Effective Business Planning new ways of thinking result in better planning

For nearly three decades, companies have relied on sales and operations planning (S&OP) in their
effort to improve business performance. What originally started as basic production planning in the
1970s evolved into S&OP in the 1980s. During that period, companies developed aggregate planning
processes to align supply, demand and resources such as capacity and inventory. By the mid-1990s,
S&OP further evolved to include product and portfolio management and financial projections.
Effective Business Planning
new ways of thinking result in better planning.

With the beginning of the 21st century,
many companies recognized the value of
integrating all company plans into a single
executive process to manage the business.
S&OP continued evolving to en -
compass alignment with business strategy
and inclusion of other strategic functions
in a company, such as information
technology, human resources and other
areas requiring significant investment in
order to accomplish these strategies.
Integrated Business Planning
The evolution of S&OP well beyond its
original demand/supply balancing roots
has led to a current best practice known
as Integrated Business Planning (IBP).
This holistic process involves planning
across the enterprise to integrate all of a
company’s resources, thereby linking
strategic, operational and financial goals.
It has three principle components:
1. It is a process led by senior management
that evaluates and revises time-phased
projections for demand, supply, product
and portfolio changes, strategic projects
and the resulting financial plans.
2. It is a decision-making process that re -
aligns the tactical plans for all business
functions in all geographies to support
the business goals and targets.
3. It is a vehicle used to reach consensus
on a single operating plan
to which executives hold themselves
accountable and allocates
the critical resources necessary to
satisfy customers in a profitable way.
Through IBP, companies can experience
the benefits of S&OP across a broader spec -
trum and have a better process and forum
to focus on managing risks and more
quickly leveraging opportunities in the
most optimal manner for both the business
enterprise and customers. That’s good
news for companies that have recognized
the value of IBP and have implemented an
effective executive led process.
For other companies, the bad news is
that their S&OP processes have too narrow
of a focus. This means they have not
realized the financial and operational
value that their competitors are achieving
by evolving to an IBP level of maturity.
People, Process and Tools
Effective IBP requires three primary elements
to be working in concert: people,
processes, and tools.
People – For the process to operate
effectively, some key principles and best
practices need to be in place:
> Establishing a disciplined, regular, and
routine process governed by a process
calendar, sometimes called the “rhythm
of the business” or cadence.
> Demonstrating leadership participation
and ownership of the process,
including devoting the necessary time
and allocating adequate resources.
> Operating the process with open and
honest communications.
What is important for the leadership
team to recognize is that S&OP/IBP re quir -
es effective communication based on the
current reality of the business environment.
Management is expected to either
execute the consensus plan or communicate
why the plan cannot be met. With the
metrics available on the state of the business,
as well as the updating of the latest
assumptions and plan projections, there
is no justifiable reason for keeping the
executive team in the dark about the latest
projections. One of the arguments in
favor of this integrated process is its ability
to greatly reduce un certainty and to
have the ability to take timely act ion to
close gaps in a cost-effective manner.
Processes – It is important that S&OP/
IBP is the one primary process used by the
leadership team to align, integrate and synchronize
the plans for the business every
month. This gives leaders a regular and
routine forum to ensure that decisions
are made and accountabilities
assigned for leveraging opportunities
and addressing issues.
Tools – Industry’s adoption of
S&OP and its recognition of the
need to further evolve into IBP have
led to development of more sophisticated
technological tools to facilitate
the transition. When technology enables
the development of credible qualitative
and quantitative information on demand,
supply, prices and costs, it enables more
I M P R O V E M E N T
GEORGE PALMATIER AND COLLEEN CRUM FEATURE BY
FALL 2011 manufacturing-today.com 13
1970s 1980s
Production
Planning
EARLY 1980s 1980s
Balancing Supply
& Demand and
Inventory Control
LATE 1990s 2000s
Product and Portfolio
Management Integration
EARLY 2000
Supply Chain
Collaboration
MID LATE
TO PRESENT
Sales & Operations
Planning
Financial
Integration
Scenario Planning
and Strategic
Deployment
PEOPLE &
BEHAVIORS PEOPLE &
BEHAVIORS
PROCESSES
PROCESSES TOOLS
TOOLS
“Integrated”
“Organized”
Graphical
Executive
Presentations
What Our Clients Tell Us
People, Processes and Tools — Success Requires
All Three Working Together
GRAPH DATA: © Oliver Wight International
focus on the analysis of the information,
including development of scenarios.
