In a volatile market which demands shorter lead times than ever before – next or even same day delivery is the new normal – the agility to respond quickly without resorting to overstocks of perishable items is firmly in the spotlight. Improving Cross-functional alignment between marketing, sales and operations (S&OP) would appear t o be the solution, with implementation of Integrated Business Planning (IBP) considered as the magic bullet for achieving it.
Yet a recent article by Martijn Lofvers, Chief Trendwatcher at Supply Chain Media, reported on findings which show IBP to be at a standstill, with interest in implementing it at an all-time low. Many companies have embarked on IBP and other S&OP processes, only to be frustrated at the lack of results. I decided to dig into the reasons why.
Is it a matter of Planning or Execution?
One of my first thoughts was to question the assumption that Business Performance improvement is all down to planning, when flawless execution clearly plays a paramount role. Which contributes more to business performance and realisation of results: Planning or Execution? IBP / S&OP or Supply Chain and Manufacturing Reliability? Is IBP getting a bad reputation when poor Execution is actually the culprit?
The capacity mystery
Planning needs reliable input. Talking to senior FMCG Supply Chain executives, I learned they have real difficulty obtaining fact-based commitments on capacity (with respect to the IBP process) from plant and site directors. Why is this? Can it be that companies don’t actually have a clear and common view of their ‘demonstrated capability’ of assets and resulting capacity?
Compounding this frustration, other senior executives I spoke to from Chemicals expressed concern about an apparent lack of accountability (within the IBP process) when numbers are actually put on the table. Their senior management’s attempts to close supply & demand gaps are being hampered by plant and supply leaders’ inability to commit to proposed figures for achieving it.
What is the reason behind this? Could it be that these leaders don’t even know themselves what their plant capacity really is? Do they not have confidence in their teams to deliver? Could it be that the variation in daily output and performance and inability to stick to plans makes it impossible for plant management to have a clear view?
The stockpiling consequence
In the food and pharmaceuticals sectors, where phasing products in and out in line with use before dates is a critical factor, Supply Chain executives involved in the S&OP processes told me about their difficulty finding the balance between satisfying demand variation and avoiding unnecessary write-offs due to stock going out-of-date. Their sophisticated inventory optimisation tools always calculate stock levels which are much higher than senior management is willing to invest in.
It’s a classic paradigm. And a bit of a crazy situation, when you consider that stockpiling to mitigate against demand variation is only necessary because of the lack of reliability and agility in supply chain and manufacturing lead times.
It seems to me that disappointment in IBP has very little to do with the planning process, and everything to do with lack of reliability in execution. Companies are pinning their ambitions on tools, when they should be looking at why their supply lead times are so unreliable. IBP / S&OP are only able to deliver value when the fundamental matters they process are taken care of.
Improved reliability is a self-propelling business enabler that has too many advantages to leave unattended. Sort this out, and then you can enjoy the benefits of accurate and effective IBP. It’s simply a matter of getting your priorities right. So what’s holding you back?
Erik Tieleman is Managing Partner Central Europe for R&G Global Consultants in The Netherlands