Integrated business planning, or IBP, combines supply chain optimization, operational best practices, and financial planning and analysis. IBL should be a companywide culture focusing on meeting consumer demand while managing the associated risks. Every company that wants to minimize its risks and maximize its profits and growth should use IBP.
What Is Integrated Business Planning?
IBP is a process to create a single holistic plan to align a company’s strategic business goals with its supply chain, marketing, product development, and finance functions while balancing resource and funding constraints with its financial objectives.
Companies need to move fast to avoid being beaten by their competitors. Moving fast needs to be done in a controlled manner to prevent keeping customers while production costs increase and profitability decreases. IBP can help a company achieve these goals.
Benefits of an IBP approach
The major benefits of using an IBP approach include:
- Improved alignment and accountability: IBP allows all stakeholders to agree on one holistic plan, which clarifies their role in meeting the goals specified in the plan.
- Enhanced decision-making and actions. A well-designed IBP process allows companies to make informed decisions and take appropriate actions based on these decisions.
- Better visibility: IBP lets companies incorporate insights from their financial projects, strategic plans, and supply chain projections. The more insights the company includes in its projects, the more informed its decisions will be, thereby contributing to improved profitability and efficiency.
Why it is currently critical for companies to use an IBP approach
Companies are constantly under pressure to perform and to maintain their competitive edge. Using an IBP approach is currently critical because:
- Most companies have experienced increased demand volatility in recent years.
- Subcontracting for manufacturing and logistics operations has become common but has made supply chains more complex.
- The volatility in input costs constantly challenges profitability. Most raw materials have experienced sudden market changes in the past few years.
- The non-linear link between costs and volume is volatile as it comprises both fixed and variable costs. Some of these costs change with volume, and other costs vary with time. The uncertainty in costing complicates understanding the financial impact of these costs on the company’s strategic decisions.
Success metrics for an IBP process
Companies can measure the success of an IBP process using the following metrics:
- Getting stakeholders’ buy-in of the company’s goals. The outcome of a successful IBP process is that all parties involved agree on the company’s goals and how it will achieve these goals. Each stakeholder knows what their responsibilities are to help the company achieve its goals.
- Using data when making business decisions. IBP integrates a company’s finance, demand, supply, and product functions, making it easier to select the right key performance indicators to measure progress made towards its goals.
- Linking decisions to outcomes and improved accountability. Every department must ensure that they provide accurate figures and forecasts. This accountability results in all departments being accountable when the company does not achieve its goals.
- Changing the company’s culture to embrace cross-functional collaboration. Since an IBP process focuses on trust and openness, it typically results in deeper engagement and empowered employees.