Deploying Global IBP Process in CPG Company

Background

As the market context has changed dramatically from the 1980 s in a step function way- each step being almost a decade long, the scope of traditional S&OP has expanded with every passing decade. Traditional S&OP has evolved into Integrated Business Planning or advanced S&OP. The focus of this white paper is to understand what goes into deploying an IBP process successfully in a global consumer products company.

The reason why a global consumer products company has been chosen for discussion in this white paper is the fact that it is at the forefront of experiencing and adapting to the new market realities. When we talk about some of the trends in the markets impacting businesses like customer-centricity, volatility, shared economy, hyper-connectivity and focus on profitability, each trend impacts a consumer products company more significantly than companies in other industries.

When we consider a global consumer products company via-a-vis a regional or national consumer products company, the challenges go beyond just managing the market trends. One challenge is the to manage the humongous scale of operations. The other challenge is balancing regional/national level market dynamics with global level priorities. Last but not the least, challenge of running a sustainable business becomes critical because the impact that a global consumer products company has on the environment, societies, communities and even the national governments is significant.

At the outset, we have to acknowledge that more often than not there exists an effective S&OP process in a global consumer products company. So, the question then becomes: what will the “new” IBP process offer that is already not there in the current S&OP process? Rather than going into how IBP is better than S&OP which many white papers do, instead in this white paper, the focus would be on deployment of a successful IBP process.

How does the organization structure impact IBP deployment?

There is always a debate whether strategy comes first or the structure but we will not digress into that topic and start with structure being a given. Essentially IBP is the process for effective execution of business strategy and organization structure influences how IBP process is designed, deployed and adopted. The design of the IBP process has to consider the deployment aspect from the beginning as far as a global consumer products company is concerned because the way such a company is structured and functions to execute its business strategy is vastly different from a company without a global foot-print and one which is not impacted by market dynamics to an extent a consumer products company is.

A global consumer products company due to its inherent nature confronts balancing two sides of the coin in its business operations on a continuous basis: establishing global brand identity versus going for regional/national basis of brand identity, introducing standardized product features at scale versus market specific variations not at scale, aligning operations to wholesale vs retail vs digital fulfillment channels each with differing set of priorities and unique characteristics,  catering to different customer buying behavior across the markets for the same type of products, having inventory ownership at a global level versus at a regional/national level and so on. In order to operate effectively in this context, the global consumer products company’s structure in highly matrixed with roles and reporting structures typically aligned on axis of geography and global function i.e. product category (skin care, oral care, hygiene products etc).

An IBP process is about creating a single version of truth that sets the tune to which the whole company marches. But in the matrix structure of the global consumers products company, how to get to a single version of truth is a compelling question that needs to be answered. The part of the answer lies in understanding the importance of the “people part” while deploying the IBP process. One essential tenet of the IBP process is to select enterprise owners (EP s) for each of the big process blocks i.e. Product Management, Demand Management, Supply Management and then one separate one for Integrated Reconciliation (IR) and Management Business Review (MBR) led by a project leader with team comprised of individual EP s and cross functional leaders with MBR being chaired by the Managing Director/CEO. The EP s, project leader and functional leaders in the IBP process are senior management leaders. The EP s responsible for their individual process areas have team comprising of senior and middle management leaders from geographies and across functions. So, staffing the IBP team with right people chosen from the company is the first critical step.

Once the IBP team is staffed with right individuals, armed with clear role definitions, the next critical step in IBP deployment is driving appropriate behaviors. In the context of global consumer product company’s structure with geographic business unit (BU) and functional product category leadership, for the IBP deployment to be successful, it is imperative to meticulously adhere to the process. For example: let’s say that North America BU’s demand management team comes up with a particular set of consensus demand plan numbers across product families and the EP for demand management gets on a review call with functional leader who has global responsibility for Hair Care product family and he/she wants the number for this product family for North America to look different from what they are so what should be done? The EP for demand management has to take this input and discuss with North America demand management team and consider this as a vital part of the IBP process. Usually, in this scenario the head of North America BU who is ultimately responsible for his/her P&L is also a key stakeholder as the North America demand management reports up to this executive. In case there is no resolution to what final consensus demand plan numbers should be, in adherence with the IBP process, this topic should be raised in the Integrated Reconciliation meeting and finally in the MBR where the Managing Director/CEO with his top management executive council would make the final decision. Without this solid IBP process adherence, people would normally succumb to the reporting hierarchy in the company and the numbers would be arbitrarily changed or over written based on the reporting executive’s discretion.

Apart from the people dimension, the second part of the answer for arriving at one version of truth that will drive the company, is the system supporting the process and empowering the people to make the right decisions. In the matrix structure of the global consumer products company, there are often multiple versions of the numbers that get created for anything and everything and no single person owns the number or knows where these are coming from. Even though the people and process part of IBP deployment is well defined by following what has been described above, without the right data available for making decisions, the initiative will not succeed. In order to get the right data, the underlying systems have to be streamlined and one integrated system platform running through the entire company has to be created. The integrated platform should be scalable, high performing, intuitive to use and powered with out-of-box analytics so that aggregation and disaggregation of data for the entire company is quick, easy, usable and generates insights at various levels hierarchy.

With the structure taken care of in the IBP deployment, we will now consider the next challenge to be tackled.

What does, being global yet being local means for IBP deployment?

Global consumer products company has some unique challenges, as we discussed in the previous section. Although the company has a global product portfolio and brands with global identity, a fair amount of localization happens to compete successfully in the local markets. In terms of product line extensions, pricing, trade and consumer promotions, product labels and product distribution, is almost entirely customized to the markets served whereas other areas like product portfolio management, brand management, policies related to sales and marketing, inventory norms and ownership are mostly at a global level. Support functions like HR, IT, Legal and Finance have a local, regional as well as global bifurcations. Overall, what this means as far as IBP deployment is concerned, is to answer the question: how much of IBP process should be standardized and how much should be customized? In order to answer this question, we have to examine some of the core tenets of the IBP process.

One of the core tenets of the IBP process is that it should be a rolling process looking at least 24 months out into the future. What this means is that big picture view or aggregate level planning is essential when we talk about 24 months and sometimes 24-36 months out. The Business Plan, which is at the core of company’s strategy looks usually five years out. This does not mean that it is not revised for five years, but some of the core strategic decisions like in what markets and how the company is going to compete and what kind of strategies it will use to compete globally and in different markets given the backdrop of technology evolution and disruption, trends in consumer behavior, environmental impacts, macroeconomic trends, government regulations in different markets, are usually immutable. The Annual Operating Plan is derived from the Business Plan and forms one of the core inputs of the IBP process. As IBP process looks 24 months and sometimes 36 months out, it also extends beyond the Annual Operating Plan horizon and that is where long gestation decisions that will go into supporting the Business Plan and which will have an impact in the mid and short term have to be considered. From a CAPEX standpoint some of the long gestation programs center around adding new manufacturing and distribution facilities, closing some and upgrading some; research and development expenditure on product, service, material and process innovations; investment in supplier base and capability development; investment in technologies and processes to reduce carbon footprint; and collaborating with governments on infrastructure i.e. market building initiatives. The IBP process essentially acts a rope that connects the long-term objectives in the 18-36 months period with the mid-term objectives between 6-18 months period and short-term objectives within the 3-6 months horizon. The horizon within the 3 months is usually entirely execution oriented. The local market related aspects usually impact the short and mid-term horizons with a tight integration between the Annual Operating Plan, Demand Management and Supply Management processes. The Product Management process looks both in the mid-term and long-term and influences the decisions regarding New product Introductions globally. At a local level it influences, product line extensions that will be required to achieve the disaggregated Annual Operating Plan numbers. Some of the product attributes particularly shelf-life and seasonality have a significant impact on the local Demand Management and Supply Management processes.

Given this context, the IBP process has to be a standard one so that it is aligned with the Business Plan at one end with mechanisms to manage the Long, Mid and Short-term horizons tightly integrated with Annual Operating Plan on the other end. The IBP process should be able to anticipate and then enable addressing the gaps between Annual Operating Plan and Business Plan across the horizons in a timely fashion. The role of Scenario Planning hence is another core tenet of the IBP process as its hard to predict the future- more so when it extends further out and hence it becomes imperative to be ready for the future with guidelines, procedures and policies for addressing both the Upside and Downside of business. In this regard, risk management of the company should be built into each of the plans coming out of the individual processes- Demand Plan, Supply Plan, Inventory Plan, Financial Plan and then during the Management Business Review (MBR) process, multiple plans should be discussed with supporting assumptions so that the top management could take a very informed decision to ultimately generate the single version of truth numbers to the tune of which then the company should march. Another, important thing to notice is that with the Monthly cadence that is the essential feature of the IBP process, the Short-term execution related variations and changes could be addressed at the same time as Mid and Long-term considerations are being addressed. This is the beauty of the IBP process that the company does not lose the sight of the forest by getting stuck in the details of the trees yet it could still maneuver effectively going through the trees.

So, having discussed some of the core tenets and features of the IBP process if designed for and adhered to are greatly helpful in deployment, now we come to the last section of this white-paper. Let’s examine how to tackle the next challenge and derive some more insights regarding the IBP process and what goes into its successful deployment in a global consumer products company.

Sustainability and how it impacts IBP deployment?

A global consumer products company has a very important role to play as a responsible citizen organization of the World. Whether its conservation of natural resources, being carbon neutral in the drive to preserve the environment, helping societies and communities face challenges related to affording basic and necessary products and services and equipping them to lead a better and more fulfilling life and collaborating with local governments in public expenditure on initiatives that have a significant impact on nation and market building are some of the areas that a global consumer products company leads or supports as a key player. In this regard, sustainability aspects should be embedded in all the IBP process areas particularly Product Management, Demand Management and Supply Management and the plans that are created as part of these process areas should have these documented in their assumptions. As we discussed in the earlier section, risk management is a key consideration of IBP deployment in today’s volatile and high pace environment. The company needs proactive risk identification, risk assessment and risk mitigation strategies, tools and processes to address risks originating from non-sustainable operations proactively. So, this is one dimension that needs to be considered while deploying the IBP process.

However, IBP deployment should not only account for sustainability aspects from a risk management stand-point but also from the view of enabling smooth supply chain operations. Whether it’s introducing products made from ingredients and materials which are beneficial for the environment and human consumption; reducing carbon produced from manufacturing, transportation and logistics operations or developing suppliers based on their sustainability scores, all these “sustainability” oriented supply chain activities impact the Demand and Supply balancing in the supply chain. For this reason, the IBP process needs to enable running supply chain operations with least disruption so that ultimately the global consumer products company is able to meet both its sustainability as well as business goals successfully.

Conclusion

We have discussed in this white-paper what the global consumer products company needs to consider while deploying the IBP process in the context of specific set of challenges that the company faces. If these considerations are addressed properly as elaborated in this white-paper, the IBP deployment would turn out to be a success. As a parting remark it suffices to say that there is no benefit in designing a process that cannot be deployed successfully. With this white-paper, I hope we are able to help you consider the right things and make the right choices while deploying the IBP process in your company.