Growing efforts to integrate supply chain planning with financial planning

The shift from Sales & Operations Planning (S&OP) to Integrated Business Planning (IBP) has been difficult. During S&OP Flavour Day, keynote speaker Bram Desmet outlined how the supply chain and finance departments continue to work in silos. He advocated integrating the planning processes of both departments. Dairy company FrieslandCampina and Heineken have already made a start on this. FrieslandCampina’s Berend Meijerink: ‘We now no longer have discussions about the numbers.’

By Marcel te Lindert

Bram Desmet (pictured) immediately grabs everyone’s attention: ‘S&OP is broken. And I don’t believe it can be fixed,’ states the opening speaker, who works at the Vlerick Leuven Gent Management School and has many a book on supply chain management to his name. He sees almost every company struggling with the same problems. ‘I keep hearing that salespeople are appointed to sell, not to forecast. But I also see a lack of commitment from the finance department. They are very cautious and dare not rely on supply chain planning. And in many companies, the executives don’t even bother to join the monthly S&OP meeting.’

Another problem is the fragmented IT landscape. Companies use separate systems for demand planning, supply planning, financial planning and promotion planning. ‘The integration between all these systems is often poor. There is also a lot of talk about the need for data lakes to feed AI systems, but many companies still struggle with the most basic master data. I fear that, in practice, many data lakes are actually data swamps,’ says Desmet.

Extremely inefficient

Desmet identifies three fundamental shortcomings in the S&OP process. First, textbooks state that the shift to Integrated Business Planning (IBP) requires supply chain planning to be aligned with financial planning. ‘This is extremely inefficient. First, we create a whole process for supply chain planning. Then we copy that process in the finance department, after which we have to make an extra effort to align the two planning processes. Moreover: if it is necessary to align both planning processes, it is in fact proof that they are based on incorrect assumptions.’

Another shortcoming is that each department deals with risk differently. The sales department tends to be optimistic and the finance department conservative, while the supply chain department mainly benefits from being realistic. If that is not discussed, the S&OP process leads to an outcome that is unsatisfactory for everyone. ‘And look at the way we do demand planning. We first generate a statistical forecast, which we get validated by the sales department. No wonder that leads to frustration in Sales. Even if they make an accurate forecast, they don’t get what they need. Something always happens to disrupt the supply chain.’

Collaborative planning

At the end of his talk, Desmet outlines what is needed to manage operations better: an integrated process for supply chain planning and financial planning. In doing so, he gives the urgent advice to involve key customers more closely in the planning process. To this end, he refers to a concept that was in vogue 20 years ago: Collaborative Planning, Forecasting & Replenishment (CPFR). ‘Instead of guessing what these customers are going to buy, it might be better to sit down with them and just ask them.’

FrieslandCampina’s presentation illustrates that some companies are actually working on integrating supply chain planning with financial planning. ‘For me, supply chain planning and financial planning are two sides of the same coin, the processes are closely intertwined,’ says Berend Meijerink (pictured), Director Plan & Deliver at the dairy giant. ‘This year we combined both planning processes for the first time. We now no longer have internal discussions about the numbers.’

Understanding profitability

For FrieslandCampina, the integration of supply chain planning with financial planning is essential. ‘We have one raw material from which we can make cheese, butter, milk powder and lots of other food ingredients. In order to know what to make, it is crucial to understand the profitability of each product. That insight, combined with information on market demand, determines the decisions we make every day. We call that our compass,’ Meijerink explains.

One thing that has helped to make this shift is a CEO who believes in S&OP. Since last year, the dairy company has been led by Jan Derck van Karnebeek, who worked at Heineken for many years. ‘He is an S&OP believer to an extent I have not experienced before. In January, he launched the new S&OP 2.0 programme. Time and again he stresses the importance of a reliable forecast, even when he talks to our commercial people in China. That is incredibly important.’

Cards on the table

The integration of supply chain planning with financial planning is on the agenda within Heineken too. ‘When volatility increased sharply when the pandemic started, the finance department decided to generate its own forecast, in addition to the existing forecast coming from our S&OP process. That’s a waste of time and energy,’ says Jasper Blaas (pictured), Planning Capability Manager at Heineken. ‘Both departments try to forecast volumes as accurately as possible, but don’t use each other’s resources. As a result, we are stuck with a high bias. That’s why we now want to set up one single process together with our finance colleagues.’

In doing so, Heineken wants to get a better grip on volatility. Blaas: ‘During the S&OP process, we not only generate a forecast, but we also get information about the opportunities and risks that may arise. We register these in a database in a relatively simple way. This contains, for example, the probability of a sudden increase in demand for a certain product. Later in the process, we use this database to discuss with the finance department which opportunities and risks we will or won’t include in the plan. It’s still like a game of poker, but now with everyone’s cards face up on the table.’

Want to know more? Download the Best of S&OP Flavour Day 2024 – November 20, 2024