The Role of IBP Process: Synchronizing Supply Chain, Finance and Beyond

The global supply chain landscape has undergone significant changes, marked by increasing risk and uncertainty – accentuating the importance of a strategic IBP process. Wherever there is change, there is opportunity; and this often requires some adjustments to process, our approach and maybe the tools we rely on. Take, for example, Sales and Operations Planning (S&OP). The traditional approach tends to focus on cost reduction and efficiency. This is simply no longer sufficient to navigate the complexity of most businesses. Instead, supply chain teams should align strategic and tactical supply chain planning with financial considerations (beyond cost and efficiency). For many companies, this is called Integrated Business Planning (IBP). Regardless of what you call it, a more holistic view that increases collaboration between supply chain and finance is key to drive strategic decision-making.

In a recent webinar: Aligning Strategic and Tactical Supply Chain Planning with Finance, the panel discussed the challenges supply chain leaders face to effectively align strategic long-term and financial goals with shorter-term operational planning and execution needs. The traditional supply chain metrics, which emphasize cost reduction and operational efficiency, fall short in addressing the resilience and certainty components necessary to withstand variability. While these metrics typically work when supply chain pressures are low, they can lead to extreme failures when faced with unexpected disruptions or sudden market fluctuations.

Financial considerations, particularly cash flow, are central to business continuity. Cash flow fuels innovation, drives growth, and enables companies to effectively serve their customers. However, various factors are currently exerting negative pressure on cash flow, making it a significant concern for companies across industries. Recent challenges include inflation, fluctuating exchange rates, rising customer acquisition and retention costs, talent shortages, and energy cost increases, all of which directly impact margins and cash flow.

To address these financial challenges and effectively align supply chain and finance, businesses are turning to a robust and cooperative approach to IBP. Here, IBP accounts for cash flow in supply chain planning and involves a collaborative effort between various stakeholders, including supply chain and finance experts. By integrating financial implications into the planning process, businesses can better adapt to changing economic conditions and drive superior outcomes.

Inflation, for example, has a profound impact on organizations’ purchasing decisions and budgetary planning. As inflation rates fluctuate, companies must think ahead, often by as much as 90 days (or more), to make informed decisions. Meanwhile, disruptions like potential strikes in the freight industry and raw material cost increases further complicate the supply chain landscape. In this volatile environment, having a dual-source strategy and strong partnerships with vendors is crucial to mitigating risks and maintaining operational efficiency.

Furthermore, the reliability of suppliers and issues with shortages frequently add to the equation as significant concerns, emphasizing the need for stronger partnerships and open financial communication with vendors. Traditional volume-centric planning may overlook critical financial considerations such as inventory carrying costs, payment terms, and cash flow implications.

Working Towards a Successful IBP Process

To ensure success in the process, companies must connect and align their finance, business, sales, and supply chain plans across both the short and long term. This alignment helps ensure that strategic initiatives are supported by tactical inventory placement, procurement decisions, and financial assumptions. Unfortunately, many companies struggle with the disconnect between their strategic plans and the tactics required to execute them effectively. Instead, business plans are created and then forgotten until the end of the quarter or year, resulting in a lack of alignment and missed opportunities.

The benefits of a well-implemented IBP process are extensive. It supports corporate strategies, business objectives, and tactical plans that enable the success of these strategies. It balances risks and opportunities, taking into account an individual organizations' risk tolerance levels. It measures the quality of plans in terms of their impact on cash flow, open-to-buy targets, sourcing, and inventory flow. High-performing companies use IBP to balance their agility, sustainability goals, and commercial opportunities, while also considering supply chain certainty, costs, and efficiencies.

Level Up to a Strategic IBP Process

During the webinar, the panelists delved into the main differences between the traditional S&OP approach and a more collaborative IBP strategy, and why the shift has become critical to thrive in an increasingly complex and unpredictable global market. Explore the key takeaways from that webinar here. 

The transition to a collaborative IBP process extends beyond the alignment of supply chain and finance. It empowers companies to embrace agility and make informed decisions that have a direct impact on revenue and margin. By considering factors like cash flow in supply chain planning, organizations can navigate economic conditions more adeptly, transcending the limitations of traditional approaches. 

Get in touch and we’ll help your team harness the latest technology in supply chain planning software to evolve your planning and implement a strategic IBP process to balance agility and commercial opportunities for competitive differentiation.