IBP and Lean: A Match Made in Heaven
Acknowledging that we are in a “whitewater rapids” phase of today’s global economy, and hence supply chain, leads us to the question: Who is steering the ship and how?
Until not too long ago, the answer was a tool known as Sales and Operations Planning (S&OP). This tool is primarily an internal or "inside-out" method for a business to make sure that supply meets demand at the lowest possible cost. Its goal is to help a leadership team focus, align, and synchronize all functions of the organization.
Planning and Control
Furthermore, from a lean, agile supply chain perspective, a robust S&OP process acts as both a planning and control method at an executive management level. It externally benchmarks various metrics indicating the level of waste—such as forecast accuracy, inventory turns, and on-time and complete shipments—to set objectives, as well as match the company’s strategic plan. The metrics also measure whether things are in or out of control.
While S&OP was quite an advancement over previous methods (or lack of a method), it is insufficient to deal with today’s business challenges. That is why a concept such as Integrated Business Planning (IBP), which uses an "outside-in" approach, is more appropriate in today’s business world.
IBP extends the principles of S&OP throughout the supply chain, product and customer portfolios, customer demand, and strategic planning to deliver one integrated management process. With the use of scenario planning and what-if analysis, IBP can help make decisions regarding more profitable supplier collaboration, demand sensing and shaping, marketing, and product growth and development.
Obstacles to Implementation
It’s not easy to make the change from traditional or more advanced S&OP-type processes (I say "type" because many companies, whether they realize it or not, don’t have a fully developed S&OP process in place). Among the barriers:
- Conflicting goals among business units and functions.
- Lack of or outdated technology that relies too much on spreadsheet tools and isn’t integrated internally and/or externally, which can prevent effective collaboration. Fortunately, today an abundance of great tools can not only integrate internal functions but also help you connect and gain access to accurate, timely data downstream and upstream in your supply chain.
- Cultural or political resistance to changing processes. As we know, change starts—or ends—at the top.
There should be plenty of motivation here as you start to imagine how much more helpful a fully developed, outside-in methodology like IBP can be in successfully creating and managing a lean, agile supply chain.
IBP and lean are mutually complementary to business vision and success. I say this because lean requires eliminating waste and wasteful practices, which reduces costs and cuts lead times while synchronizing all partners and activities in the value chain. IBP is a process that, when used with enabling technologies, focuses directly on ensuring a continuous alignment between demand, inventory, supply, and manufacturing plans, and between tactical and strategic business plans.
Seems like a match made in heaven.