In the spirit of extending the use cases in my book (sap-press.com/4174), I’m going to start blogging interesting questions posed by current and prospective customers as we explore the use of IBP.

Hopefully I’ll also provide useful answers. Here’s the first: “Can SAP IBP perform the $impact analysis based on the unit forecast?” Great question, and of course the answer is “Yes”.  But it’s not quite that simple.

During design, your organization will need to determine how detailed and how accurate you want the financial impact of the plan to be. This raises questions like:

  • Do we need to track customer-specific pricing, potentially also with volume discounting, or will an average selling price be sufficient?
  • Do we want to model any concept of price elasticity, where volume might be dependent on pricing, and potentially competitive response?
  • Do we need to include promotional pricing and attendant volume impact?
  • Do we use standard cost or do we want to calculate some level of COGS?
  • Do we attempt to go beyond gross margin and seek to model facility and organizational operating costs that may be impacted by plan alternatives, such as sourcing, overtime, additional shifts….?

All valid questions, and all within the capability of an IBP model to address.  But with increased detail in calculation and output comes an associated increased demand for quantity and accuracy in master data.  This is not without a cost.

As with alot of IBP modeling decisions, there are tradeoffs and your team will need to face these during the design process.

Keep in mind that IBP is not a financial planning tool.  We offer BPC and a separate product called IBP Finance for that.

But it does make sense for IBP to have some sense of the financial impact, often just to a level we call “directionally correct” where the plan results move in a manner consistent with enterprise performance but don’t need to map directly to AOP (Annual Operating Plan) or other input KPIs.

In other cases, particularly where Supply or Inventory Optimization will be enabled, you want to make sure costs are modeled in sufficient detail to enable the optimizer to yield useful results.

Regardless, IBP is a tool with the power and flexibility to meet requirements as defined.

Enjoy!

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