Tracing the evolution of S&OP and IBP

What exactly is the difference between Sales and Operations Planning and Integrated Business Planning? This is a highly debated question and we have a lot of supply chain gurus pitching in with their opinions. While some feel that IBP is a marketing hoax, primarily created by the consultants, others (primarily the consultants, again) feel that IBP is more than just S&OP. If we look into literature, we can see that S&OP is a term that is clearly defined, while IBP is something that doesn’t even have a coherent Wikipedia page. This is clearly a bad start for IBP’s credentials considering that there are many IBP solutions in the market aiming to transform the way businesses do business. This article aims to clear that bad blood by tracing the history of S&OP, identifying the origins of IBP and then juxtaposing the motives of these two systems.

The origin of S&OP can be traced back to the late 1980’s when it was first introduced by Richard C Ling and Walter E Goddard in their book “Orchestrating Success: Improve Control of the Business with Sales & Operations Planning”. The book is considered a classic with many of its principles being of relevance even today. To put it in context with the larger history of Supply Chain concepts, this was the time when MRP2 was hugely popular and ERP systems were just about to make a splash in a really big way. Business functions like sales, finance, and production were operating in silos and improvements were focused on core processes in their respective functional environments. There was no one number scenario and different numbers were the norm. Finance provided the annual budget which was the point of resolution if conflicts arose owing to different numbers of sales and production.

S&OP was supposed to become the connecting factor between different functional silos and it made sense as well. It doesn’t mean that interdepartmental meetings didn’t happen before 1988, but these meetings revolved more towards making MRP1 and MRP2 more stable. Ling and Goddard pioneered the concept that manufacturing and production shouldn’t be the driving force but instead, they should be driven by demand. It made sense because, for a supply chain, demand and supply were the main drivers, while inventory, customer service, fulfillment were resultant attributes. Simultaneously bigger changes were happening at an international level. The Maastricht treaty of 1992 came into force and Europe had become a single market. The planning complexity compounded with the increase in geographical coverage. Country wise planning gave way to regional planning. As time progressed, the pace of technological advancement increased exponentially and planning solutions started getting in vogue. The amount of data available started exploding and the tools to manage them also started getting smarter. The supply aspect of S&OP initially referred to the production, extended its scope as well and started to include sourcing. Supply Chain optimization became the key to cutting costs and sourcing decisions.

Companies started getting aggressive as well. Newer products started hitting shelves at a faster pace and Product Introductions became a part of the scope for traditional S&OP. The late 1990s and early 2000s started seeing the introduction of new products into the S&OP planning process. The turn of the millennium also saw cultural shifts. The successful organizations had grown pretty big and bureaucracy was becoming a major problem. Companies found it costly and difficult to compete with nimble start-ups that didn’t have bureaucracy stifle innovations. This led to flattening of organizational structures to improve the pace in which innovations were translated from drawing board to product/service catalog.

Hoshin Kanri, the 70s Japanese term, found new relevance in this era and strategic deployment became easier and more efficient with this flattening of organization structure. S&OP and Strategy deployment seemed like a marriage made in heaven as S&OP became the key tool that helped translate strategic objectives into tactical plans. It was around this time Integrated Business Planning made its entry. One analyst from Gartner was of the opinion that S&OP, historically, has failed to link strategic and operational plans and Integrated Business planning evolved to fill this gap.

While businesses kept growing the complexity kept increasing. The rise in complexity gave rise to the need for efficient tools for handling them. The size of data started growing but the way data was stored made it unwieldy to extract intelligence from it. Towards the end of the 2010s, the concept of In-Memory computing started gaining traction and acceptance. This solved the problem of massaging terabytes of data in much lesser time than it was possible earlier. It also helped POS data to act as one of the inputs into the S&OP process. With the advent of Big Data and the need for scenario planning in S&OP, S&OP started to mean a lot of things with a lot of aspects under its scope. Somewhere in this timeline of events, the S&OP envisaged in the late 1980s lost its meaning. The definitions of S&OP still remained the same as it was in the 1980s – a demand-driven process aimed at balancing demand-supply and volume-mix. The current scope started to seem more aptly defined by the term Integrated Business planning than the traditional S&OP.

Integrated Business Planning gained prominence post-2010 and seemed to be a sufficiently broad term to describe the expectations of S&OP and related processes. Pure play S&OP made sense to be classified as a subset of Integrated Business Planning instead of trying to be everything for everyone. A number of analyst firms seemed to concur on this evolution of IBP to be the pinnacle of collaborative planning. Gartner, for examples, considers IBP to be the highest level of S&OP maturity. The way companies define S&OP and IBP also seem to add to the confusion. Some companies claim that their tools provide improved simulation, modeling, scenario planning, the inclusion of strategic plans etc and this helps customers transition from S&OP to IBP. This is confusing because it gives the feeling that IBP is nothing but a fancy S&OP solution. IBP, as we have traced out goes beyond the confines of S&OP and is not just an advanced S&OP solution. It is in this context that SAP’s IBP suite of applications makes sense. The SAP IBP suite of applications is an overhaul of their existing planning solutions to provide an integrated solution. Setting aside my inherent SAP bias, let me reiterate that S&OP is a subset of IBP. IBP provides a framework for an integration of decision making across departments and silos. It encapsulates the company’s planning function at its shortest horizon to its longest horizon. S&OP is an integral subset of IBP that sets the tone for the rest of the plans. Thus by tracing the history of S&OP, it helps us to understand and put things in perspective of how IBP and S&OP are different in a fundamental way.

Note: This article is the third in the series of S&OP blogs put up by me. You can view the them here and here.