White Paper

Five Steps
to Successful
Integrated
Business
Planning
In 1996, the average beer distributor carried 190 unique stock keeping units (SKUs) from
nine suppliers. By 2010, the averages had risen to 536 SKUs from 18 different suppliers.1
The average food retailer stocks 45,000 SKUs and introduces about 10,000 new items each year.2
Visit a grocery store, and youll notice that Crest offers 40 toothpastes and Gatorade offers
59 flavors in the U.S.3
The numbers boggle the mind, but the message is clear:
due to a proliferation of products, supply chains are becoming
more complex. This complexity will only increase as
companies outsource production and expand globally.
At the same time, greater demand for customized or
build-to-order products puts more pressure on companies to
produce on much shorter lead times.
In response, many companies have begun to transform their
forecasting models. Companies have traditionally based their
operations plans on forecasts built around sales and
operations planning (S&OP). S&OPs primary focus is on
future actions and anticipated results. Plans generally include
strategic views that look out up to seven years in the future and
usually focus on local supply chains. But this long-term
outlook has often left companies with two primary challenges:
Scrambling to meet demand when it was higher than
expected.
Holding excess parts and finished goods when demand
was lower than anticipated.

In addition, companies continue to find it difficult to implement

the elements of a good S&OP program. A recent benchmark
report from SupplyChainDigest found that:
Only 42.9% of companies said they had a good S&OP
process, but can improve, while another 32.2% rated their
process as below average.
More than 45% of companies had barely delved into scenario
analysis, one of the key components of S&OP.
Just 10% of companies considered their S&OP to be world
class or excellent.
Only 8.9% of companies gave their companies a high
rating for scenario planning.4

1. Best Practices in Managing an Expanded Product Portfolio. Sponsored by the Beer Industry
Electronic Commerce Coalition. 2012.
2. Subramanian, Radhika. Conquering Product Proliferation: The Case for SKU Rationalization.
Emcien blog. August 2, 2012.
3. Honig, Adam. Product Proliferation Can Kill Your Sales Team. Cloud Sherpas blog post.
April 22, 2013.
4. Gilmore, Dan. Supply Chain News: Where Do We Stand in S&OP? SupplyChainDigest. September
20, 2013.

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Introducing Integrated Business Planning

Frustrated by the limitations of siloed planning processes,
companies have begun implementing a new approach that
goes beyond S&OP to align the demand plan more closely with
the financial goals of the organization. This approach is called
integrated business planning (IBP).
Companies that practice IBP involve the extended supply chain
in every business decision. This approach ensures increased
visibility and a greater breadth and quality of input. With IBP:
Information that lived in silos becomes available for key
decisions across the enterprise.
Decision-makers gain the input and intelligence of dozens or
even hundreds of collaborators as theyre developing a
business plan.

IBP is simple: greater

profitability. To get there, your
company should follow a
five-step process of sensing,
shaping, collaborating,
integrating, and orchestrating.
There are many obstacles that can prevent companies from
fully implementing S&OP. These include:
Overreliance on email. Business decisions typically require
multiple email messages copied to a wide range of
stakeholdersand the ensuing delays can cause companies
to miss business opportunities.
Bottom-up planning. The typical planning process starts
with departmental plans that are eventually fed into a
company plan. But Productions plan may be contingent on
the performance of the sales teamor Sales may set goals
that demand a significant increase in production. In other
words, planning shouldnt be done in a silo.
Spreadsheet-based forecasting. Many companies use
spreadsheets as a cheap, easy way to begin creating
forecasts. But spreadsheets are notoriously error-prone,
and they cant generate the complex scenarios that can help
businesses prepare for every possibility.

Each decision can incorporate the strengths and needs of all

your departments.
Supply chain partners can react more quickly to business
needs because they maintain an always-on view of demand.
The ultimate goal of IBP is simple: greater profitability. To get
there, your company should follow a five-step process of
sensing, shaping, collaborating, integrating, and orchestrating.

1. Sensing Demand
If youre serious about building an integrated business plan,
start by building a good demand plan. Your first challenge will
be to understand, or sense, how demand for your products and
services impacts your plants and local supply chain. Once
youve developed a demand plan, youll want to be sure that the
plan is being fulfilled at least at the departmental level of your
organization.
Sensing demand is a key step in avoiding both inventory
shortages and overstocked items. For too long, finance
managers have created forecasts in isolation, with little or no
input from other departments. This approach inevitably leads
to inaccuracy. By contrast, IBP process takes a much more
strategic approach to demand planning by involving multiple
stakeholders throughout the organization.
During the sensing stage of IBP, a demand planner or analyst
will review the forecast at the beginning of each month. The
planner will check for forecast accuracy against customer
service levels and inventory levels. This allows company
leaders to sense challenges from more angles, so that the
organization can establish a forecasting figure that reflects all
potential variables.

