to think further ahead. That is a shame, because – especially at times like these – it is important to not only focus on opportunity management, but also to take an integral look at tactical planning and the financial consequences. Integrated Business Planning enables a company to look between three and 12 months ahead, even during this crisis. Needless to say, the actual horizon varies per market.
Integrated Business Planning calls for a broader view
Working with IBP during a crisis calls for a broader view, because traditional planning and forecasting methodologies are no longer effective enough. Detailed analysis based on historical data alone obviously won’t be enough to win you the battle. It is smarter to analyse the data at a different, higher level of aggregation and then to use it as the basis for scenario planning. This provides new insights into things like market/customer trends, macroeconomic developments, regional risks, capacities and the behaviour of competitors and partners. Based on a number of assumptions you can make some calculations and model various scenarios, which in turn form the basis for better cross-functional decision-making – such as about demand patterns, supply, capacities, inventory, alternatives and working capital.
Significantly better performance
This requires some knowledge and understanding of markets, trends and the capacities, risks and opportunities in your supply chain, of course. But an effective and efficient IBP process is the perfect instrument for that. By providing the right insights into the assumptions that you have used for the scenarios, Sales, Finance, Operations, Supply Chain and Purchasing can help you to make much more well-informed trade-off decisions and the organization can significantly out-perform the competition during the crisis. There are plenty of real-life examples of organizations that prove it. So my message to you is: Integrated Business Planning is now more important than ever!
Jeroen Scheepers, Principal Consultant at Involvation