Tool

Balancing and decision-

making

– in Integrated Business Planning

Sales & Operations Planning (S&OP), and Integrated Business Planning (IBP), are both about balancing demand, supply and finance. It is about making cross functional decisions and executing the decisions to keep this balance in line with company strategies and targets. ​

 

Timely decision-making ​

Supply Chain decisions are not always aligned. So first of all, we recommend that you check whether you are making the right decisions in the right time horizon.

For example, you should make decisions concerning more production capacity (e.g. a new plant) in the Strategic/S&OP horizon, whereas in-/decreasing manning belongs to the Operational horizon.

Example
How do you plan for your vacation?​

Here, we use an example from vacation planning to show the different planning levels at different time horizons.

When we plan for vacation, we make different decisions at different time horizons – we make it simple and easy for ourselves​ to make the right decisions at the right times. 

4-8 months before

The vacation time is identified and the vacation is booked

  • First, we identify the time when we are going on vacation
  • Then we book the hotel, the flight etc.
3-12 weeks before

We start planning what to do on the vacation and perhaps prepare the packing list​

  • We plan which sights or specific cities/districts we are going to visit. Perhaps, it is not planned on specific dates, but maybe on a daily bucket list. For example, we spend one day visiting the capital, one day at the most visited sight​ etc.
  • We begin to consider what to pack in our suitcase, and are maybe buying new equipment​.
0-3 days before

We pack the suitcase and buy small groceries

  • We do the last things such as packing our suitcase - the things we pack depends on the destination, duration and means of transportation. ​
  • If we had included this detailed level in the initial phase, it would have created noise and contributed with very little value. Also, packing the suitcase before we have selected the destination might induce several​ rounds of re-packing​.

Three main components of decision-making

Prepare scenarios

If you want to design the right scenarios, risk mitigations and contingency plans, you need to understand what business goals S&OP/IBP is supporting. It can for example be growth, profitability, responsiveness, CSR, and net working capital reduction.​

Having the business goals in mind, you can build scenarios in the following way:​

  1. Identify opportunities and uncertainties ​
  2. Develop reasonable scenarios bottom-up that have a clear link to the business goals​
  3. Conduct profit and risk analyses of the different outcomes​
Prepare recommendations​

You must prepare and present recommendations in a simple executive overview – but also, you must remember to include all the background analyses available for those who need more information. ​

You must present your recommendations as decision proposals with a KPI overview and profit analyses. And you need to make the consequences and outcomes of the different decisions clear.​

Executive decision meeting​

You review the consensus S&OP/IBP plan that has been generated in the prior steps. This is the final final step in the balancing and decision process. ​Now is the time and place, if you have to resolve any outstanding demand or supply risks and opportunities that require executive decisions​

The outcome of this step is executive acceptance and approval for the recommended decision proposals. When you have achieved consensus, you communicate the plan and execute upon it, and then cycle begins again​.

Scenario planning

You use scenario planning to be one step ahead of coming events; risks as well as opportunities. It enables you to create create strong and reliable decision proposals to counter and/or exploit upcoming events, which will support the overall strategy of the company. It is important to highlight that you can also use scenario planning to evaluate future opportunities in order to secure successful exploitation.​

Scenario planning is a great discipline for supporting the dialogue and decision-making at S&OP/IBP meetings in complex and volatile environments. Such environments are characterised by emerging markets and long supply lead times. Using scenario planning, you can provide a structured approach to identifying drivers, scenarios and possible outcomes.​

You can read our article on scenario planning in Sales & Operations Planning here

Types of scenarios for S&OP/IBP meetings​

You need to be capable of making decisions to create an effect with your S&OP and IBP processes. The only decisions you should escalate to the executive meeting, are decisions you could not not solve during the demand or supply meetings. 

 

Generally, there are two types of scenarios for the executive meeting:​

Gap closing

Gap closing activities are typically situations where demand exceeds supply. But it can also be the other way around.

 

An example could be a growth scenario where we need to evaluate different options to meet the future demand. ​

New opportunity​

New opportunities are typically related to the possibility of pursuing new markets or customers. It could be tenders, geographical expansions etc.

 

However, in certain industries with constrained supply situations, it might be the opposite way around, where production have the opportunity to e.g. expand with new production capacity.​

Key questions for making the right decision​
  • Is this new opportunity profitable?​
  • Is worthwhile pursuing?​
  • How will it influence the current supply?​
  • What is the best, mid, worse case?​