Sales & Operations Planning (S&OP) and Integrated Business Planning (IBP) have become common best practices across all industries to cover the mid-term supply chain planning horizon. However, both have weaknesses in terms of effectiveness, efficiency, effort, and IT solution coverage. This paper addresses the need to transform current S&OP/IBP approaches to a truly information-based management process without temporal, organizational, and technical integration barriers.    

Best Practices: Mid-Term Planning With S&OP/IBP

No doubt, a company cannot prevail without anticipating the future development of its business and commercial environment. That is why mid-term planning spanning a horizon of, for instance, 2-5 years is a key prerequisite to timely make both reactive and proactive decisions to steer corporate development and to meet business objectives.

Consequently, regular cross-functional IBP/S&OP planning cycles evolved over the last decade as the most appropriate approach to derive mid-term plans: Depending on the business model and company size, the planning cycles, which are generated on a weekly, monthly, or quarterly basis, generally consist of a sequence of planning and decision steps like product review, demand review, and supply review, followed by internal reconciliation and a final business review. Though the naming of the reviews may differ, S&OP as well as IBP are decision-oriented and gap-closing processes that include all concerned business functions to meet business objectives and to result in a one-number plan.

In fact, all clients I know either run a variant of S&OP/IBP or plan to establish a company-specific Integrated Business Planning (IBP) process. No surprise that all advanced IT solution providers offer respective capabilities to process required planning and forecasting data.

Challenges: Why to Rethink S&OP/IBP

Cross-functional cyclic integrated business or sales & operations planning has become the standard approach for mid-term planning, as key performance indicators, from forecast accuracy over production plan adherence to OTIF can be, for most business models, significantly improved. Nevertheless, despite its general success, this planning approach and the supporting advanced planning solutions come with some substantial weaknesses negatively affecting both the daily planning operations as well as the process and solution implementation:

High effort and costs related with regular IBP/S&OP planning runs

The first major downside many companies are reporting is the high planning effort. This is not only causing substantial costs, but also, and even more critical in times of personnel shortage and war for talent, absorbing a significant number of planners and human resources, respectively.

High planning effort
Figure 1: High planning effort is caused by IBP/S&OP cycles absorbing significant resources from numerous business functions and ranks: Many experts, planners, and managers are involved on a frequent basis to support, plan, prepare, and attend the meetings across all regions and countries.

In fact, this planning effort is, to a large extent, due to complexity, information loss, and the artificial breakdown of the planning continuum into different planning horizons, i.e., short-term/operational, mid-term/tactical, and long-term/strategic temporal segments.

Complexity and effort due to organizational and geographical multipliers

IBP/S&OP review cycles appear to be simple and easy to apply. However, for many globally operating business models, reviews and the ‘feeding’ demand, supply, and production planning runs are being applied on local, regional, and global level. Moreover, if a company runs independently operating business units, the review cycles are applied to each unit. These kinds of multipliers are a major cause for the high (regular) effort organizations must take to achieve good planning results.

Significant increase of complexity and effort caused
Figure 2: Significant increase of complexity and effort caused by the need to apply the IBP/S&OP planning and review cycles on different geographical levels, for different business units, and on a frequent basis.

Information loss due to insufficient temporal granularity

A significant risk of information loss comes from the fact that most IBP/S&OP planning processes are supported by time-series-based* data models of limited temporal granularity. The common reasoning for this simple and intuitive ‘how-much-do-I-sell-or-supply-in-which-time-bucket’ is that a data model with a weekly or, widely used, monthly bucket is anyway sufficient as forecasting cannot be more precise in the mid-term horizon. But this may not be correct for the entire mid-term planning horizon:

How to avoid the loss of information
Figure 3: How to avoid the loss of information due to IBP/S&OP planning processes, which are supported by time-series-based data models of limited temporal granularity? Run a data model at optimal (highest) granularity and plan on appropriate aggregated level as required by LTP, S&OP, S&OE, and operational planning.

Many enterprises, applying for instance a planning horizon of 1 – 5 years, need to enrich the rolling forecast data of a specific product-customer/location combination on a more detailed level over time. While monthly granularity may be sufficient in the far future (e. g., years 4-5), the information on a weekly or even daily bucket in the nearer future is required to ensure timely management of capacities, sourcing, and supply, and to mitigate bottleneck situations.

Consequently, if low granularity, for instance by monthly buckets, spans the entire mid-term horizon, information cannot be adequately ‘attached’ to the plan. Sometimes it feels like a time-series-based data model is a relic from times when computing power did not allow high granularity and/or the application of an order-based* approach over a long period of time.

