IBP and S&OP Primer:
Walk-Through / FAQ
Integrated Business Planning (IBP) based on Sales & Operations Planning (S&OP) creates a set of decision-making processes to balance demand and supply, to integrate financial planning and operational planning, and to link high-level strategic plans with day-to-day operations.
Why Do Companies Use S&OP to drive IBP?
Many companies have difficulty establishing a valid game plan for sales, production, procurement, and inventory levels -- and then tying them to day-to-day scheduling and execution. As a result, performance suffers, customer service is poor, production and procurement are inefficient, inventories are too high or too low, or all of the above.
Sales & Operations Planning has emerged as an essential management tool in this age of global operations, increasingly demanding customers, and supply chains that extend half a world away. It's rightfully been called "top management's handle on the business."
What is Executive S&OP?
Some use the terms Executive S&OP and Integrated Business Planning synonymously since both refer to top management's part of the overall set of Sales & Operations Planning processes. It's a tool that enables the top management team to establish in advance the desired levels of customer service, inventory investment, and order lead times - and then manage the business proactively to achieve those targets.
An important point: Executive S&OP is essential to gain the maximum benefits from the other parts of Sales & Operations Planning, the ones that address the details (Master Scheduling, Plant and Supplier Scheduling, Distribution, and other types of detailed replenishment planning).
The results from the monthly Executive S&OP process drive downward to impact directly the day-to-day activities in Sales, Purchasing, Production, and Distribution - and also drive upward, so that the company's Financial Plans can reflect current realities and future plans.
What are the Benefits of Using S&OP?
"Hard" benefits - ones that can be readily measured include:
- higher customer service
- lower finished goods inventories
- more stable production rates
- faster and more controlled new product introductions
- reduced obsolescence
- shorter customer lead times for make-to-order products
"Soft" benefits resulting from Executive S&OP include:
- enhanced teamwork in the executive and mid-management groups
- better decisions with less effort
- one set of numbers, units and dollars, with which to run the business
- a tight linkage between strategic plans and day-to-day activities
- a "window into the future"
Who's Using IBP and S&OP?
Primarily, but not exclusively, companies that make things. Large companies such as Coca-Cola, Caterpillar, Procter & Gamble, Eli Lilly, Dow Chemical, Honeywell, Allied Signal, Pfizer, Newell-Rubbermaid and many more - plus a large and growing number of mid-size and smaller companies.
In addition, S&OP is starting to take hold in retailing and banking, and in companies that produce products of a non-physical nature: product design firms, process engineering organizations, and so forth.