What is the difference between Sales & Operations Planning vs Integrated Business Planning (S&OP VIBP)?
Supply Chain people 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 few number of stakeholders.
As a company grow, 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 at organizing 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 been appearing, for example: SIOP (Sales Inventory and Operations Planning) or IBP for Integrated Business Planning. Here we will focus on S&OP and IBP.
Many practitioners and experts have been debating about 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 some others argues that these are two concepts.
From my end, I do believe there are different. But, only because I am practical and use it as a 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.
IBP is the new S&OP.
S&OP has been created many years ago with the intent to align supply and demand 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 as well as possible the company resources, to delight customers and make as much profit as possible. Why would one company not want to do that? To achieve that you already needed to include Finance which is the main recognized difference between S&OP and IBP today. In a nutshell, IBP is the new S&OP.
If this was not enough, a new acronym is being introduced: EBP for Enterprise Business Planning. The difference being that IBP 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 when only S&OP existed, to optimize as much as possible companies already involved their majors suppliers in the process for instance. So a bit of a hype and semantic but looking at the bright side it gives 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 into 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 functions against what the company believe 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 is a lot of physical flows involved thus the need to plan in advance is fundamental. It may feel like new industries such as SaaS does not really need a S&OP process but it is actually as important as booking the right human resources with the right skills at the right time is a sine qua none condition to reduce churn and facilitate that rapid growth.
The S&OP is a monthly process made of 4 or 5 steps:
- 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)?
- 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 account 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?)
- Supply Review (week 3): to assess the supply required to deliver the demand and optimize and constrain the plan while providing solution to the demand folks to help them shaping and influencing 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 add a bullwhip effect in the supply chain to produce product A)
- 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 become explicit with IBP due to a stronger focus on profitability.
- 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 performance from a bottom line perspective (therefore it needs 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 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 would not have 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;
- Employee leaving the business;
- Process lead relationship building and business skills;
- Waiting for the “big bang” planning tool solution;
- Process too complex and daunting;
For me, S&OP and IBP are trying to achieve the same 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 improvement within your organization to strive toward higher maturity with IBP.
The goal is in sight but the end is a mirage.
If you are interested in learning more about the potential for your organization to start your S&OP journey or improve yours. Feel free to use this free calculator I prepared, keen to have your feedback.