Integrated Business Planning (IBP) is a process for translating desired business outcomes into financial and operational resource requirements, with the overarching objective of maximizing profit and / or cash flow, while minimizing risk. The business outcomes, on which IBP processes focus, can be expressed in terms of the achievement of the following types of targets:
- Revenue & demand
- Service levels
- Inventory levels
- Profits & margins
- Cash flow
Integrated Business Planning is often defined in different ways. One challenge in developing a common definition of IBP is that there is no universally agreed way of describing different degrees and forms of integrated processes. Mature IBP processes enable organizations to bring together different elements of planning into a single process. This includes, but is not limited to, the following:
- Supply & demand
- Finance & operations
- Functions & business processes
- Strategy / Outcomes & business processes
- Financial and non financial measures
- Cash flow, costs and revenues
The role of an IBP process is balance these different objectives in a way that achieves the best overall result. One way of accomplishing this is with prescriptive analytics. These tools are often employed in these processes to mathematically optimize parts of a plan, a classic example of which is inventory investment. The most mature IBP processes leverage IBP to mathematically optimize all aspects of a plan.
The term Integrated Business Planning is an outgrowth of Sales and Operations Planning, or S&OP, a term referring to processes that balance demand with manufacturing resources.
There has been a lot of focus on Integrated Business Planning in the context of Sales and Operations Planning. Gartner refers to a 5-stage S&OP Maturity model wherein IBP is referred to as the Phased 4 & 5.
Integrated Business Planning however is broader than S&OP. It is an approach that combines Enterprise Performance Management (EPM) and S&OP to provide incremental capabilities that neither provides individually. In so doing, IBP platforms address long-standing challenges that financial and operational professionals have struggled to overcome. The result: opportunities for step change improvements to how manufacturers plan, manage and govern their business. Here, the focus is on strengthening the financial integration and reconciliation of plans, as well as increasing the responsiveness of the supply chain using ad-hoc reports and what-if scenario analyses.
Integrated Business Planning requires the following capabilities to be enabled:
- a) Enterprise Model
- Ability to create a demand chain model
- Ability to create a supply chain model
- Ability to create a finance chain model
- b) Integrated Planning
- Ability to create a plan across multiple functions
- Ability to create predictive and collaborative plans
- c) Enterprise Optimization
- Ability to create optimized plans across multiple constraints
- Ability to create financial integration across optimization
IBP has been used to model and integrate the planning efforts in a number of applications, including:
- Product profitability
- Customer profitability
- Capital expenditures
- Manufacturing operations
- Supply chain
- Business processes (human and information-based)
- Business policy
- Market demand curves
- Competitive strategy
All of the above can be summarized as Enterprise Optimization use cases.
Some argue that IBP is not any different from S&OP. Patrick Bower has described IBP as a marketing hoax, a name developed to create confusion and sell consulting and system services. The main proponents of IBP are consulting companies. In response to this criticism it has been asserted that IBP is not a marketing hoax, but an important part of Enterprise Performance Management (EPM) system.
Another criticism is that IBP is not academically defined and is supply chain biased in its definition. The lack of academic standard leaves room for interpretation to what IBP is, which is confusing practitioners. In a 2015 S&OP survey, 32% of participants answered that there is no difference between S&OP and IBP, 20% “did not know”, and 71% of participants answered that there is a need for more industry standards around S&OP.
It has been called out that IBP has a lack of governance and in need of an industry group to create a unified definition. Due this lack of academic and industry standards, there has been an attempt to create an open source definition for IBP. This definition is as follows:
Integrated Business Planning (IBP): A holistic planning philosophy, where all organizational functions participate in providing executives periodically with valid, reliable information, in order to decide how to align the enterprise around executing the plans to achieve budget, strategic intent and the envisioned future.
- ^“Gartner – Introducing the five-stage Sales & Operations Planning maturity model”.
- ^“IBP Industry Week cite web”.
- ^“Integrated Business Planning (IBP) – Camelot – Management Consultants”. www.camelot-mc.com. Retrieved 2017-07-17.
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.