What is the difference between Sales & Operations Planning vs Integrated Business Planning (S&OP V IBP)?
Supply Chain people have always needed to lead and drive a repeatable and cross functional process in order to align supply and demand continuously within the organization in the short to long term.
This has always happened. Otherwise, no products and services would go out of the door, or it would not delight customers and probably be unprofitable for the organization.
In small companies, this is usually done without any structured process. Typically, this is performed implicitly by the founder or a small number of stakeholders.
As a company grows, it needs to structure this process in order to align everyone in the company who focus on different objectives every day of the week.
So what is true to S&OP and IBP is that they both aim to organize the company to deliver the right products or services at the right time, with the right specs to the right customers.
Why S&OP and IBP are similar yet different?
A few decades ago, Oliver Wight coined the process Sales & Operations Planning (S&OP).
From there, over the years a number of other acronyms have appeared. For example: SIOP (Sales Inventory and Operations Planning) or IBP for Integrated Business Planning. Here we will focus on S&OP and Integrated Business Planning.
Many practitioners and experts have been debating over the differences between Sales & Operations Planning and Integrated Business Planning. There is no right or wrong answer. Some argue that it is the same and others argue that these are two different concepts.
From my end, I do believe they are different. But only because I use it as a practical way to distinguish maturity level.
However, I believe the essence is exactly the same. You will often find me talking about S&OP as the generic word.
Is IBP the new S&OP?
S&OP was created many years ago with the intent to align supply and demand planning within medium to large organizations in a structured way, using a repeatable and cross-functional process with a monthly drumbeat.
When it was created, it was all about balancing the company resources as well as possible, to delight customers and make as much profit as possible. Why would a company not want to do that?
To achieve that, you already need to include the finance, which is the main recognized difference between S&OP and Integrated Business Planning today.
In a nutshell, IBP is the new S&OP.
As if this was not enough, a new acronym is being introduced: EBP for Enterprise Business Planning. The difference being that Integrated Business Planning is for internal stakeholders while EBP is the introduction of external stakeholders (customers, suppliers; etc.) within the monthly process.
Once again, I get it. But 30 years ago when only S&OP existed in order to optimize as much as possible, many companies already involved their majors suppliers in the planning process, for instance. So a bit of hype and semantic, but looking on the bright side it offers a better and easier way to memorize maturity level:
A basic Supply & Demand interface is level 1 maturity;
S&OP is level 2;
Advanced S&OP is level 3;
IBP is level 4;
EBP is level 5!
Let's dive into S&OP definition and IBP evolution in more details here.
What is S&OP?
Many definitions exist.
The simplest way to understand S&OP is to see it as a continuous way to synchronize every internal function against what the company believes is the demand it can sell, and agree on the most efficient way to fulfill that demand too early or too late.
The process is more developed in some industries such as Manufacturing, FMCG (Fast Moving Consumer Goods) or Retail, as there are a lot of physical flows involved. Thus the need to plan in advance is fundamental.
It may feel like new industries such as SaaS do not really need a S&OP process, but it is actually just as important.
The capability of booking the right human resources with the right skills at the right time is a sine qua none condition to reducing churn and facilitating rapid growth.
The S&OP is a monthly process made of 4 or 5 steps
1. Key Account Reviews (week 1)
To build the unconstrained forecast bottom up (e.g. per key accounts to capture, what could be sold for that account if supply is unlimited)?
2. Demand Review (week 2)
To combine the unconstrained bottom up forecasts and check if it makes sense at company and market level (e.g. if all key accounts in a mature and large company believe they will double sales over the next 6 months, it is potentially unlikely that the market can absorb that?)
3. Supply Review (week 3)
To assess the supply required to deliver the demand and optimize and constrain the plan, while providing solutions to the demand folks to help them shape and influence that demand (e.g. you may not have product A but your customers may be happy with an alternative version at a small discount which would be better off than incurring extra costs or adding a bullwhip effect in the supply chain to produce product A)
4. Alignment review (week3/4)
To align senior stakeholders to provide the best suite of recommendations to the executive session. Depending on the company culture this may be implicit or explicit. This often becomes explicit with the IBP process due to a stronger focus on profitability.
5. Executive review (week 4)
Much has been said about this, so I invite you to check out the web to learn more about it!
So what is in IBP that is not in S&OP?
Integrated Business Planning is about reaching the same objective as S&OP, but really making sure any decision is explicitly considering the bottom line impact on the P&L as well as looking longer term to ensure it fits with the company strategy.
The most recurring recognized differences between S&OP and IBP are:
Measure financial implication and business performance from a bottom line perspective (therefore it needs to integrate that continuous financial assessment with an appreciation of profitability and not only costs);
Alignment to company strategy (not only on the 3 to 18 months horizon but the strategic full long term, albeit not at the same granularity);
Inclusion of portfolio management and revenue management (with Sales, Marketing and related functions).
To be honest, if IBP hadn't been "invented" all the above would still fit very well within S&OP.
What are the 7 main reasons why S&OP or IBP decay over time?
Limited leadership engagement;
Lack of visibility of the benefits;
Lack of process workflow and automation;
Employees leaving the business;
Process lead relationship building and business skills;
Waiting for the “big bang” operational planning tool solution;
Process too complex and daunting;
For me, S&OP and IBP strive towards achieving the same strategic objective. I believe IBP was created to simplify communication about maturity level – and let’s be honest, a bit of marketing is behind it as well – but putting this aside, IBP is the new S&OP and you can leverage this to foster end-to-end improvement within your organization to strive toward higher maturity with IBP.
The goal is in sight but the end is a mirage.
Co-founder & CEO, Metronome
"Accelerating your digital transformation is easier than you think."