Ed. Note: In today’s guest post, Eric Deutsch, principal with Oliver Wight consulting, provides some insights into their method of sales and operations planning, answering some of our most-asked questions. For more from Eric, see our June webinar, Developing Corporate Muscle Memory with IBP
You seem to use the terms S&OP (sales & operations planing) and IBP (integrated business planning) interchangeably. What is the difference in your minds? Is there a difference?
There is a difference, and it mainly has to do with process maturity. An integrated business planning process (IBP) shares fundamental elements with sales and operations planning (S&OP) from its evolution (e.g. Demand/Supply/Inventory balancing, disciplined monthly process, etc.), but has evolved to include more robust financial integration, more robust and routine scenario planning, integration with supply chain partners, and integrated strategic planning over a longer horizon. George Palmatier, innovator and pioneer in IBP, says it simply: “A major difference between S&OP and IBP from a leadership/management perspective is that the process is the primary process used to run the business. This includes strategic management dealing with the essence of the business. It is not just a supply chain management process.” We often use S&OP and IBP interchangeably when we are speaking to audiences at mixed levels of process maturity, especially when we are speaking to commonalities between the two.
How successfully have you seen managers (mid-level up) internally drive S&OP (sales & operations planning) development. Specifically, can they influence and condition senior leadership?
Typically this is not successful. IBP, when done well, is THE WAY that the senior leadership team has chosen to run the business. Without the full understanding, commitment, and participation from senior leadership, the process typically stalls at near-term demand/supply balancing and problem solving (i.e. 1980′s S&OP). Companies often stall there because they are receiving “some benefits” from the process and are content with those benefits on the effort to really become the best, which takes leadership direction, removal of obstacles, resolving conflicts, and a focus further out in the horizon. Furthermore, there are significant changes in behaviors that go along with an S&OP implementation, often at both the senior leadership and middle management levels. Successful change management requires, among other things, champion(s) of the process at the Executive level combined with education and coaching from experienced practitioners.
What are the challenges to implementing IBP in a pure ETO (engineer-to-order) environment?
The fundamental principles of IBP hold true in any business environment, but the language and techniques change from business to business. In a pure ETO (engineer-to-order) environment, the Product Management Review is focused on changes in offerings or families/groupings of project types. The Demand Review will be focused on future order bookings for the families of projects. The Supply Review assesses capability in terms of capacity, not inventory, using bills of resources, etc. A distinct challenge for ETO companies is to have the right resources (i.e. skilled engineers) available at the right time. It’s typically not as easy to quickly adjust the amount of available engineers as it is to adjust inventory levels or add shifts. This takes good forward visibility that, at a minimum, must extend past the lead time required for your company to add/change those valuable resources and to plan financially (we recommend a minimum of 24mos in IBP). On the flip side, the advantage that ETO companies have is that you’re not building to a variable forecast and risking inventory investments. Once the orders come through, you know exactly what needs to be done. In short, there are different languages and different techniques, but the IBP process has been implemented in many types of companies, from fast- moving consumer packaged goods to companies with a single, multi-million dollar ETO product. The same general principles apply, with some coaching on techniques specific to ETO environments.