Integrated Business Planning

MANUFACTURING AND
WHOLESALE DISTRIBUTION INSIGHTS
Forward Thinking Thought Leadership
Integrated Business Planning: What Is IBP, and Why Do I Need It?
Integrated business planning (IBP)—an advanced form of the
much-heralded sales and operations planning (S&OP) process—
is one of the most performance-enhancing management practices
a company can adopt to dramatically improve top-line growth.
In fact, according to the Aberdeen Group, a research and
benchmarking organization, “best-in-class” corporations
wouldn’t consider running their businesses without an IBP
strategy in place.
So what is IBP, and why has it attracted such buzz? Put succinctly,
IBP is an executive planning and decision-making process that
helps manufacturing, wholesale distribution, and consumer
products companies maximize performance and profitability,
reduce supply chain operating costs, manage demand and
supply volatility, balance inventory levels, improve return on
investment (ROI) and company value, and enhance customer
satisfaction (see chart below).
Benefits of Integrated Business Planning
Forecast Error Reduction
20 - 25%
SKU Rationalization
10 - 20%
Inventory Reduction
5 - 10%
Inventory Turns Increase
5 - 10%
Service-Level Increase
5 - 10%
Top-Line Revenue Increase
2 - 5%
Source: IBM
IBP links strategic planning with day-to-day planning and
implementation, aligning sales and operations activities in order
to balance demand and supply to better achieve corporate
objectives. IBP connects financial planning and analysis with
these activities, so that budgets and financial forecasts are
not developed in a disconnected silo, far removed from
everyday activity.
IBP: The Basics
To understand IBP, it is important to know why it is necessary. As
the Aberdeen Group reports, reducing supply chain costs and
minimizing volatility through tighter integration of demand and
supply are consistently top priorities for corporate executives.
Tighter integration means having the right product available at
the right time to take advantage of sales opportunities while
being able to react quickly to decreases in demand in order to
reduce excess inventory.
CohnReznick is an independent
member of Nexia International
Case Study: Hard Benefits of IBP
Recently, we helped our client, the manufacturer of several brands
of luxury personal care products, develop and implement an IBP
process to overcome several challenges as it furthered plans to
expand into new markets. The challenges were many and included:
• Inventory problems, including low inventory turns for some SKU
items as well as a need to improve new product planning
capabilities, which had an impact on the timely introduction of
new products along one brand line
• Issues related to the complete launch of new product families
related to another brand, focusing again on new product
planning/timely introductions of products
• The need to improve customer service levels/on-time customer
fill rates as well as collection management (rationalizing
product lines and focusing on top-selling SKUs) on a specific brand
• The need to improve supply/material plans and vendor
capacity planning limitations related to yet another brand
We embarked on our assignment by initiating a pilot IBP initiative
focusing on one family of products, something we recommend to
get everyone comfortable and on board with the process. The pilot
unfolded in typical IBP fashion. Key stakeholders were identified and
assigned roles. In step 1, relevant information was gathered and
the product portfolio review was completed, including plans for
new product introductions and phase-outs. This was followed by
step 2, the creation of the demand plan. In step 3, the corresponding
supply plan was developed. In step 4, both plans were reconciled
at the IBP team-member level, followed by the meeting of senior
management, where the IBP was approved and the next steps—
including a plan to implement IBP enterprise-wide—was developed.
Six months following launch of the pilot project, results were
already being seen. In the most recent plan, inventory is expected
to decrease by 25% over the next 18 months for the product family
subject to the pilot IBP, which had been experiencing low inventory
turns for some SKUs. The client also saw on-time fill rates for another
product brand improve by 15% over a five-month period, moving
from 82% to 97%. While hard numbers are not in yet, anecdotally,
improvements for new product introductions also are being seen
across all brands as compared to the company’s historical
performance.
cohnreznick.com
No one can predict the future, but everyone can
prepare for it. IBP helps companies do that. IBP is
essentially a long-term collaborative planning process,
in which forecasts are created and then evaluated and
continuously refreshed to align demand and supply by
integrating tactical and strategic planning.
Creating the Plan: Step-by-Step
1
Gather Information
The planning work is done by an executive decisionmaking team comprising senior members of various
organizational units—typically from marketing, sales,
product development, planning and procurement,
production and operations, distribution, warehouse and
logistics, and finance. This team collaboratively creates
a unified “game plan” for operations and finance. The
plan is measured against performance at least monthly
to identify gaps, take corrective action, and make
longer-term decisions while there is still time to plan,
ensuring the company stays on course to achieve both
short-term and longer-term strategic objectives.
Is IBP Right for You?
An organization usually experiences some degree of pain
before it embraces an IBP strategy. This “pain” can be
heard in the following questions, which were asked by
one of our IBP clients, a manufacturer and wholesale
distributor of consumer products:
The IBP process is launched by gathering data and new
information. This information and the product portfolio is
reviewed to validate new product introductions and
phase-outs over the planning cycle, which typically
spans a rolling time period of 12-24 months.
2
Forecasted demand is developed at an aggregate
product family, volume, and revenue level and converted
into a formal request for product known as the demand
plan. This plan is driven by information on sell-through,
ordering patterns, field intelligence, competitive intelligence,
new product introductions, and promotional campaigns,
etc. Demand planning is critical to the IBP process. AMR
Research (now part of Gartner) found that companies best
at demand planning average:
• 15% less inventory
• 35% shorter cash-to-cash cycle times
• 17% higher perfect order fulfillment • 1/10th of the stock-outs of their peers
3
• How can we reduce inventory levels and improve
our cash flow to be more in line with industry best
practices?