* For more information on order- versus time-series-based planning, please have a look at this article: IBP Time Series, IBP Order-Based? What is this?! – CAMELOT Blog (camelot-group.com)

Information loss due to missing capability to process unstructured information

Business information is largely not based on a pre-defined data model but rather on unstructured textual information like reasonings, rationales, and understanding of business and forecast development. This unstructured information is essential to capture risks, opportunities, assumptions, and reasons, and it makes S&OP and IBP truly decision-oriented, gap-closing processes. However, it cannot be adequately captured by time-series as well as order-based data models.

If unstructured information refers to one bucket, it can be attached, e. g. as a comment. However, as soon as this information explains business events and developments on an aggregated level, and moreover, as soon as unstructured information must be aggregated, most data models can no longer support. Consequently, numerous companies running IBP or S&OP capture information aside from the advanced planning solution, many are still and for good reason using Power Point, Word, or Excel applications.

How to capture, attach, and aggregate unstructured information
Figure 4: How to capture, attach, and aggregate unstructured information to forecast and planning data along different planning horizons – and organizational units.

 

How to capture, attach, and aggregate unstructured information to forecast and planning data
Figure 5: How to capture, attach, and aggregate unstructured information to forecast and planning data along different geographical and organizational units, respectively?

Lack of planning continuity due to different planning horizons

The last IBP/S&OP weakness to be mentioned regards the planning horizon itself. It is another common practice to structure the overall planning horizon into a strategic long-term horizon, a mid-term one covered by S&OP/IBP, and a short-term horizon covered by sales & operations execution (S&OE) with different granularity (increasing from long to short), different planning frequency (decreasing from long to short), and different functional responsibilities: Long-term planning is likely owned by finance and/or marketing, whereas S&OE and supply planning is mostly in operations and/or supply chain hands.

This temporal segmentation of the overall planning horizon may help to allocate planning effort and responsibility to the right department. However, it removes planning continuity and adds significant technical and organizational effort to ensure information exchange across all planning horizons and to establish technical data integration of the data models or even systems supporting the planning execution in the different horizons. Let us not forget that horizons cannot be sharply separated. Quite the contrary, enriching and optimizing the rolling (one number) plan over time requires an undisrupted planning continuum, which is not only end-to-end in terms of the (physical) supply chain but also end-to-end in terms of the (temporal) planning horizon.

Common structure of business planning
Figure 6: Common structure of business planning across the entire horizon: How to reduce complexity as well as extensive technical and organizational integration needs due to the (artificial) differentiation between planning horizons with different granularity and different data models (e.g., order and time series-based)?

Recommendation: Ways to Revise Today’s Best Practices of Operations & Business Planning

S&OP and IBP are certainly proven planning approaches based on best practices across all industries. Nevertheless, there is room to improve both the mid-term planning itself as well as the way the entire business and operations planning horizon is structured and managed.

  1. Evaluate the overall effort of the running or upcoming mid-term planning approach and optimize the number of (truly necessary) organizational and geographical planning levels, which act as effort multipliers of the basic review cycles.
  2. Question the best practice of running the review cycles on a regular/frequent basis. To further minimize effort and personnel absorption, check whether and to which extent exception or deviation-based reviews could replace regular S&OP/IBP meetings.
  3. Challenge your IT department, your solution provider, and in case you plan to establish IBP/S&OP, your implementation partner to ensure sufficiently high granularity across the entire planning horizon so that continuous enrichment of the rolling plan is possible. IT performance is no excuse in the 21st century.
  4. Ensure that unstructured management information on risks, opportunities, reasons, and trends as a key prerequisite for a decision-oriented planning process is well captured, and ideally, well integrated, or at least, well linked with the underlying data model of the advanced planning system.
  5. Revise whether your end-to-end business planning needs really require different temporal planning horizons (operational, tactical, strategic), of which S&OP and IBP just cover the tactical horizon so that short-term sales & operations execution as well as strategic planning must be additionally established, executed, and integrated.

I conclude that future operations and business planning approaches and their IT solution coverage should be based on one temporal planning continuum serving all short, mid and long-term planning needs. They will therefore be based on one data and process model avoiding bucket-induced information loss and supporting the processing of unstructured management information across all functions and across the entire planning horizon.

Assurance: This paper is solely based on own experience and has been created without any support of KI tools like ChatGPT.

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