Why Do Many Integrated Business Planning Initiatives Fail to Live Up to Expectations?
Survey Finds Lack of Financial Integration is a Common Gap
[Source: SCM Portal – Oliver Wight Americas] Too often, Integrated Business Planning (IBP) fails in its mission to help companies allocate critical resources – people, materials, time and money – effectively and profitably.
A new survey of sales and operations planning (S&OP) professionals, recently conducted by Oliver Wight Americas at the IE Group S&OP Innovation Summit in Boston, finds that many companies are missing a crucial step to success when implementing IBP that may ultimately be putting their bottom line and shareholder’s trust at risk.
The survey found that financial controls are too often put at the bottom of the priority list across operational functions in an S&OP or IBP implementation. Nearly half of respondents (45 percent) said that financial controls, including inventory valuation and disclosure, are not adequately considered in their S&OP or IBP program.
“In many instances, the implemented S&OP or IBP process is in trouble from the start if it is not being directly tied to specific financial results,” said Jim Matthews, principal for Oliver Wight. “A company’s target-setting methodology for key metrics needs to be coupled with the S&OP or IBP process, allowing it to make the critical linkages between the company’s growth goals and commitments to shareholders.”
Companies Lack Alignment with Financial Priorities
The survey also found that less than one third (28 percent) of S&OP professionals say the financial controls introduced in the S&OP or IBP process will “completely align” with their company’s financial objectives.
Matthews continued, “IBP at its core is about aligning and synchronizing the company; aligning who does what, and synchronizing when it is done. When this process is done right, each operational function, including finance enables informed decision-making for company executives and their strategic planning for the organization at large.”
Sarbanes Oxley Reporting Requirements Not Considered
Additionally, the survey found that companies are missing adequate financial controls and regulatory oversight in implementing S&OP or IBP. It found that more than half of S&OP professionals (51 percent) do not factor Sarbanes Oxley Act requirements into their S&OP or IBP processes.
“When designing an S&OP or IBP process, it is crucial for companies to factor Sarbanes Oxley Act requirements into their design in order to make accurate projections to shareholders about the company’s expected performance over the next year and beyond,” said Matthews. “By not incorporating this essential element they may be missing an opportunity to create more repeatable and sustainable business improvement and results,
He went on to comment, “In many cases, financial targets are out of reach, or it may require significantly more resources to achieve desired results than are currently available. This imbalance can create significant financial risk and impact the company’s bottom line if the company is not able to deliver on its promises.