In this podcast, PwC partner Ben Zelinsky describes how traditional business planning for supply chain has evolved to integrated business planning and the benefits it brings.
Dave Hannon, SAPinsider: Hello and welcome, this is Dave Hannon with SAPinsider. Joining me on the podcast today is Ben Zelinsky, a partner with PwC, specializing in supply chain. Ben and I are going to be discussing the topic of integrated business planning as it applies to supply chain today. Welcome Ben, thanks for joining us.
Ben Zelinsky, PwC: Thank you, thank you for having me.
Dave: Ben, I thought it would make sense to sort of start with definitions for folks who may not be too familiar with the term of integrated business planning. What do you consider to be the definition of integrated business planning as it pertains to the supply chain and how is that maybe different from what people think of as traditional business planning?
Ben: Good question, I think it’s a good way to level-set the conversation. Let’s start with traditional planning, and that really stands about 30 years in its life cycle, and it’s been widely used, you know, formerly production planning and it’s evolved into S&OP but around for about 30 years, and widely used by manufacturing companies as a way to balance demand and supply to better utilize their assets and make sure they had sufficient product availability with the appropriate service levels, all the while managing inventory. Now when you think about IBP, IBP takes the traditional planning process and S&OP to the next level, really looking at what drives profitability, based on risk-based decisions that your firm needs to take to be able to better satisfy your customers and their demand planners going forward.
When you think about why we’ve evolved from traditional planning or S&OP to IBP, the traditional reasons why a planning process has fallen short or hasn’t come around and why IBP has stepped up into this role, are, I’ll nail out the reasons first, and I think that the advent of data, structured and unstructured data, to be able to provide information to your supply chain. Traditional planning processes really focus around a customer order, a production order, a procurement order, inventory, and things like that. With the advent of social media data and all that, all data to drive customer and collaboration on both sides, and within the supply chain the traditional planning process just didn’t have that flexibility or that confidence to be able to handle it. IBP leverages a lot of that, a lot of that structured and unstructured data to help make the decision process a little bit stronger.
The next reason I would say that, about traditional planning that’s brought in the advent of IBP is about the lack of support for decision making. The processes and the tools that have been around for the last 30 years have, really haven’t delivered on the promise of being able to do simulations and really help users and business owners make effective decisions on their business, they’ve been really good at producing numbers but they haven’t really been good at offering up you know, potential decisions for business users and executives to be able to make those decisions on which products to sell to what customer at what time at what cost. IBP does that.
The next is the lack of focus on profitability. The traditional supply chain process was really focused on the right product at the right place at the right time. IBP takes that to the next level and at the right cost to be able to satisfy your customers. And the focus on profitability I think is a key change and what we feel at PwC is a real change on the thinking of the way IBP is looked at over traditional planning. Making decisions based on the potential outcome from a financial standpoint is a real driver to what we’re seeing from clients in the market and IBP and profitability is a key driver to the success of a good integrated business planning process.
And then finally the last piece is it ties a little bit to technology and I think all of these are inter-related, we’ll talk about—but the excessive manual effort. So many nodes in a supply chain today with customers, DCs, third-parties, vendors, all those things, with the ability to model that and effectively be able to manage the amount of combinations that are out there. Tools and technologies have really had to come a long way to be able to do that, but they’re still falling short and the amount of manual intervention that users have to put forth to be able to do that is taking too much time and the focus of a true integrated business process is to be able to do things almost in a real-time or in a focused manner, as you said, and the traditional process has just been too cyclical, too manual, and too long to drive through the process.
But despite all those challenges, we still see companies trying to do this and trying to drive out you know, these standard planning processes. We finally feel that IBP is the next step, and we’ll talk a little bit about how we can take them to that first step in the journey.
Dave: Ok, good, good. You’ve done a great job of sort of outlining how this is different from the traditional planning and comparing and contrasting the two. Are there other factors sort of driving organizations to this more integrated approach, are there sort of other trends in the market or business things happening that are making people see the light a little bit in these areas?
Ben: You know, I think that one of the big things that we talk about, and it’s becoming a little bit more relevant today is about segmentation and understanding that you can’t make all the decisions every month, and you really need to focus on the key decisions that really drive your business. And you know, one of the things that we’ll do with companies and quite often is the first step that we’ll do is we’ll go in and we’ll help our clients determine what are actually the key decisions that drive those profitable outcomes that reduce risk, to be able for them to provide a balanced supply chain result for their organization and for their customers.
