Effective supply chain collaboration gives you access to lots of data and information as the basis for your decision-making. But how can you optimally utilize the relevant intelligence to make the right trade-offs that support your long-term success – especially in today’s ‘VUCA’ world? The key lies in implementing an effective operational framework that strengthens your resilience by integrating the financial aspect into your cross-disciplinary planning cycle.
As mentioned in my previous blogs, you can approach supply chain resilience from various different angles, such as by re-assessing your supply chain design or optimizing your agility to respond faster to changes in demand. But in my view, in the context of today’s volatile, uncertain, complex and ambiguous (VUCA) world, it is most important to improve collaboration. This forms the basis for a more dynamic approach to risk management by enabling you to pick up on any subtle changes in both supply and demand so that you can take the necessary action in good time. But what is the ‘necessary action’? How can you optimally utilize all the available information to make effective decisions that will support your long-term business success?
For example, should you scale your production activities up or down? Should you reduce your stock levels, or actually build inventory? And should you downsize your workforce, hire new employees or perhaps re-train existing ones? Business decisions often involve conflicting interests, which can make it difficult to know what to do – especially in times of crisis. That’s why you need to assess the potential consequences for all the various disciplines.
Perhaps your company already works with a Sales & Operations Execution (S&OE) cycle, or a more tactical Sales & Operations Planning (S&OP) cycle. However, in order to support your corporate strategy and give you true resilience, you also need to weigh up the impact of each trade-off on your bottom line. The good news is that the Integrated Business Planning (IBP) process provides a highly effective operational framework for doing this. As indicated by the ‘I’ in IBP, this process integrates the financial aspect into your decision-making cycle based on the same data and assumptions: the ‘one set of numbers’ approach.
As a result, this cross-functional decision-making framework also takes your company’s long-term financial performance into account. This way, despite being surrounded by uncertainty, you can become flexible and adaptable enough to take short-term corrective action based on the right trade-offs, without becoming distracted from your long-term objectives.
During the recent coronavirus pandemic, I have seen numerous examples of how a solid IBP process has helped companies to deal with the uncertainty. At one company, for instance, the CFO wanted to downscale the stock level to cut costs and free up working capital, whereas his Supply Chain colleagues were keen to keep investing in stock. The IBP process showed the way forward; by building a buffer and maximizing delivery reliability, the company has emerged from the crisis stronger than before. Another customer – a confectionery manufacturer in Belgium – had implemented the IBP in 2019. They recently told me that it had been key in helping them to survive the COVID-19 outbreak.
Without IBP, they would have found it much more difficult to anticipate the circumstances, to manage stock levels and to make the right decisions about what (and what not) to produce. In particular, working with scenarios and assumption management especially helps to create an effective and efficient decision-making process – even in times when you have to deal with a lot of uncertainty.
“Despite being surrounded by uncertainty, you can take short-term corrective action based on the right trade-offs, without becoming distracted from your long-term objectives”
So in a nutshell, the IBP process provides the necessary transparency into not only the operational impact, but also the tactical impact of any changes, enabling you to make effective and efficient decisions based on trade-offs. But besides considering your internal stakeholders – Sales, Marketing, Production, Supply Chain and Finance – you should also broaden your view to your entire ecosystem: suppliers and other relevant partners such as investors. They too can play a role in your trade-off decisions in terms of things like bullwhip effects, cashflow and funds to invest in extra capacity or inventory.
If you want to find out more about how to make the right trade-off decisions in order to strengthen your supply resilience, whether by implementing IBP or in other ways, contact me or download our whitepaper.