What is the difference between S&OP Vs IBP? Let me try to answer theis questions.
No one could deny that the existing difference between S&OP (Sales and Operations Planning) and IBP (Integrated Business Planning) has always been the subject of great and interesting debates within the economic context.
Opinions have split into two castes: While some specialists in the supply chain sector believe that there is no difference between the two concepts, others argue that there is.
According to Oliver Wight’s studies, we might note that IBP appears to be a more mature phase of S&OP which means that the IBP can be seen as an expansion or extension of S&OP.
Oliver Wight viewed IBP as an integrated business management process (a set of interrelated and interacting activities) through which the Top Management continually manages to focus and align all functions of the organization. Judging by this, the IBP appears to be a more mature stage of the S&OP.
So if it is that simple then why compare it in the first place?
We must realize that in the current economic context, the S&OP process has reached its limit. Its most common application area is to strike a balance between the demand and supply chain. Although it does solve some financial problems, it does not cover a complete financial forecast for the future.
Let’s review the definition of S&OP and IBP to dive more into details.
Definition S&OP (Sales & Operations Planning):
S&OP is a process to help you deliver better customer service, lower inventory, shorter lead times, more stable production rates, better management control of the overall business, and a team-building mechanism across the whole of the senior management organisation.
It is a cross-functional Planning process designed to keep demand and supply in balance. This is achieved by continually monitoring external market demand changes (through the Sales department) and communicating these changes to the internal organization. Personnel in the Supply Chain, Finance and Production departments utilize this information to optimize purchasing (Inventory) and production (Operations) planning decisions.
- Is board-level agenda item.
- Is an Integrated ‘business management process’ that aligns demand, supply, and financial planning.
- drives gap-closing actions between what you target and what is a business reality.
- Intends to delivery management commitment in a transparent way.
- Deploys the business strategy, and make it stable to all layers of the organization.
I have created a very comprehensive On-Demand Course of S&OP fir Supply Chain Practitioners to explain with examples Why S&OP, S&OP 5 Step Process, Benefits & Practical Barriers in Deployment. Click on the below button to get the course with Free Sales and Operations Planning Process – Self-Assessment
How to Run a S&OP Process – Benefits, Process Steps & Barriers
Definition of IBP (Integrated Business Planning):
There are many definitions of IBP, but the one I like the most is by techtarget.
“Integrated business planning (IBP) is a strategy for connecting the planning functions of each department in an organization to align operations and strategy with the organization’s financial performance.
An effective IBP strategy can help sales and operations balance supply and demand, give human resource (HR) managers the right clues about hiring and training and provide the Chief Financial Officer (CFO) and other C-level administrators with a more comprehensive view of each department’s goals so that areas of overlap can be identified and the company can maintain a sustainable competitive advantage. An important goal of every IBP initiative is to help each department within the organization make informed decisions about product-market strategy, including new product introductions and capital investments”
The Importance of S&OP and IBP Processes in the Industry
- Gives the balance of the Supply and the Demand
- Encourages Proactive Decision Making
- Formalises the Business Communication Processes
- Provides a better integration between different functions
- Enables a well-informed and unified ecosystem (from the supplier’s supplier to the customer’s customer).
- Is a key factor in meeting demand and agile response.
- Is the main integration layer of Total Value Optimization.
- Delivers the right product, place, time, quantity, cost, and business performance.
- Offers stability, support, and motivation to realize real benefits.
Through the S&OP, the Top Management will become able to coordinate various planned activities in the company. Its most important goal would be to develop a comprehensive business plan that integrates various functional planning tasks. Consequently, if S&OP isn’t integrated and works at a cross-functional level, the business may fail.
- Helps allocate key resources (people, equipment, inventory, materials, time, and money) in a profitable manner to most effectively meet customer needs
- Ensure early attention to any potential gaps in business performance.
- Provides outstanding sustainable results and creates transparency between departments.
- Develops a multidisciplinary team.
By enhancing the decision-making ability of IBP, it can be regarded as an effective tool to help companies overcome the challenges they face. In fact, IBP is seen as the best practice and method that combines the financial and operational data of the entire organization. Indeed, by linking strategic plans with sales, operations, and financial plans, it can enable companies to maximize output and thus better understand the relationship between resources, capabilities, and results.
S&OP Vs IBP – What is the Difference?
The way to explain the key differences between S&OP Vs. IBP my best reference point in the conversation I have with Gabriel Werner on my The Supply Chain Show. The episode is embedded below.
But the key takeaway is the picture below.
Image Copyright- S&OP Vs IBP: BlueYonder
So we arrive to the same conclusion where we started that, IBP is an extension of S&OP. Achieving maturity in S&OP is challenge in itself with many barriers which I have explained in this video. The mid -to-short term aims for organization to achieve a high level of S&OP Maturity and then embark a journey to adopt IBP, which comes with it fair share of challenges to overcome as explained below.
Challenges in moving from S&OP to IBP:
- Attract major customers and suppliers
- Model finances in an agreed-upon way of handling complexity: discounts, discounts, exchange rates, pricing, etc…
- Consider business goals: market share/growth, channels, impact
- Business language (EBIT, revenue, cost, margin) instead of supply chain KPI (OTIF, DOH, CTS)
- Change the focus from 1 number plan to managing risks and opportunities
- Include project management to maximize the business impact of new product introduction (NPI)
- From data to insights
It is clear and obvious that S&OP and IBP processes have many similarities: Both require supporting data, which helps to align forecasts with functions and guide managers to make planning decisions. The difficulty is that although most information is available, it is rarely displayed in the correct format.
By way of conclusion, and after knowing the importance of each of the two processes in the industrial environment, in particular, after having approached their specificities and differences, we had the opportunity to discover several facets of each process alongside the challenges of each one.
It is notable that there are differences on various levels: Objectives, focus, affiliate department (Owner), features and finally connectivity. As explained, IBP starts with the organization’s financial forecast. As a tool to move the organization forward, it is completely different from S&OP, which originates from the supply chain and its main goal is to adjust production and sales.
While S&OP is seen as a process of helping to manage the demand and supply of manufacturers by creating a single production plan in cooperation with the sales and operations department. In turn, the IBP is similar to a business planning process that extends the principles of S&OP throughout the supply chain, product and customer portfolio, customer needs and strategic planning to provide a seamless management process.
What should be noted in particular is that to successfully implement the S&OP or the IBP, it is imperative to pay attention to a series of steps to follow in order to achieve the expected results, simply because they are tools highly developed to ensure the efficiency of the Supply Chain.
If you like to further add your experience in the debate of S&OP Vs IBP, feel free and leave in the comments.
Special Note: This video is sponsored by Blue Yonder