IBP on Sesame Street
Just three weeks ago, I was asked an age-old question – ‘can you help a customer get to a single set of numbers to drive their plan? The CEO wants a single set of numbers!’ I wanted to reply that THAT is not the right question, but I wasn’t sure how to frame the response. So, I offered the traditional approach – we can discuss how to generate a consensus-based demand plan that is based on a sound statistical forecast. That plan can then be used to drive a heuristic-based supply plan that considers any known constraints (capacity, raw material, logistics, etc.), and can then be executed on the shop floor. That supply plan will form the basis of your operating plan, depending upon how you do your costing, and can certainly be optimized by either a lowest cost method or a highest margin. All in the cloud, all in HANA. And then under my breathe I would say ‘But it’s not a single set of numbers and it will never match your financial plan, or your sales forecast, or your marketing forecast, and please don’t use it to report to the Street, unless it’s Sesame Street…’
Recently I was fortunate enough to attend the LogiChem conference in Amsterdam. LogiChem is attended by practitioners – S&OP leaders, supply chain planners, schedulers, and logistic leaders. This group deal with real rail and maritime challenges, plant outages amidst capacity constraints, and customers who want to know why their stuff didn’t make it to them on time and in full. I also ran into some ‘old’ friends from my Rohm & Haas days – I am constantly amazed at this network!
Logichem has an interesting format. The actual presentation is short – about 20 minutes. The speaker then poses 1 or 2 questions to the tables, forcing collaboration. After a 10 minute table discussion, each table then has to report back to the general audience. There were several sessions about the maturity of S&OP and IBP – Integrated Business Planning. Yasser Bin Sabir from Alanxeo articulated what I wanted to say to the CEO beautifully – stop trying to get a single set of numbers and focus on a SINGLE STRATEGY! There is limited value in getting a single set of numbers. Yes, you need a sound statistical forecast and yes, sales must be accountable. Yes, you must constrain the plan – the plan has to be realistic, and this will always create an iterative process. But the strategy for IBP must be collaborative and not confined to a rigid monthly process focused on a single set of numbers. As soon as the plan is set, it will change – the plan must be dynamic and responsive, and that is not a bad thing. IBP is a business process, not a supply chain process – it’s starts with the business and with the financial plan. It must be a rolling process, 18-24 months. When it is truly mature, the annual budgeting process COULD disappear, similar to how an annual inventory reconciliation process is replaced with a Class A cycle counting process. The table debated the topic but ultimately agreed that it is about the STRATEGY.
So now, when asked the aged-old question, I have a new response: ‘I can’t help you get a single set of numbers, but I can help with something much better – a single strategy that is collaborative and aligns your business with your supply chain with your operations and with your sales & marketing.’ Sunny Days, Sweeping the Clouds Away…
Want to learn more? Download the latest Point of View on: