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 A cash flow is a real or virtual movement of money: *a cash flow in its narrow sense is a payment (in a currency), especially from one central bank account to another; the term 'cash flow' is mostly used to describe payments that are expected ...

, 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

Integration elements

Integrated Business Planning is 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 process A business process, business method or business function is a collection of related, structured activities or tasks by people or equipment in which a specific sequence produces a service or product (serves a particular business goal) for a parti ...

es * Strategy / Outcomes & business processes * Financial and non-financial measures *

Cash flow A cash flow is a real or virtual movement of money: *a cash flow in its narrow sense is a payment (in a currency), especially from one central bank account to another; the term 'cash flow' is mostly used to describe payments that are expected ...

, costs and revenues The role of IBP is to balance these different objectives in a way that achieves the best overall result. One way of accomplishing this is with

prescriptive analytics Prescriptive analytics is a form of business analytics which suggests decision options for how to take advantage of a future opportunity or mitigate a future risk, and shows the implication of each decision option. It enables an enterprise to cons ...

. 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 try to mathematically optimize all aspects of a plan.

History

The term ''integrated business planning'' is an outgrowth of

sales and operations planning Sales and operations planning (S&OP) is an integrated business management process through which the executive/leadership team continually achieves focus, alignment, and synchronization among all organization functions. The S&OP process includes an ...

(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. To better predict customer demand, machine-learning technology helps to identify correlation patterns and automate the detection of demand changes.

Components

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

Applications

IBP has been used to model and integrate the planning efforts in a number of applications, including: * Product profitability *

Customer profitability Customer profitability (CP) is the profit the firm makes from serving a customer or customer group over a specified period of time, specifically the difference between the revenues earned from and the costs associated with the customer relationship ...

Capital expenditures Capital expenditure or capital expense (capex or CAPEX) is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. It is considered a capital expenditure ...

* 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.

Criticism

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, ⁣https://supplychaintrends.files.wordpress.com/2015/12/supply-chain-trend-sop-pulse-check-2015.pdf 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 to the lack of academic and industry standards, there has been an attempt to create an open source definition for IBP:

References