Small and midsized manufacturers are increasingly using integrated business planning (IBP) to maximize operational performance and meet financial objectives. Also referred to as ‘sales and operations planning (S&OP)’ or ‘merchandizing, inventory, and operations execution (MIOE)’, IBP focuses on continuous alignment of demand, inventory, supply, and manufacturing plans at the executional, tactical, and strategic levels.
When you do IBP right, the payoff is significant. According to a recent study by Aberdeen Group, companies that do IBP well realize the following improvements:
- 47% increase in year-over-year gross profit margins
- 2.7% decrease in year-over-year cash-to-cash cycle time
- 28% improvement in orders that are on-time-in-full
- 31% better forecast accuracy three months out
Here’s how to use integrated business planning with SAP Business One.
Running IBP Scenarios in SAP Business One
You can only align functions correctly when you do so at the executional, tactical, and strategic levels. Here’s what each contributes to IBP and how SAP Business One makes it happen:
Executional planning balances and aligns near-term supply and demand (maximum 90 days), making decisions in real time to ensure the fulfillment of customer orders and the maximization of revenue and cash flow.
SAP B1 does this with dedicated workflows, alerting, exception-based messaging, and views into supply and delivery operations. B1 also lets you run scenarios based on numerous execution factors, such as the amount of overtime allowed for employees, if discounted orders can receive expedited shipping, etc.
Tactical planning involves aggregated planning for anywhere from 90 days to 2 years. These plans are to ensure company alignment with the right supply chain partners, as it optimizes operations in line with forecasted demand.
SAP B1 enables tactical planning by allowing you to run a wide range of scenarios, including those based on your most optimistic and pessimistic forecasts, changes in product needs, production capacity, supplier capabilities, warehousing options, and more.
Strategic planning focuses on balancing and aligning operations over a 3- to 10-year timeframe to answer the questions that will define the direction of your company, such as:
- Do we introduce a new product line?
- Should we change the country of manufacture?
- Should we sell product in Asia?
- Where should we warehouse products for the European market?
SAP B1 helps by modeling alternative scenarios. Through modeling, you can see how strategic elements affect financial projections and plan investments. You can also compare multiple potential strategies to see their outcomes measured by both volumetric and financial metrics.
Four Critical IBP Steps to Take
To maximize the effectiveness and ROI of your IBP, take complete advantage of SAP Business One and perform these four critical IBP steps:
Model processes in a way that synchronizes your strategic and tactical planning.
This is the only way to ensure your strategic plans have sufficient basis in operational reality.
Make simulations, comparisons, and ‘what-if’ scenarios common practice.
Management of your major functional teams should model your entire supply chain; this will reveal gaps between your supply capabilities and expected demand, which you've forecasted out for months and years.
Develop (accessible) plans that evaluate financial and volumetric performance.
Eliminate silos of information in finance, sales, production, procurement, etc. to make scenario planning easier and more realistic as well as to prepare you to respond faster in the event of a supply chain disruption or a sudden sales opportunity.
Compare actual performance against plans.
Your plans aren’t worth much if you can’t measure how you’re performing – use reporting to find significant gaps between plans and actuals. Having aligned your departmental information into a unified information system will allow you to devise options for putting the company back on track quickly.
Midmarket companies pursuing growth strategies need to plan better, as fluctuations in customer demand and increasing supply chain complexity can significantly affect financial outcomes. To ensure you hit your short- and long-term goals, leverage a unified information system like SAP Business One so you miss nothing and can respond if the outcomes vary from the plan.