Transcript
You’re listening to Supply Chain @ KPMG. A KPMG podcast series that addresses your supply chain needs from strategy through execution.
Mary Rollman: Welcome to the KPMG supply chain podcast. My name is Mary Rollman, and I lead the supply chain practice at KPMG. Our topic today is all around S&OP or IBP, a very traditional supply chain process. But, as you're going to learn is continuously evolving and improving. There are two leaders from the KPMG supply chain practice that are joining me today. We have Neeraj Verma and Phil Ogaard. Neeraj, do you want to introduce yourself?
Neeraj Verma: Yes, thank you Mary. This is Neeraj Verma. I run supply chain planning practice and I'm super glad to be able to talk about these two important concepts of IBP and S&OP. I've been running planning for last couple of years at KPMG, and I bring about 25 plus years of experience in supply chain planning. Thank you Mary. Once again super glad to be here, Phil.
Phil Ogaard: Thanks Neeraj, thanks Mary, excited to be here as well. I have about 15 years of supply chain planning and integrated business planning experience across industry as well as consulting. And I am our integrated business planning and S&OP solution offering owner for KPMG supply chain.
Mary Rollman: Thanks Phil. And now when I started this conversation, I talked about IBP being traditional. You know we hear a lot about IBP these days. But there's a lot of different interpretations, assumptions, and there may even be people who are not familiar with what IBP is. So, to start Phil, can you introduce to us what IBP is?
Phil Ogaard: Sure. Yeah, that's a great point. And we hear a lot of times, analysts and vendors, companies using a lot of terms interchangeably like S&OP and IBP. IBP to us is the combination of a matured SNOP process and a financial planning process so distinctly different from, say, S&OE or S&OP. IBP means something specific. With IBP you have both processes, financial planning and operational planning or S&OP working together, and I don't mean simply arriving at the same number. But working off of the same cadences, interacting together so that when you get to the final forecast supply plan, revenue plan, everyone has interacted together. Now this is obviously more advanced than simply one function running off of its own cadence. So, a lot of times it takes a lot more work, but it's also a lot more effective, and it removes confusion from, you know, executive and VP level all the way down, so that everyone knows what the plan is and what the targets are. We’ve actually measured Mary, that if companies are aligned with their numbers and the way they work together that not only does that improve decision making, but also organizations’ margins improve just by the fact that everyone’s in harmonized with the process.
Mary Rollman: And I definitely want to get to that that value statement. But first, it's a traditional process, right? Are there any differences between the KPMG viewpoint versus a broader industry viewpoint? Neeraj, do you have a perspective on that?
Neeraj Verma: I would like to say, Mary, if you look at S&OP and IBP terms, as Phil just said, right. They're used synonymously, interchangeably and has been around for over two or three decades now, right? And if you look at how organizations have implemented or adopted these processes, they all have something in some way, form or fashion, but not as robust as we think they should be. And primarily the key difference how we differentiate is we bring in the execution angle. If you traditionally look S&OP focuses on mid-term long term planning. There was a new term that also came in S&OE, which focused on specifically execution. But these are not two different things. It's like left hand, right hand, not talking to each other situation. So how we differentiate, or how we term IBP is, we add that E to the equation, so we call it as IBP and E. Too many times these processes have to connect. So, any decisions that you make mid-term long term impacts your short term, and vice versa. So, we need to move past thinking that these functions and time horizons somehow are bucketed and separate. But truly they are all connected. For example, if I take a midterm decision on a supplier or on my manufacturing facility, that impacts me immediately, and I need my teams to align to that decision that's hitting them in like next couple of months. So, these, both of these planning and execution, have to be interconnected, and there's a ton of value when these things come together right? And we'll talk about that. But this allows me to do a complete end-to-end integrated planning execution with my processes completely streamlined and with advancement of technology, these can be achieved very easily.
Mary Rollman: So you've touched on value a couple of times, and certainly for a process like IBP to survive the test of time and to continuously be evolving it certainly has to bring that value. I'd love to hear more about what companies achieve in terms of value when their IBP processes are working. Neeraj, do you want to give us some insight into what companies actually achieve in terms of value?
Neeraj Verma: Yes, so. But if IBP done correctly and like Phil also mentioned right, it’s a matured S&OP, and bringing the financial processes together. For example, as part of our demand planning, we should be able to do a revenue forecasting as part of our supply planning, we should be able to do COGS planning and understand what our risk buys look like for a long lead components and expensive components. So, if it is done correctly in harmonized way, we generally see a 1 to 3 percent margin improvement overall for an organization.
Additionally, it also allows us to get hold of our or efficiently put our working capital into play. So, if again what we have seen generally is that we do get about 15 to 30 percent working capital improvement and this is primarily by ensuring that we are buying at the right time at the lead time. We are not over buying. Our working capital is put correctly in terms of how much inventory we are holding to fulfill our customer orders. So, we do see a 15 to 30 percent working capital improvement. We also see that our inventory is getting optimized even though it goes back into my working capital, but I can also put it in my back in terms of interest charges that I hold that I deploy my working capital to, a lot of financial benefits, and also a lot of soft benefits that difficult to put financial values to it. For example, I see visibility in my supply chain, I have end-to-end visibility of what's happening. I understand the transparency of my decisions. There are a lot of soft and hard benefits that organizations achieve if IBP done correctly.
Mary Rollman: Yeah, certainly I have been at clients where you know when you've seen what good IBP processes look like you miss them when they are no longer there. In fact. you know I had a client that was able to move with speed during disruption because they already had the infrastructure in place. They didn't have to stand up this cross functional team to deal with major events that were impacting their supply chain. But Phil, I bet you have some good stories around IBP considering the amount of time that you've spent working with clients in this space.
Phil Ogaard: Certainly seen a few occasions and it's interesting, you bring up that point around once you see it working well, you notice the deficiency areas where it's not working well.
Recently I worked with an organization, and they brought in some new leaders, and it was a similar situation where the immediate response was, okay, we don't have a standard process. We don't have control over our decision making as well as visibility around what's happening across the organization in terms of supply and demand. They asked us to start with an assessment to understand across S&OP, across financial planning, and then the sub-processes: demand planning, supply planning, etc, around where the gaps are. And what we found similar to what the hypothesis was at the beginning was, there wasn't really a cadence for operations and supply chain, let alone across functions more broadly like finance, marketing and sales. We started and implemented an S&OP process as we've talked about a couple of times. You know you can't get to IBP, and certainly you cannot layer in execution without foundational processes and them being executed well, like S&OP and financial planning. So, starting with an implementation of an S&OP process and just getting supply chain and operations working with commercial and making decisions on a reoccurring basis, was the first step. Following that and maturing it you know it was time to bring in finance, and this took a lot of effort as it's not simply as aligning cadences but connecting the actual planning processes to get to a revenue forecast as Neeraj mentioned, and our ability to support that revenue and understand what cost of goods sold looks like within supply planning.
So, it's integrating the processes and that took quite a bit of time and effort. Finally, turned to the execution processes. So, when we connect execution processes, what actually occurs is that we're touching more individuals, because now we're going across all the plants, all the plant planners in detail, understanding their processes and harmonizing both the decision making as you know down as well as the escalations up to that full integrated business planning process. So overall, the company now has a lot of more control and visibility.
Mary Rollman: Well, you've been able to experience an entire S&OP to IBP type of life cycle with your client. And that evolution is just it's truly amazing as they listen to you talk about it just where it started and where it is now. But like we mentioned at the very beginning, it continues to evolve. And with the new advanced analytics with machine learning, I can't imagine that there isn't a place for it here in the IBP world. Neeraj. I'd love to hear your perspective on what comes next for IBP.
Neeraj Verma: Mary, this is a great and interesting question, right? Because as we traditionally how an S&OP and IBP, and the way we term IBP and E is evolving. Technology is playing an amazing role in terms of advancing these causes. So, technology is now able to use natural language. So, leaders and executives can connect with technology in natural English language rather than understanding how to click screens and figure out what reports to look at. So, you can simply ask “Hey, how does my revenue projection look like?” and the system will be able to give you what your revenue projection looks like. These new technology advancements are bringing ease of usage and additionally, they are enhancing the experience as well as speed to value as well as speed to decision making. So, for example, digital twins have been spoken about for last 4 - 5 years, they are now reality. So, you can actually run scenarios, “Hey? how do I maximize my revenue? How do I maximize my margins? How do I maximize my fulfillment rates?” and the system will be able to run scenarios for you as to and compare them side by side to see, what good looks like, and you will be able to select one of the scenarios and put them into execution. This is where we say the true power of IBP becomes amazing when it is connected with E, so you cannot leave E on the side said that AI ML, KPMG has defined that there is no one AI technology that can solve all supply chain problems. So, we have defined it as a portfolio of AI technologies that are applied. For example, for demand planning we use ML, for capacity modeling we use linear programming models. So, there is no one specific set of AI that will solve all problems. So GenAI is a super interesting one, which is the newest on the block, and GenAI is allow, allows us to create something that we were missing earlier from all of these. So, for example real live use cases is “Hey Chat GPT, can you help me create an executive summary? Can you find all the anomalies, find all the constraints?” Now, these technologies are able to sit on top of your existing supply chain software and your supply chain data and mine it and give you insights that were earlier, that you were dependent on humans to correlate and figure out what that looks like.
So, the key to all this back to lessons learned right is we need to have a clear process across cross functionally. We need to have good reliable data, and we need to extend our supply chain beyond our four walls, which means we need to bring in customers, we need to bring in suppliers, have that end-to-end visibility of your supply chain. Have these digital twins working for you to figure out what that right scenario looks like to make sound financial decisions and have these new technologies summarize, find insights, correlate data to give you that niche in terms of the market and in your product line to figure out what that right looks like.
Mary Rollman: Wow! There's a lot to look forward to in this space. Thank you Neeraj and thank you Phil for your time. The role of a supply chain leader is certainly not getting any easier when traditional processes like IBP can do so much as long as they are pushed to continuously evolve. We can see that there's so much more to do in supply chain. So once again, thank you to the KPMG leaders that joined me today, and I also want to thank you, our listeners, for taking the time to hear what we have to say. For more information about this topic, or any other topic in supply chain, you can check us out online at KPMG/supply chain. And that's all we have for you today.
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