The phrases “supply chain crisis” or “VUCA world” could probably be some of THE buzzwords of the last 3 pandemic years. Implementing an integrated business planning framework would therefore be especially supportive for your exports, as those are often “at the end of the queue” when availability is tight.
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What is Integrated Business Planning (also known as IBP)?
According to Wikipedia, IBP could be defined as:
It’s not a clearly defined academic term though (& quite supply chain focused) which has led to some accusing the proponents of a marketing hoax claiming it’s no different to the older term “Sales and Operations Planning”. My argument would be that even just the term “integrated business planning framework” is more likely to engage the financial and production departments than something that has sales in the title…
IBP allows companies to bring various processes together under one umbrella. That could include for example
- Supply & demand
- Finance & operations
- Functions & business processes
- Strategy / Outcomes & business processes
- Financial and non-financial measures
- Cash flow, costs and revenues
You can probably see from that list, that this is also quite similar to the list of topics that international sales teams have to have some kind of overview on, which is why I think that using IBP could especially help to improve export sales.
Why is an Integrated Business Planning Framework so important?
The volatility of the past couple of years has hit many companies really hard. There have been backlogs for deliveries leading to production delays which have meant lost revenues and the whole geopolitical situation has driven margins down in many industries including consumer goods.
The only way to combat this is by becoming increasingly agile and leveraging automation tools to help make faster decisions.
Consumer packaged goods companies (CPG) must be more responsive to changing market conditions than at any other point in history. On the demand side, constant shifts in macroeconomic conditions have led to ever-changing consumer behaviour and preferences. On the supply side, CPG companies are navigating an inflationary environment and sourcing constraints. To better and more quickly recognise, predict, and respond to changes, CPG leaders are increasingly embracing next-generation planning solutions and processes such as IBP.
Questions such as the following come up increasingly frequently:
- How can Consumer Products companies leverage tools to predict potential future supply disruptions before they occur?
- How can you ensure your demand analysis and planning processes are fit-for-purpose in a rapidly-changing world?
- What are the key technology and process levers for managing a CPG company in an inflationary environment such as the present?
- At most CPG companies the sales and supply chain functions work fairly closely together on integrated business planning. How can this increased collaboration unlock growth opportunities?
- How can companies incorporate ESG metrics into their business planning?
- What silos need to be broken down?
It’s complicated enough if you’re working in a domestic sales environment right now – your supply chains are likely to have been stretched to breaking point a few times in the past months. However if you are working internationally, you don’t only have to consider the production side supply chain, but also a long demand side supply chain through to your end-consumers.
Digitalisation isn’t just a buzzword
It can feel like “digitalisation” has been bandied around for several years now, but in realistic terms, if companies are to become more agile in crisis then they have to embrace it wholeheartedly.
The crises of the past few years (trade war US-China, pandemic, war in Ukraine…) have only highlighted the fact that many companies are still working effectively in silos. However, if you’re going to manage complex customer supply relationships spanning the globe then you really need sales, procurement, production, marketing and finance to be in alignment. That means breaking down the silos to allow a free flow of relevant information and to assist in making swift decisions.
Is that too abstract?
How about we take an example based on a true case:
Jane Smith’s Super Duper Cookies deliver to 23 countries around the globe. In 2022 sales in the Far East grew by 60%, which was great. However it could have been more – they received orders totalling a plus of around 150% but were unable to deliver on time for the Chinese double 11 promotions. Why? Well, lots of factors that combined. Sales didn’t plan such huge growth as they felt the distributor in China was being overly optimistic. The raw materials planners couldn’t get enough vanilla in the required quality as they had locked in their purchasing contracts at the end of 2021 and the margins for error were not that large. The production department were focusing on a big order for the Canadian domestic market & anyway, cashflow was tight so there was a delay also on the packaging material supply. So by the time at least a part of the products were ready, the supply chain team were unable to get containers…
At least a part of those problems could have been reduced by working with an integrated business planning framework as one of the core aims is not only to have better forecasting, but also to be able to respond better and faster to urgent issues that arise.
What are the Challenges in Planning for Consumer Packaged Goods?
This could be the topic of a whole post, but I’ll try to keep it short.
Compared to other kinds of product, there is an additional layer of complexity to many CPG products: there is an expiry date to both the raw materials and the finished goods, so when both supply and demand are volatile things get really complicated. Trying to get great forecasts in place is really complex as the time frames involved for planning are often quite long compared to the speed of changes on the market. It’s like mission impossible to predict exactly how many strawberry & basil icecreams you’ll sell with the South East Asian recipe in the Philippines in March of next year.
Companies have ever more data available to them…but when it comes to making the necessary decisions for the business then they often complain they don’t have the right data quality at their fingertips. (Ask almost any company why they didn’t hit the plan for x…& at the root you probably have decisions made on the basis of poor or insufficient data).
