IBP vs S&OP. Our What is Integrated Business Planning (IBP)? article notes that IBP is an Executive Management planning process that allocates financial resources to each operational unit of a corporation in order to support the corporation’s overall strategic direction. IBP also aligns the supply chain and operations plans with the corporate financial plan.
Determine The Financial Costs Of Supply And Planning Decisions
Organizational metrics are important. S&OP plans often focus on objectives like on-time in-full (OTIF), inventory turns, and resource utilization. This drives team members to focus on achieving these objectives. Overall profitability of decisions made to support these objectives might not be top of mind for team members.
Financial plans typically focus on metrics like revenue, budget adherence, profitability, working capital requirements, and of course the impact on cash. Companies drives Finance team members to make decisions that further financial objectives.
Support Long-Term Strategy
S&OP vs IBP, they have distinct time horizons that are not in alignment with one another. Supply chain practitioners often make plans for 10 to 12 weeks of operations; financial practitioners typically plan for an entire fiscal year.
Financial budgets are not only an internal goal, but collaborators report them often to boards of directors as well as to financial markets and stockholders. Consequently, organizations frequently feel external pressure to meet financial forecasts. The internal details of how those forecasts are met, including choices regarding manufacturing cycles, raw material purchases, and customer service levels may not be shared publicly and therefore be viewed as “discretionary” for meeting targets.
IBP allows to integrate the S&OP plan with the financial plan. We can make each operational production decision in a way that highlights the value of that decision to the corporation. We can address competing metrics, like the different metrics for the S&OP team and the finance team; to find solutions that maximize value across the entire corporation.
Financial Planning IBP vs S&OP
The IBP plan supports development structures and processes that drive adherence to the corporate financial plan by incorporating the organization’s profitability margins, budgeting, budget adherence, and financial alignment needs.