Integrated Business Planning requires Executive-level endorsement and approval in order to achieve cross-functional collaboration on a cyclical basis.
Monthly/Quarterly IBP Cycle
Inventory Management is an essential pre-cursor to Integrated Business Planning, focused on reducing risk and cost.
- Standard MRP logic identifies required materials based on forecasted demand, bill of materials, and current inventory levels
- Mis-matching of lot-sizes along the supply chain inflates demand
- Economic Order Quantity (EOQ) is still a widely used measure particularly by ERP system designers, but it has significant limitations
- Devised in early 1900 but still embedded in ERPs
- Insensitive to changes in quantity
- Inventory to achieve “safety stock” is therefore an uncomfortable necessity in most supply chains
- The carrying cost of inventory is a function of many variables
- Service level and inventory management parameters must reflect the differences of products/margins across the range of SKUs being addressed
- Out-of-stocks lead to lost sales, which can quickly be significant
- There are at least seven ways to optimise inventory below conventional safety stock levels, which all contribute to an Integrated Business Planning process
- Postpone replenishment orders
- Segment and prioritise customer order management
- Complexity reduction (finished goods, WIP, customers, order points, stocking points etc)
- Network optimization
- Demand forecast accuracy (throughout the supply chain)
- Reducing production and delivery leadtimes through localisation/VMI
- Out-sourcing non-core activities (e.g. spare parts deliveries)
Effective inventory management drives uncertainty out of supply chains; a joined-up approach delivers this most effectively.
If you can get inventory management right, uncertainty and therefore safety stock is significantly reduced along the supply chain
- Reduce stock requirements by applying core supply chain principles (e.g. postponing orders)
- Compress lead times
- Reduce complexity in the supply chain (e.g.disintermediate)
- Challenge “sacred cows” e.g. lot sizes, EOQs etc
- Then address the root cause of uncertainty in demand and supply through IBP
Four key principles for Integrated Business Planning make this is likely to be achieved
- Join up both ends of the supply chain (customer demand with supply availability) through a robust, cross-functional forecast management model)
- Build the discipline throughout the business (sales, marketing, finance, logistics, product and manufacturing)
- Critically, ensure IBP is C-suite sponsored
- Pilot, test, deploy, refine, redeploy
To find out how WBS can assist your inventory optimisation in your organisation simply contact us for an initial FREE no obligation consultation.