I did a quick post on LinkedIn earlier in the week on application of IBP in a retail business. Subsequent conversations have suggested there is sufficient interest in the topic to capture a few more thoughts here and hopefully start a conversation.
Like most conversations about applications of IBP, the ides aren’t new. My friends at Ollie Wight did a great three part overview of Retail IBP back in 2010. And the best run companies we work with of course have a planning process in place.
But as I see consistently working with our customers, the magic is the availability of tools – SAP’s IBP – that enable leaders to realize their vision.
In the spirit of a refresher, the lack of focus on IBP in retail historically is understandable. The mot visible drivers of profitability are either at the store level, or in the processes of planning assortments and categories of merchandise across individual or clusters of stores. These tasks, and the supply chain and logistics associated with store replenishment, are well supported with components of the SAP for Retail suite, and represent a set of detailed transactional processes that may be aggregated to inform IBP, but are not planned by it.
That’s been the case, and it hasn’t changed. There are potentially use cases for IBP that would include store level granularity – for example aggregate revenue and volume planning at the product category level of detail, or performing rough cut capacity or space planning with the same category level volumes as drivers. But this is a set of secondary applications, and in implementation would likely be managed in a separate planning area.
The primary value in IBP for retail enterprises is not in the DC to Store segment of the supply chain, rather it’s in the upstream processes that ensure product from internal, contract manufacturing, and external sources is available in the appropriate DC’s when needed to support ongoing operations and promotions. The processes in this segment are classical IBP use cases engaging both supply and inventory planning, and offering extended value through collaboration with suppliers.
So there are two key delimiters active in discussing IBP for retail:
- We’re focused on supplier to DC, not DC to store
- As a secondary consideration, the firm zone of the planning horizon may be farther out than in traditional manufacturing or distribution businesses, since the DC to Store segment is considered frozen
Thus, demand is considered differently than in many other contexts. In the near term, from IBP’s perspective, demand upon the store facing DC is driven by the retail applications forecast aggregated to SKU level. But at some point, longer term planning will shift from detail to other forecast models that also plan demand at the DC level, but without any store level detail. All we need to determine is the demand placed on the DC. Our customers see this as a signficant opportunity to deploy consensus forecasting.
Assessing demand in the longer term is also a great example of my favorite statement – that IBP is “informed, but not constrained” by the operational system(s). For the retailer seeking to plan the intermediate and long term, new markets or product categories not known to the execution systems need to be included. IBP of course enables this.
Once a statement of demand is determined, the supply and inventory determination phases of planning are consistent with what we see in other industries. Nothing unique, whether product is sourced from internal production, contract manufacturing, or external suppliers we’re within IBP’s sweet spot.
That being said, the connection between IBP and SAP Ariba’s Supply Chain Collaboration tools does open another significant value driver for the retail enterprise. The concept of CPFR (Collaborative Planning for Forecast and Replenishment) is driven by retail and CPG companies and defines a model for the customer (retailer) to share forecast, inventory, and supply data with their suppliers to minimize latency and noise in the supply chain and thus reduce inventories and eliminate waste.
Again, not a new concept. Just a great one that is now realized out of the box through interoperabiltiy between SAP IBP and the Ariba Network.
As we’re seeing in many areas, the capability of IBP is enabling our customers’ to realize visions that transform their business.