Since S&OP/IBP is an aggregate-level
plann ing process, the tool set required to
support it is less demanding than for the
detailed item-level planning that occurs in
day-to-day, week-to-week operating systems.
There is, however, a caveat: the IBP
process will not be fully effective unless it
is connected to the detailed plann ing and
execution systems. Again, technology
offers a solution; business software
providers now have product offerings at
the detail level for demand planning, collaborative
planning, supply planning, customer
order management, financial analysis
and project management, all with associated
integration capabilities. Available
S&OP/IBP technology now includes a way
to manage qualitative information, such
as assumptions, risks and opportunities,
as well as the development and comparison
of multiple scenarios.
The Progression Stages
There are four stages of progression to
S&OP/IBP – all of which represent a natural
progression to a fully-capable and
best-practice process.
> Stage One: Improved Comm uni ca tions –
At this first stage, data is incomplete
requiring verification and other issues
are unresolved as yet, but a calendar and
cadence have been established.
> Stage Two: Problem Solving – There are
still problems in the process, but data
for decision making is more trustworthy
and problems are more visible and
actively addressed.
> Stage Three: Problem Prevention –Near
term problems have been addressed
allowing the management team to focus
its attention further ahead into the
future planning horizons.
> Stage Four: Strategic and Tactical Decision
Making –Mature process has solidly
implemented problem solving and prevention.
The management team closes
gaps between reality of the situation and
its alignment with business goals.
Those companies that have implemented
S&OP only to the Stage Two level will
still have a process to help effectively operate
the business, but they may not be in a
position to gain a competitive advantage.
In fact, they may be vulnerable to losing
competitive advantage when IBP be comes
a standard practice in their industry.
Make the Transition
The best starting point is to get an independent
assessment or diagnostic of the
current process using the industry best
practice model as a frame of reference.
The diagnostic can be performed in a
matter of days by experienced S&OP/IBP
experts. A proper diagnostic includes
reviewing the aggregate planning management
process and its connection to
the detail planning and execution
processes currently in place. Results of
this assessment can provide the framework
for the next move to establishing a
more fully-integrated planning process.
That will require a combination of people
exhibiting the appropriate supporting
behaviors, a process that is regular
and routine, and tools with the ability to
process aggregate plans and connect to
detailed plans, facts, and assumptions.
Properly implemented, the process
provides both leadership and management
with regular and routine visibility
and transparency of past and projected
performance. Key performance indicators
and metrics are an integral part of
the IBP process.
The most current and best view of the
business, both quantitative and qualitative,
offers leadership and management
the opportunity to make the best decisions
at the optimal time helping to
ensure favorable and profitable results.
The companies that do S&OP/IBP well
can expect significantly greater benefits
than those that only operate with an antiquated
basic demand, supply, and inventory
balancing approach. mt
14 manufacturing-today.com FALL 2011 I
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FEATURE BY GEORGE PALMATIER AND COLLEEN CRUM
George Palmatier and Colleen Crum are prin cip -
al and managing principal, respectively, with Oliver Wight
Americas. Located in New London, N.H., Oliver Wight principals
are leading business improvement specialists who educate,
coach and mentor people to lead and sustain change on
the journey to business excellence and outstanding business
performance. For further information, call 800-258-3862 or
visit www.oliverwight-americas.com.
Leadership Phase
Diagnostic Determine Value
Leader Education
Determine Plan
Appoint Teams
Design Team
Education
Management
Business Review
Process Design and Education
Strategic Review
Product & Portfolio
Review
Demand Review
Supply Review
Infrastructure/
Administration
Review
Financial Review
Integration
Reconciliation
Implement the Process
Performance Measures
Ag gregate to Detail Planning
Development Phase Ownership Phase
Fast Track Proven Path for S&OP/IBP
Assess
Progress
Assess
Progress
Document
Results
Decide on Fast Track
Presentation & Integration
Tool
Aggregate to Detail
Synchronization Design
Improve
Communications
Problem
Solving
Problem
Prevention
Tactical
Strategic
Decision
Making
Cycle 0 Cycle 1-3 Cycle 4-6 Cycle 7-8 Cycle