This is the first blog in the series of blogs on IBP for the high tech industry. This blog will be followed by the blogs on the following topics:
- Business capabilities required for an effective IBP
- Why is it important to integrate financial planning with S&OP as part of the IBP?
Technical capabilities required to support IBP
- and finally a discussion on the roadmap for IBP.
First, what’s IBP? There are many definitions. The one like most is – “It is a decision-making
process that realigns the tactical plans for the business functions and all geographies to support the company’s business goals and targets”. Alignment to business goals and targets is what differentiates IBP from the traditional S&OP. Actually IBP is sometimes referred to as Advanced S&OP also. Traditional S&OP mostly focusses on demand, supply and inventory. Balancing these constraints is more of a tactical decision-making process and is usually focused on mid to short-term plans.
IBP amplifies and extends the scope of the planning well beyond supply chain. It enables dynamic strategy management by aligning tactical plans to the strategic and financial goals collaboratively across the company. This also makes it imperative or the companies that this process is led by senior management.
So why is IBP critical for high tech industry? High tech companies challenges are like no other industry – pace of innovation continues to increase exponentially, global supply chain networks are becoming more complex and, global competition and margin pressure continues to grow. Even after half a century, Moore’s law is still applicable to the works of computing. Just to put things in perspective, if we apply Moore’s law to the auto industry, a car that used to run 81MPH in 1971 would be running 324,000MPH in 2012. Global competition and margin pressure is enormous. A chip in the consumer device like bluetooth probably costs less than a bag of potato chips made locally. Product life cycle continues to shrink. High tech companies are becoming more vertically integrated, focusing on their core competencies. Supplier and partner network continues to grow and become more complex.
In this environment of hyper-volatility there is very little time to respond to the changes and correct the course. As we continue to improve the planning accuracy, it is also imperative that high tech companies manage the strategy dynamically to respond to the market volatility. That’s where IBP capabilities become very critical. IBP facilitates collaboration and two-way communication between strategy and tactical plan. It aligns plans to deliver the business goals and provides for the dynamic strategy to respond to the volatility.
In the subsequent blogs we will also talk about how companies can move to the next level of maturity by integrating IBP to the execution and response management. Stay tuned for the next in the series.
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