As we note in Chapter 13, Sales & Operations Planning (S&OP) is a critical element in making aggregate planning work. A recent report by McKinsey & Company advises that the unprecedented challenges created by Covid, the war in Ukraine, and what have become chronic supply chain issues, suggest that S&OP be replaced by a more encompassing approach. They call their approach Integrated Business Planning (IBP).
McKinsey’s more encompassing IBP approach consists of five essentials:
1. A business – focused design that covers the midterm time horizon (3 – 24 months) and enables strategy implementation and target achievement.
2. High-quality process management with cross-functional decision makers empowered to resolve issues immediately.
3. Accountability and performance management with shared metrics to encourage collaboration across stakeholders with set targets and clear direction to resolve the trade-offs among conflicting Key Performance Indicators.
4. Effective use of data, analytics, and technology so timely integrated information is available to optimize real-time decision making.
5. Specialized organizational roles and capabilities with specific process owners to promote functional excellence and cross-functional collaboration.
McKinsey’s research indicates that this more encompassing well-functioning IBP process, can yield one or two additional percentage points in EBIT and increased service levels, while lowering freight costs and capital intensity. Additionally, customer delivery penalties and missed sales are reduced, as well as making planners more productive.
Classroom discussion questions:
1. How does McKinsey’s IBP differ from the standard S&OP discussed in Chapter 13?
2. What are the organizational changes appropriate to move from a S&OP process to an IBP process?