Mike Reed, Managing Partner at Oliver Wight Asia Pacific, explains why Integrated Business Planning (IBP) is critical for retailers in such an unpredictable and constantly changing market.
As the saying goes, ‘change is the only constant’, and nowhere is that truer than in the retail industry. Following years of tough conditions, at last the market is showing positive signs. But with rapid and unpredictable changes in fashion and consumer preferences, and substantial seasonal variations, retailers have their work cut out. Couple this with growing competition from overseas, rising customer preference for online shopping, and ever-strong demand for lower cost products, incremental change is not enough. Retailers need transformational change to ensure their business models are up to scratch in the new retail climate. Integrated Business Planning (IBP), with its power to plan the business over a 24-36 month rolling horizon, is a retailers’ most potent weapon.
Integrated Business Planning tops retailers’ wishlist
Retailers have always strategically planned for store growth, but too often they have lacked the proper processes to be able to assess how these activities impact the committed plan over a long enough horizon to make cost-effective trade-offs and establish contingency plans. The greatest benefits of IBP are the integration of business planning processes over this longer horizon and the transparency of plans. With IBP the senior executive team has an accurate and holistic view of the organisation over a 24 to 36-month rolling horizon, thus providing retailers the perfect platform to innovate and respond positively to changing conditions, in plenty of time.
Initially a Sales and Operations Planning (S&OP) tool, IBP has evolved over the past 30 years to extend the principles of S&OP throughout the supply chain, product and customer portfolios, customer demand and strategic planning, to deliver one seamless management process.
Powered by a monthly planning and review cycle, IBP has five sequential steps (see figure one):
- Product Portfolio Management Review
- Demand Management Review
- Supply Chain Review
- Integrated Reconciliation Review
- Management Business Review
Buying in to the process
So where does IBP in the retail environment begin? While everybody in the organisation needs to buy in to IBP, and commit to it, ultimately that commitment has to begin at the top. Failure to gain executive backing means the process is destined to fail. Then, process owners are needed for each of the five key monthly steps to fully embed the new model (see figure two).
Let’s look at each of these reviews in a little more detail.
1. The Product Management Review
The primary purpose of the product management review is to plan and manage product portfolios, including new product launches, pricing strategies, seasonal event plans, and financial appraisals of margin goals. As with any best-in-class IBP review meeting, primary focus should be on exceptions, and making strategic decisions; centring on events and plans with planning horizons of four to 24 months.
2. Demand Review?
The IBP demand review meeting typically occurs two to four days after the product management review. The primary purpose of the demand review is to reach consensus on the demand plans and forecasts, by merchandising category, store format and online sales, with a rolling planning horizon of a one to 24 months at an aggregate product level. Crucially, this is when actions are developed to close gaps or exploit opportunities to drive more sales.
3. Supply Review:
The supply review meeting is the next sequential step, typically two to four days after the demand review. The main objective of the supply review is to assess the retail supply chain capabilities for store-level, as well as distribution centre order fulfilment, over a rolling planning horizon of one to 24 months at an aggregate product level.
4. Integrated Reconciliation and Financial Appraisal:
The integrated reconciliation (IR) step is used to resolve issues discovered during the monthly IBP review cycles. The goal of the IR step is to resolve as many issues as possible without having to escalate them to the executive-level MBR. For issues that are not resolved prior to the MBR, the IR team members will formally define the issue, broker solution alternatives, and ensure recommendations are provided to the senior executives at the MBR for so they can make an informed decision.
5. Management Business Review:
The MBR is a decision-making meeting, focused on a rolling business horizon of four to 24 months. The highest level executive in the retail organisation, typically the CEO, president, or general manager, is the executive sponsor and process owner of the MBR. Attendees are the process owners of each review, and include the CFO as well as the IBP process leader.
Collaboration in the bag
Leading companies who continue to migrate towards excellence in business processes and strengthen their supply chain are realising the benefits of linking two leading supply chain best practices together: Integrated Business Planning and Collaborative Planning Forecasting and Replenishment (CPFR®).
While CPFR® is the leading external collaboration tool - covering a lot of details, with a near-term planning horizon of weeks/months - IBP is a powerful internal management process, looking at the wider strategy and focusing on the long-term 18-24 month rolling horizon. By linking these two successful tools, each becomes even more effective, and the collaborative benefits even greater. Not only is it the logical step in improving forecast accuracy and supply chain collaboration, it provides early warning of demand and supply synchronisation issues between partners, allowing them to work together to develop win-win solutions.
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