The pandemic has put a spotlight on the importance of the supply chain and its connectivity to finance, sales and marketing. And it has drawn attention to the need for balancing your changing customer demand across varying channels with an effective inventory planning strategy.

Oftentimes, financial planning is disconnected from business operations, including the supply chain. This has become an even bigger issue during the pandemic, with disruption and uncertainty shaking up the traditional rules of financial planning and forecasting.

Traditionally, sales and operations planning covers limited finance areas. That's where intelligent demand and integrated business planning (IBP) have a role to play. IBP isn't just another acronym; rather, it refers to the integration, harmonization and reconciliation of the operational, financial, sales and marketing sides of the business. Getting there requires some work, but the payback is tenfold.

IBP and the supply chain

Financial planning is enriched when taking the supply chain into account. For organizations that have a strong supply chain component to their business, IBP starts with ensuring you have an integrated view of your supply chain. For example, the physical location and movement of goods should be driven by intelligent demand and advanced inventory management, using concepts such as rapid deployment centres, regional distribution centres and last-mile delivery inventory close to the consumer in a nimble manner.

Ensuring you have an integrated view of your supply chain requires the ability to intelligently track changing demand and the movement of inventory from suppliers into your network. So, for instance, that means you don't ship goods on the basis of the plan you created two weeks ago. Rather, you alter and shape that plan based on the latest demand signals, including but not limited to external signals such as weather, competitive data and even social media data.

As you get closer to the consumption point and 'true' demand, you're able to leverage additional demand signals via digital channels to better understand how a product or attribute will impact consumer behaviours or scenarios. This helps better understand what will affect demand and, if necessary, adjust how you purchase product from its source, how you move product and how you plan your financial capital expenditures. Ultimately, this saves time and money, while yielding a better consumer experience.

IBP institutionalizes this practice in such a way that finance, marketing, sales, IT and supply chain activities are harmonized and connected. IBP isn't necessarily about trying to explain uncertainties, but rather reducing uncertainties to a point where your organization can model scenarios, reduce error, reduce risk and plan in the most efficient way possible.

Critical success factors for IBP

Having visibility into the supply chain helps sales, marketing and finance plan margins and profits more holistically and accurately, especially in a context where consumption is significantly changing. But a critical success factor in making IBP work is a strong data governance structure—with a function specifically dedicated to the supply chain data governance and centre of excellence. That's because making sense and use of more advanced, complex data will be difficult if you don't have a foundation in place.

Aside from data governance, critical success factors include a commitment to change management, as well as a willingness to apply IBP over the long-term. The IBP journey lasts several months, sometimes years, which typically isn't a selling point for executives. If you can package IBP in a way that shows quick wins within one year (which is certainly possible), then you'll have a better chance of gaining executive support to pursue and increase IBP maturity.

Like many other business concepts, you need to crawl before you walk, and walk before you run. It takes about 9-12 months to implement IBP, per point of maturity. So if you're starting off at a low level of planning maturity, it may take a while to get to a 4 out of 5 maturity level.

A fully integrated IBP means that:

  • FP&A and S&OP processes are tightly integrated
  • Leading indicators are used to drive decisions
  • Supporting operations and financial systems are integrated internally and externally
  • Business partners are integrated into key decision-making
  • 'Agile' outsourcing is in place
  • Cross-functional incentives support better business decisions
  • Your environment is part of a holistic digital strategy to enable automation

How you can benefit from IBP

The first question is where to start. Companies that are better at planning (such as through intelligent demand and inventory management) are more predictable, and companies that are more predictable generate a better return on equity. This is true across most industries. Previous KPMG research shows that, of 450 companies surveyed across more than 10 industries, those that applied these principles had a significant higher return on equity. To help companies get started on their IBP journey, KPMG has developed a streamlined approach to get IBP-ready and on the path toward a more integrated view of operations and financial data.

Best-in-class companies gain agility from improved planning capabilities. That means they improve their ability to respond quickly to unplanned events and mitigate risks more effectively, better evaluate constrained and unconstrained scenarios and opportunities, and improve inventory and service policies and adherence. This ultimately leads to better service, with more sales, additional margins and a better customer experience. What could this mean for you?

  • A successful IBP implementation typically results in a 1% to 3% margin point increase across revenue, costs and assets—plus increased predictability.
  • 'Predictable' companies deliver a substantially higher return on equity than unpredictable companies (by 4 to 14 points, depending on the industry).
  • 'Predictable' firms rarely miss earnings expectations, while 'unpredictable' firms often miss earnings expectations.

Source: KPMG in Canada

By engaging in IBP your business will not simply improve operational efficiencies in the supply chain, but you'll become more predictable in terms of how much you commit to and how much you deliver. And that plays a large role in attracting talent and generating value for the company as a whole. It's not so much a supply chain or financial planning implementation—but rather a value chain digital transformation across organization, process and technology.

No matter where you are in your transformation, our team of specialists in finance, supply chain and operations can help. Contact us to learn how.

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