04 Sep 2023
The level of scrutiny of supply chain operations within organizations has never been more acute than in the last three years, due to disruptions caused by the COVID pandemic, extreme weather and war. The value of having an effective Integrated Business Planning (IBP) process, which enables an organization to “check and correct” their core plans (product portfolio, demand and supply), and the resulting financial outlook over the 24-month planning horizon, has been crucial to successfully guide organizations through changing circumstances. In this blog we look at seven key factors that support supply chain effectiveness and increase the value of supply chain contribution to the Integrated Business Planning process.
A fundamental part of the IBP process is to ‘check in on the plan’. In the case of the supply chain organization, this means using the monthly cadence of the IBP process to check in on the planned capacity across the elements of the supply chain and to understand what has changed and whether this creates an issue/opportunity. A key principle to use is the concept of demonstrated capacity. This means that the forward plans are based upon ‘what has been demonstrated in the recent past’, taking into account seasonal factors, as well as any improvement plans such as new equipment, planned improvement activities, changes to people plans etc.
Within IBP, the Supply Review step has evolved to encompass the full end-to-end supply chain scope, taking into account procurement, manufacturing, warehousing and logistics. It is no good, for instance, to have capacity to manufacture products if raw material, componentry, or packaging are not available. Use the monthly cadence of IBP and the Supply Review to check in on the capacity and capability plans across the supply chain.
A core purpose of IBP is to ensure alignment of the product, demand and supply plans. If there is any gap between the planned supply capacity and the required supply capacity, that is a trigger to take action to close the gap. The earlier a gap between planned and required capacity is identified, the longer the time an organization has to do something about it and close the gap. All requirements on capacity, once identified, should be shared with the supply planning team to ensure visibility.
There are two types of uncertainty that the supply chain planning process should deal with. Firstly, uncertainties associated with the product and/ or demand plans that mean the required capacity is uncertain. Sharing these vulnerabilities and opportunities as outputs from the Product Management Review and Demand Review allows the supply chain team to determine the supply contingency plans required to deal with the uncertainty associated with the latest product and/or demand plans. If the IBP process does not make the uncertainties visible, the supply team will always be scrambling to react, rather than responding with a thought-out contingency plan.
Secondly, uncertainties associated with the supply plan mean the planned capacity and/ or cost of the supply plan is uncertain. In this case, the supply team should use the IBP process to share these vulnerabilities and opportunities with the product and demand teams so that they can create contingency plans to deal with the uncertainty associated with the supply plan.
Without the view of the costs of the supply plan (typically the largest bucket of costs in the business) out across the 24 month planning horizon, the financial projections are typically based on standards set at the time of signing off the current budget year, which may now be significantly different to the latest forward view. Best practice is to be able to generate a forward projection of cost-to-serve, but underpinning this will be key input costs (raw materials, packaging, traded finished goods, inbound logistics), conversion costs (labour, energy and waste) and outbound costs (outbound logistics and warehousing). This is one of the most common improvement opportunities for the Supply Review that we see. The trick is to focus on the big costs, the significant items that will materially impact the overall supply plan cost if their cost changes.
Every supply chain or operations manager is typically working on, or responsible for, a number of improvement projects and initiatives at any one time. Cost is often a key focus, but quality, responsiveness and reliability are also areas the supply side of the organization should continually be looking to improve. An effective Supply Review should therefore include a check-in on the current and planned improvement activities to understand any changes since the previous cycle and their impact on the forward plan.
The leading exponents of IBP use the monthly process to deploy and check-in against strategy. Where the IBP view of the future indicates a gap versus the strategic goals, this is the trigger for IBP participants to work on actions to close the gaps. For supply chains, this means using the IBP process and Supply Review to check-in on progress towards the supply chain team’s strategic objectives and the projects and initiatives required to achieve them.
These key factors are the heartbeat of a robust aggregate medium-to-long-term supply chain plan, and by incorporating them in your Supply Review design, you will enable your organization to extract maximum value from the supply chain contribution to your Integrated Business Planning process.
For more detailed information on the key factors outlined in this blog, read our white paper: Supply Review – delivering value.
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