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Make better decisions in a fast-paced world with integrated business planning

Planning future events is essential for every organization in order to maintain focus and direct the business in each market situation with selected strategic goals. A good planning framework guides and warns when unexpected events start to occur and supports holistic decision-making in a neutral setting. The decisions are based on receiving reliable information in a timely manner. This helps to identify the necessary resources and creates a transparent continuum of real strategy execution. The direction is continually calibrated, according to the external and internal signals.

We currently live with the COVID-19 restrictions, which have greatly impacted the global economy. Individual companies have taken many different approaches to address this unexpected and hard-to-predict event. It is a so-called black swan event, that is outside of the range of normal expectations. While epidemiologists have long warned about pandemics, companies have rarely included these risks within their active scenario planning (or even conduct it actively) with a sophisticated automated trigger system of planned mitigation actions. This would need to be based on very mature integrated business planning (IBP). Let’s examine this in more detail.

Is there any solution to cushion the impact of black swans, even when “business as usual” is often hard to predict? Yes, there is - integration is the key for streamlined planning, budgeting and forecasting. Any level of integrated planning is better than none at all. It can significantly improve a company’s resilience to unexpected events.

Why IBP is now more needed than ever

  1. Demand volatility has increased with global competition and product customization supported by rapid technology changes. This increases customer choices while at the same time having an impact on upstream supply fluctuations, e.g. raw material shortages.

  2. Supply complexity has increased with multiple opportunities within subcontracting manufacturing and logistics operations. Supply chains are broader in scope and include goods that are distributed across worldwide supply chains. Physical goods, software and services are combined and both customer segmentation and differentiation create a further need for optimized supply chains.

  3. Input cost volatility is a constant and increasing challenge for profitability. All commodities (e.g., aluminum, gas, or petrochemicals), experience sudden market shifts due to environmental or political changes.

  4. Non-linear connection between costs and volume fluctuates with a mix of fixed and variable costs. Some costs vary by volume and others by time. This makes it more difficult to understand the financial implications of business decisions.

In demand-driven companies, all signals (both strong and weak) are important and cannot be missed. They can arise internally and externally from sales and customers, product development, supply networks and from finance projections.

Remove waste by aligning planning processes and supporting better decision-making

Integrated business planning is a system of processes or a philosophy that aligns different planning processes of the company together with one set of numbers and aims for optimizing the company’s strategic targets, like overall profit maximization or cash flow, depending on the strategy set in each time period.

A mature IBP approach removes waste caused by maintaining multiple plans in silos. This helps top management to make better decisions with one set of numbers. It accelerates business decision-making, removes uncertainty and reduces inefficient meeting time. This makes decisions more transparent and easy-to-follow. Clear responsibilities and accountabilities across functions are assured. Strategic plans have a direct link to a company’s monthly tactical plans and daily operational execution. Therefore, it also assures a solid feedback loop for any required strategy revisions during the year.

IBP extends the principles of traditional sales and operations planning. It effectively utilizes forward looking performance measures, aligns a company’s operational decisions with potential financial performance (cost, cash) across different timeframes, products and customer combinations. It also reduces the complexity of necessary trade-off decisions. This ensures that the overall value is maximized and the various constraints are transparent and understood.

IBP ensures that a company’s entire value chain and real-time business realities are evaluated on a regular basis during the year (usually monthly). This makes IBP a powerful collaboration platform to ensure the optimal allocation of critical resources, like people and capabilities, equipment, inventory, materials, time and money to effectively satisfy customer demand in a profitable way.

Practical examples of integration include the following: 

A continuous improvement mentality is critical in driving and maintaining integrated business planning. Continuous learning, commitment and positive behavioral change from one planning cycle to another bring sustainable business benefits for the entire company. IBP is also all about people and culture. People committing to the long-term vision, values and culture of the company create the connection to an effective integrated business decision-making approach, while efficient IT solutions and one common data model support this.

Midagon can help you to revise the maturity of your planning processes and tools to identify possible areas of integration. This will allow your data, IT systems platform, planning processes or collaboration capabilities to be taken to the next level.

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