In the first article of this series, David Ketchin and Peter Martin from Capgemini Consulting discussed the key components within an effective EPM framework. Here, David considers how integrated business planning can enable organisations to more effectively ‘steer towards profit.’
Surprises are no surprise. The question is, what will you do about it?
Even in the good times organisations can be caught out by the unexpected. Businesses that can’t respond in a controlled and profitable way will fall behind the competition and ultimately fail.
Achieving financial forecasts takes more than luck and good foresight. It requires a planning model capable of detecting changes in customer demand and sales trends and then flexing the sales activities and production to secure the targeted financial result.
The considered process of sales and operational planning (S&OP) delivers many benefits, but on its own it does not ensure that a business delivers its top and bottom line performance targets. Nor does it ensure that the business operates within predefined limits. Only integrated business planning can achieve this.
Flexibility is the key
Integrated business planning refers to the alignment of planning, budgeting and forecasting across an organisation’s key functions of sales and marketing, supply chain and finance. In executing this process effectively, an organisation can arrive at a planning result that fulfils its overall strategic goals.
The results leads to plan achievement driven by sales and marketing, in a way attainable by operations, in a financially feasible manner.
Integrated business planning is about understanding what makes money for your business and ensuring you are equipped to make profitable responses to both market changes and unexpected events. It starts with obtaining a good understanding of which channels, customers and products make money, not just in terms of direct margin, but full end to end costs.
Meeting the forecast requires the ability to act decisively and reallocate resources and investments at the right time during the performance calendar, not just during the budget period. Leading organisations go one step further and put contingency and mitigation plans in place, enhancing their ability to act or even change direction quickly.
Working as a team
Integrated business planning requires active participation and commitment across key functions.
Sales and marketing must be more than a passive observer of the planning process, taking responsibility to not only to forecast accurately, but also work with supply chain and finance to shape demand and manage clients’ expectations.
Supply chain must work collaboratively with sales and finance to address the complex questions arising from the goal of end to end profit maximisation, whether matching output flexibly to sales strategy or driving efficiency in both production, and distribution and logistics.
Finance has the responsibility to not only align the planning, budgeting and forecasting processes, but also to ensure that the business has relevant and reliable data to support timely decision making.
Leading organisations take care to avoid or mitigate the typical blockers to effective planning.
Ensuring that the above groups are all participating in an effective planning process is key, but it is necessary to ensure that these groups work in synergy and as such several blockers to an effective process must be addressed:
- divergent functional agendas
- misaligned incentives
- silo based planning processes
- inadequate data and systems
- opaque financial reporting.
Managing these blockers may require efforts that reach beyond core integrated business planning activities. However, failure to do so will negatively impact the planning result, and thus the organisation’s ability to achieve its strategic goals.
Reaping the benefits
Companies that have implemented integrated business planning typically see many benefits.
The benefits of getting the organisation pulling in the same direction, supported by reliable information, cross functional governance, technology and master data management, are substantial:
- faster and more informed decision making, based on an end to end view of the business
- improved customer satisfaction through better on time delivery and fewer stock outs
- improved inventory turns and better management of obsolete and excess stock
- more effective resource allocation between competing projects and investments
- increased ownership of targets and rapid commitment to revised plans
- more efficient planning, both in terms of how long it takes to complete a plan and the amount of resource required to support it.
By ensuring the organisational alignment achieved through integrated business planning, organisations can ensure their ability to more effectively ‘steer towards profit.’
If you have a query about this article, please feel free to email David.Ketchin@capgemini.com.
Links
Enterprise performance management: driving digital value
CIMA in business