What does the forecast say? What’s really happening? What are we going to do about it?
For far too long, these three questions have been at the center of most IBP planning cycles. Traditional monthly planning cycles rely on building spreadsheets and slides that attempt to answer them.
The collective effort adds up to hundreds of hours and tens of thousands of dollars spent trying to understand what already happened and guess what might happen next. However, global supply chains still struggle to deal with the business challenges that come up repeatedly, such as
- Closing the gaps between actual performance and the annual operating plan for strategic categories
- Dealing with the supply constraints that prevent the fulfillment of demands for highly strategic categories
- Managing volatility in market conditions (i.e., inflation, raw material price increase, commodity shortage, demand fluctuation)
Traditional IBP planning methods don’t manage these conditions well, let alone answer the high-level questions that drive the most discussion.
Better questions to ask during the IBP process
More effective IBP processes require more meaningful decisions. More impactful decisions start with better questions.
For example, in the case of a gap closure scenario, the following set of questions is critical to making the right decision for the business. Yet, even today, few supply chains can answer them.
- What is the unconstrained demand, by driver, for strategic categories?
- What channels or customers most contribute to the gap in the annual operating plan?
- What are the best gap-closing options according to our demand drivers?
- Are the options in line with the growth aspirations and net revenue targets?
- Are there any supply constraints related to the gap closing options?
- What are the P&L impacts of the gap closing options?
In the supply constraints scenario, the supply chain must answer different questions.
- How do I understand the constrained demand across channels and key accounts? Where are the most significant gaps?
- What is the presumed service-level impact, and what are the associated costs of delivering below agreed-upon targets?
- What allocation strategies will feasibly spread limited supply across channels?
- What are the best trade-offs between channels and key accounts?
- Are there any alternative options to service the demand?
- What are the financial implications of such trade-offs and the alternative options?
Finally, to manage volatility, supply chains need to understand:
- What are the significant differences in local market structures that impact capacity? These factors include labor and transportation and the upstream and downstream network.
- What drivers create circumstances like bottlenecks and excess demand, and how do those impact existing demand and supply shocks?
- What economic factors drive price and cost volatility, and how do they impact the extended supply chain network?
Enable IBP capabilities that answer the right questions
Asking better questions is not enough to create more impactful IBP cycles. Next-generation technology is the enabler for the capabilities that allow for the IBP process and the people managing it to decide on the best course of action for the business.
Leading global supply chains invested in next-generation IBP are already reaping the benefits. Their investments in building a future-proof digital operating model are creating end-to-end value chain visibility, predictive analytics capabilities, and simulations and scenario modeling, all as part of a new digital user experience.
The next generation of IBP is already generating enterprise-wide value. To see how it answers the questions that matter most to supply chains, visit Next-Gen IBP for CPG Companies for videos, case studies, and compelling content about some of the world’s leading supply chains.