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Why does integrated planning remain important during the coronavirus crisis?
20 April 2020
By Oliver Wight CEO, Les Brookes
Over the past few weeks I have come across some comments dismissing the capability of Integrated Business Planning in supporting businesses through the coronavirus crisis. I wanted to take this opportunity to explain exactly why IBP is as relevant now as it ever was, and perhaps even more fundamental for businesses to fully understand and implement.
IBP typically looks at planning over a four to 24-month horizon, which has caused some people to cast doubt over its ability to help manage the short-term. However, to enable decision-making in a crisis, such as the one we currently face, it is critical that the business is not only able to adjust to the short-term changes but also has scenario plans in place for the medium-term horizon, which will ensure the business is able to reactivate its ‘usual’ operations at the right time. To allow this to happen, leadership teams must plan assumptions centrally that reflect global geographies at an aggregate level, so that they are fully aligned as they move inside the cumulative lead time (time fence). Many of the critical scenarios that teams face not only relate to the next 3 months but also the likely plans outside of month four. IBP implemented correctly has a leadership focus on months 4 to 24 with managers focusing on zero to three months.
In IBP as plans transition through into the short-term, they should be reviewed, and changes applied daily/weekly, based on the latest data to ensure they are always relevant for the current situation. This process is critical for plans to reflect the integrated views of portfolio, supply, and demand, inside the short term time fence. This cycle is all about ensuring plans are as optimised as possible inside and outside of the short term to maximise service, minimise inventory and control costs. In the current rapidly-changing climate, many organisations fall into the trap of making quick fixes for the here and now, but it remains critical that each and every decision made is well thought through and beneficially serves the business in the medium and long-term too.
I have also seen claims that Sales & Operations Planning does not work for some businesses due to ‘a lot of change in the short term’. This is likely correct – S&OP was never created to drive weekly or even daily execution, but it evolved into a process that was able to do so – Integrated Business Planning. The world of IBP revolves around managing the full horizon whilst having the correct additional processes in place to manage at the appropriate level of detail, according to whether we are working inside or outside of the time fence. Outside the time fence the IBP process is used at an aggregate level, as outlined above, but inside the time fence, another Oliver Wight process comes into play, Integrated Tactical Planning, or ITP.
At the point of disaggregation, ITP takes over from IBP in ensuring that overall plans are aligned to the latest supply, demand, and product plans. This means full alignment around the demand profile at a more detailed level and alignment to the key constraints at a weekly level. Integrated Tactical Planning needs to be managed right down to the point of execution and within that time will likely move from weeks to days, with daily reviews. ITP includes demand monitoring to understand under or over-selling and is able to identify abnormal demand fluctuations, whilst at the same time managing supply plan changes, re-timing, and quantity alterations so that issues are identified and resolved quickly and effectively. Moreover, the knowledge gained from looking at processes in the short-term is used to inform the long-term business plans.
Part of the challenge organisations face in managing the short term is that often their processes are designed to be system driven i.e. demand driven and whilst these processes may work in times of stability, they do not perform as well when volatility is high. Undoubtedly, businesses with an established IBP process in place to manage the total planning horizon have the most effective view of ‘the truth as we know it’ and they find that, despite the pressures of the COVID-19 crisis, they are able to make decisions that are ‘roughly right’ rather than precisely wrong.
In summary, IBP is about managing the full horizon with the right people involved in the right planning horizon. Leadership need to use scenario planning to make integrated key decisions in a timely manner whilst in the short term teams need to use ITP to drive performance in execution. Irrespective of how the latest situation has impacted business there will still be a need to take control using IBP.