For a company producing in Europe, the time horizon from the minute of production through to the goods being consumed in say Korea could look something like this:
- 2-3 weeks quality control after production
- approx 1-2 weeks additionally for preparing the export shipment documentation and getting the goods out of the door
- 6-8 weeks transport to the Far East
- 1-2 weeks customs clearance
- another week for local stickers to be applied maybe
- delivery into retail
So it could be easily 4 months (or longer) between the production date and the consumption date, assuming you don’t airfreight the goods. And that’s quite an optimistic calculation.
If you then look backwards (upstream) in your supply chain and think about when do you need to order with your suppliers in order for them to produce on time for you (or to grow the ingredients you need) & you can easily be at a year or more…
So anything you can change in your processes to make the forecasting better and reduce the time needed is likely to result in less waste and more efficient processes. And fresher goods on the shelf mean more sales in many markets, especially in Asia, South America or in Africa.
But we’ve got more data than we know what to do with?
Maybe, but it’s not all actionable which is what an integrated business planning framework should help you with. In that way all departments should be working in the end from a “single source of truth” even if they all continue to focus on their specialisations and have their own KPIs.
Even in huge corporations there are 2 main clusters of data: the numbers in the ERP system and probably the BI warehouse, and then there’s the unstructured data that is in people’s heads. Whilst it would be amazing to have something like a pensieve, AI isn’t at the point of reading our thoughts yet. (Although it would be fantastic to be able to download all the work information from any single day to an external drive so it can’t be forgotten!)
So one of the challenges remains how to institutionalise the unstructured data tsunami that pours into companies every day. How many emails do you have from clients with snippets of market intelligence such as changes in demand or competitor activities, which even if you have a CRM system, are unlikely to be transferred there?
Think about it: if a key sales person for the domestic market leaves your company it leaves a hole for sure and they take a certain amount of knowledge with them, but if that’s the international area manager then you may find that effectively ALL the “soft edged” market intelligence has walked out of the door with them.
How can those kinds of information be systematised so that they can flow into your planning considerations? If you can’t organise this kind of data into knowledge then it can’t be used for your forecasts or decision making.
Structured knowledge can help you find the insights for WHY changes are occurring on your markets so that you can make better scenario planning and forecasts. You need to be able to answer questions such as:
- why did we miss the plan?
- was it the plan which was wrong or the data it was based on?
- why did x happen?
- why didn’t we know early enough to do something?
- based on the present crisis situation what are the results of 5 different scenarios?
I’m sure you’ve heard about the advances that AI is making right now, and it’s likely that in the near future, there will be much better tools to deal with these issues and scrape unstructured data out of sources such as emails to turn it into actionable data. This then in turn helps contribute to continuous improvement of the company’s market knowledge rather than it being locked into a couple of people’s brains.
Digitalisation will be the key for the necessary progress
Up until now a lot of data analysis was carried out by human talent and whilst that guarantees there is a certainly kind of plausibility check within the system, it limits the amounts of data that can be processed. Allowing AI to assist with structuring data and running risk analysis scenarios will greatly speed up your understanding and analyses. The people in your teams can then spend their time actually deriving insights and using those for more rapid decision making, rather than actually crunching the data themselves. This can make a world of difference for export markets.
For short term planning and forecasts this is likely to be a complete game changer as they will probably be able to be automated to a large extent, and the medium-long term planning (& scenario analyses) will be more human driven.
Is Integrated Business Planning the key to improving your Export Supply?
Communication between departments and collaboration will be key to shortening the decision making and improving risk assessments for the future and as we know these 2 points are really crucial for international success.
High risk events seem to be becoming increasingly frequent (be it the pandemic, war, trade wars, political unrest, labour shortages, raw material shortages) and cost increases are escalating. In the face of those facts, it’s more important than ever to improve the speed and accuracy of your forecasting and ability to make data-based decisions. Of course, when you’re selling to multiple markets across the globe, it’s not only the supply side volatility that affects your results but often also the demand side where you might not have those deep insights in 2023…
The old methods of long term planning horizons of 5 and 10 years are becoming less and less meaningful as it’s simply impossible to forecast that far ahead. Taking 2 years to evaluate a new project is just not on – the markets will have completely changed within that time and you will have lost your momentum. Companies need to move to a more agile approach if they want to stay competitive across multiple markets.
Export clients in many companies are at the back of the queue for receiving products when things are tight, so any methods of improving the forecasting and decision making has to be a win. Being out of stock on the shelves is one of the fastest ways to lose consumers and to be honest they don’t care about WHY that’s the case.
This isn’t a magic bullet solution (nothing I’ve heard of till now is!) but IBP certainly seems like a step in the right direction and is being practiced already by companies like PepsiCo, KraftHeinz or AB InBev. Using a truly end to end planning solution means that all departments should be on the same page when it comes to priorities and planning. Yes, it means a mindset shift away from old practices and is certainly only possible with increased communication between all stakeholders & clarity from top management around the priority tasks. That should however help improve availability, reduce stock carrying and speed up processes, especially for clients who are further away from the company’s home base and therefore more likely to suffer in a crisis.
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