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3. Collaborate Globally
When your demand and supply plans are in place, shift your
focus to expanding your planning horizon across your
company. To do that, youll need to establish seamless,
real-time communication with your entire supply network.
Global collaboration gives your supply chain leaders the
visibility they need to monitor any potential risks or disruptions
that could impact your demand plan. According to McKinsey:

2. Shaping the Plan

Your next step towards IBP is to build a supply plan. Once your
team has agreed on a demand plan, you can begin to establish
your supply strategy. Your goal at this stage is to build a
forward-looking, detailed, aggregated supply plan at the local
or company level. Having this plan in place will help you
address demand and supply mismatches before they affect
your customers.
The process begins when your vice president of operations or
supply chain looks across your entire network to build a supply
plan that is balanced with your demand strategy. Your planners
will meet with your supply chain management, procurement,
logistics, and production teams to identify gaps and analyze
alternatives for addressing mismatches. For example, a new
product introduction or change to an existing product may
require sourcing from an alternative supplier.
During this stage, your planners may also conduct a make vs.
buy analysis to determine whether products should be made
in house or purchased from suppliers. At the conclusion of the
shaping process, your team can address any agreed-upon
constraints and note areas that need attention from
higher-level executives.

Your technology will play a critical role in enabling global

collaboration. Social networking tools are essential for
companies with long-distance supply chains for two reasons.
First of all, by their always-on nature, they can eliminate the
delays caused by emailing across time zones. Secondly, many
social networking tools help eliminate language barriers by
providing language translation. For example, the YammerTM
business networking tool automatically translates
communications into 28 different languages.

4. Integrate Into a Single Plan

Once youve expanded your planning horizon company-wide,
go a little further. The next step towards IBP is to include
trading partners, suppliers, and customers in your horizon to
create a global view plan.
With clear visibility into supply and demand, your leadership
team can focus on tying your global view plan to your overall
financial goals. Your CFO or controller can pull all key
stakeholders together to compare financial metrics to the
previous month and conduct a root-cause analysis for any
missed targets. This group will then perform event simulations
to see how various factors might impact your business plan.
For example, additional volume from a new customer or loss of
business may have an effect on capacity or headcount. The
cross-functional team can simulate the impact of these
scenarios and optimize your plan.
Next, your plan will move to senior leaders who will review key
performance indicators with the cross-functional planning
team. Dont overlook the importance of involving senior
leadership in your supply chain planning process. The purpose
of this final review stage is to bring any issues to light that may
require C-level action, such as gaining permission to build
inventory early, adding a shift to keep pace with demand, or
authorizing overtime.

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As you can see, executing against a global view plan isnt a set
it and forget it activity. It requires constant vigilance and
continuous improvement. This is where traditional S&OP falls
shortbut IBP delivers.

How IBP Drives Business Value

Building a more fluid and transparent supply chain can have a
positive impact on your bottom line. How much can your
organization save by implementing IBP? The potential is
significant.

5. Orchestrate Success
If youve followed the four steps up to this point, youve
essentially enabled IBP at your organization. Youve published
a global view plan that has been vetted and approved by your
executive management. But your work isnt done yet. To
orchestrate sustainable success, you must monitor, measure,
and modify your supply chain activities on an ongoing basis. By
doing so, youll keep your companys financial performance on
track during the next 30 days until the publication of a new
monthly plan.
To measure your companys performance accurately, youll
need to come up with a meaningful set of key performance
indicators (KPI) that let you know whether youre tracking in an
acceptable range to meet your financial goals. If your numbers
fall out of range, youll be able to identify and address issues
immediately, rather than waiting until youre preparing your
next monthly plan.
For instance, if one of your products isnt selling as well as it
should, your senior management will be able to get input from
all your departments. Your sales team might then consider
whether a lower selling price would work, while your marketing
organization might ask why consumers prefer competing
products. Meanwhile, your product development team could
consider whether a design change might increase demand. You
can also pull your supply chain partners into the discussion. By
running what-if analyses, your senior management can weigh
their options and choose the best course of action.

According to one white paper by business management

consulting firm Oliver Wight International, companies that are
best in class for IBP boast a complete order fill rate of 91% and
a gross margin of 43% while spending just 6% of their total
sales on logistics costs. Meanwhile, IBP laggards have
complete order fill rates of 79%, gross margins of 30%, and
spend 16% of sales on logistics.
Oliver Wight also found that companies that implemented an
IBP program reported improvements of up to 50% in on-time
delivery in full, up to 43% in demand plan accuracy, up to 34%
in order fill rate, and up to 39% in customer satisfaction.5

Take the Next Step Toward Integrated

Business Planning
If your company is involved in global commerce, you need a
straightforward, collaborative business plan that involves
stakeholders from both your local and global supply chains. On
the other hand, if youre trying to grow a smaller enterprise,
youll need to examine your planning capabilities to ensure
theyre ready for the global marketplace. But no matter where
you are in your journey toward supply chain excellence, IBP can
help you get there.
How can you determine when the time is right to implement
IBP? Start by auditing your current operations to determine the
maturity of your business planning processes. Demand
Solutions offers auditing services that can help you assess the
maturity of your current IBP processes. This assessment will
give you a starting point for building a flexible, nimble supply
chain that is more closely aligned with your companys overall
financial goals.

5. Correll, James and Palmatier, George. How Good Is Your Sales and Operations
Planning/Integrated Business Planning Process? Oliver Wight white paper. 2013.

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