• What steps do we need to take to increase customer
service levels/on-time fill rates?
• Why are we often in expediting mode to address
customer needs? What can we do to establish more
stable delivery and at the same time reduce time to
market and delivery lead times?
• Are we properly managing our product lifecycle? Are
new products being introduced on time, and are we
closely managing our product collection?
• How can we work together to better plan and
manage our demand with supply?
Other IBP triggers include the proliferation of organizational
silos—departments or business units operating independently
of each other and often misaligned with corporate
strategy; constantly changing, unpredictable production
schedules; inaccurate financial forecasts, with high
variances between budget and actual results; and
consistently missing revenue and earnings targets.
Create SUPPLY PLAN
Develop supply plan, synchronizing demand and supply.
Operations commits necessary resources, including
capacity, required to meet requested demand.
Representatives from purchasing, inventory management,
production, warehousing, logistics, and human resources,
etc., provide input as to whether constraints exist regarding
capacity, machinery, people, or suppliers, etc. A supply
plan, focused on constraint resolution, is developed and
translated to a cost forecast.
• How do we deal with SKU proliferation and/or excess
obsolete inventory due to poor product phase-out
planning?
• Why do we always seem to have so much of the
wrong inventory?
REVIEW DEMAND
4
conduct PRE-MEETING/
EXECUTIVE MEETING
The monthly cycle concludes with a pre-meeting of IBP
participants, who reconcile the demand and supply plans
and make recommendations to executive management,
which formally takes action on the plan, closing out
the monthly cycle.
5
Integrate with the Financial Forecast
Create a profit-optimized supply-demand balanced
plan by integrating the plan with the organization’s
financial forecast.
As these steps illustrate, IBP constitutes a continuous process of planning and
reconciliation, leading to the validation and approval of a 12- to 24-month sales
and operating plan–refreshed monthly—that is meant to guide how each function within
the organization operates. In essence, IBP makes the annual strategic planning
and budgeting process obsolete.
The Role Finance Plays
While many corporate S&OP initiatives focus the spotlight on the
operations role, the importance of integrating finance into the
process to create a profit-optimized supply-demand balanced plan
cannot be understated. In fact, this is one of the primary differences
between IBP and many of the S&OP processes seen in practice.
Indeed, in its survey of 220 companies examining their S&OP initiatives,
the Aberdeen Group identified best-in-class companies as
organizations that successfully integrated finance with supply
and demand, something “average” and “laggard” companies
fail to do.
In correlation to this finding, one director of finance for a large
consumer durables company told the Aberdeen Group that the
company’s revenue forecasting process, once occurring yearly,
now takes place on a monthly basis in order to take advantage of
data streaming from the IBP plan. This initiative requires the
conversion of data in order to express the plan in terms of revenue
and margin rather than operational volumes, but as the Aberdeen
Group noted, it is an exercise most best-in-class companies are
doing in order to engage the financial organization in the IBP
process and make maximum use of this valuable information.
Contact
For more information on Integrated Business Planning, please
contact John P. Macrae, CLSSS, CSSGB, principal with
CohnReznick Advisory Group and accounting and financial
transformation service area leader at 732-380-8629 or
[email protected] or Alan Wolfson, CPA, Partner and
Manufacturing and Wholesale Distribution Industry Practice Leader
at 646-254-7416 or [email protected].
This is the first article in a five-part series, “How Manufacturing
and Wholesale Distribution Companies Can Maximize
Performance and Profitability,” prepared by CohnReznick
Advisory Group and the Firm’s Manufacturing and Wholesale
Distribution Industry Practice.
What Does CohnReznick Think?
IBP can very effectively align stakeholders across an
organization and help them work toward meeting customer
demand and achieving corporate performance and
profitability goals. It relegates the typical strategic planning
and annual budgeting “events” to relics of the past by building
them into the monthly IBP planning cycle. Critical to the
success of any IBP initiative, however, will be the buy-in of
all stakeholders. Senior leaders must “walk the talk,” and
everyone must not only understand their roles in the process,
but also the value of the process itself. Successful IBP requires
alignment of roles, processes, supporting data, technology,
and a collaborative culture. For most organizations,
implementation will depend heavily on a change-management
component. Equally important is a commitment from the top
down to ensure that the process occurs on at least a monthly
basis. To be successful, IBP must be considered as vital and
routine an activity as completing the monthly financial close.
About CohnReznick
With origins dating back to 1919, CohnReznick LLP is the 10th largest accounting, tax, and advisory firm in the United States, combining the
resources and technical expertise of a national firm with the hands-on, entrepreneurial approach that today's dynamic business
environment demands. CohnReznick serves a large number of diverse industries and offers specialized services for Fortune 1000 companies,
owner-managed firms, international enterprises, government agencies, not-for-profit organizations, and other key market sectors.
Headquartered in New York, NY, CohnReznick serves its clients with more than 280 partners, 2,500 employees, and 26 offices. The Firm is a
member of Nexia International, a global network of independent accountancy, tax, and business advisors. For more information, visit
www.cohnreznick.com.
© 2014 CohnReznick LLP
This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information
contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or
completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all
responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any
decision based on it.

Download Report