But that upfront analysis to determine what those key decisions are and what they may be that will drive the entire process, you know, we typically can start with you know, a number around 30-40, but we will typically boil it down into the teens and maybe around ten, to be able to do that. And we recently did that with a large chemical manufacturer to help them from boiling the ocean in their S&OP process all the way down to transitioning down to an IBP process that really focused on seven to ten key decisions that they needed to make every month for every process, to be able to drive the downstream impacts of profitability, risk, and driving margin to their business.
Dave: Ok, great. I know one of the big challenges for supply chain organizations is sort of breaking down the siloes between the different parts of the organization. How is that, how much of that is done organizationally and how much of that can be sort of streamlined with automation tools and technology today?
Ben: Siloes have been one of the pitfalls of the traditional planning process, you know, typically sit either in the manufacturing silo where sales and marketing aren’t, and finance, typically aren’t active participants, and that’s really been a key driver to, you know, some of the finger-pointing and points of contention as we go on forward. I think, you know, from my perspective and what we’ve seen, is that technology has really, has really driven a lot of that because you know, you get to an integrated platform and the process is not as important as the information. The process is still really important, don’t get me wrong, but with the integrated systems, whether they’re ERP systems or planning systems, the amount of information has kind of broken down those siloes and the information has been going—the integrated information, because you combine a piece of inventory with the sale, you combine a piece of finances with the inventory, and the information is really what’s taking down those siloes and we’re really seeing you know, our clients go from a, somewhat of a process-view approach to IBP to an information-based approach to IBP, and that’s, you know, the information is driving the outcomes that they’re looking for.
The processes are still there to step through and they’re still important, but we’re seeing a renewed presence and knowledge around data and the data is really breaking down those siloes. And the level of aggregation that our customers are going to be able to identify that optimal level of IBP is one of the critical decisions as you go forth. So you know, as I continue these themes throughout the podcast you know, I think that determining what those key decisions are for your cycle and what really drives your business is important. And then a second thing I would say is understanding your data and the level of data aggregation, because data really does hold the information—it holds the organization together, and it drives the outcome of the IBP process.
Dave: Ok, ok, great, this is all great information and for companies that want to move towards this model but aren’t quite sure where to begin, what’s a good first step? You had mentioned earlier sort of an assessment phase. What do you usually advise clients to do as a good first step, and maybe who should lead the effort internally?
Ben: Our experience though is that business executives gravitate towards anything around profitability, right, so if you talk about decisions that help make the organization profitable, you can really get executives engaged, and I’m talking the CFO, the COO, and the CEO-type levels in a workshop to really understand the decisions that are made every month or every cycle, that directly impact profitability. And when you make it a conversation about that, you’ll get effective decision-makers in the room and you think about what are those key decisions based on you know, I like to say risk and profitability that your organization needs to address on a regular basis to be able to meet their goals and objectives from a financial and a supply chain perspective.
So when we see it being done successfully, we see it done at the executive level, we see it based on what do you want to do to become profitable, what do you need to do to maintain your profitability, and manage your risk going forward, and we see those discussions being managed by the executive and we think that that’s a first real step to go for if you can identify those key decisions and narrow down what you’re trying to do, you have a real chance of making an impactful IBP process.
Dave: Ok, great. What about sort of success in the longer term, are there other KPIs that companies should be measuring or targeting to sort of evaluate their success in an IBP program?
Ben: The one that I’ve talked about a lot already is about profitability, and profitability by SKU or material and customer, I think that that’s a big, a big measure that we would use in IBP. Another one would be total supply chain cost, managing that cost as you’re going through and making those decisions every month. Timeliness of decisions, and how measuring the amount of time it takes to go from decisions and being able to compress that time as you go forward. And also the amount of collaboration that you’re having and being able to measure the amount of collaboration that you’re having across the parties to be able to make those decisions is a key success driver that we see going forward.
And a lot of the tools that you’ll, that are coming on the market today that facilitate IBP are focused on having major collaboration pieces in it, I think that you know, SAP’s new tool has a collaboration hub in it, so it really facilitates the process, more than just defining the process, and collaboration’s a key piece to that. And measuring the amount of collaboration and being able to go through that and being able to use that as a determining factor I think is a key success factor for organizations.
Dave: Ok, great, that’s a great segue for me to let folks know that on our next podcast we’ll take a deeper look at SAP’s new integrated business planning solution and discuss how things like HANA and cloud are making real-time supply chain planning a little more realistic today than they might have been just a few years ago.
Ben Zelinsky, a partner with PwC, in the supply chain practice, thank you very much for joining me today, and I look forward to our next conversation.
Ben: Thank you, take care.