The discipline of integrated business planning (IBP) arose out of the traditional sales and operations planning (S&OP) process, but it has evolved to be much broader than S&OP’s focus on balancing supply with demand. Today, IBP is also a mechanism for better managing functions as diverse as risk management, customer segmentation and cost-to-serve analysis. Recent research conducted by SCM World on behalf of JDA Software Group, Inc. (Authority at the C-Suite: Flipping the IBP Cascade to Drive Business Value) found that companies who say their IBP process is effective and impactful not only tend to have automated IBP processes, they are also likely to have implemented technology for customer segmentation and cost-to-serve analysis. These companies have significant advantages over their competition in opportunities for revenue growth and cost reduction.
IBP and customer segmentation
Most companies today are finding that a one-size-fits-all approach to customers, channels and markets is neither cost effective nor enables the personalized service that builds customer loyalty. Supply chain leaders have shifted from a one-size-fits-all supply chain to a segmented supply chain approach that allows them to tailor supply chain strategy and execution based on their strategic customers and channels. Segmentation breaks down the customer base according to their importance to the business, their profit potential, and the characteristics of the supply chain practices needed to satisfy their needs commensurate with their importance and profit potential. As supply chains have become more complex and demand has become more volatile, a segmentation strategy can simplify operations while enabling greater flexibility and responsiveness to changes in customer demand.
The challenge with customer segmentation has been the huge amount of data that must be gathered and analyzed in order to properly divide customers into segments based on their service requirements and profit potential. This challenge becomes more acute with the rising complexity and volatility just discussed. The only realistic way to perform segmentation analysis on a regular basis to accommodate today’s market volatility is through automation. According to the research, this is where the synergy with IBP occurs. As Figure 1 shows, the study found that those companies with effective and impactful IBP technology were twice as likely to have deployed segmentation technology as well. Conversely, when IBP technology has not been implemented, companies are twice as likely to have no plans for segmentation.
Thought leaders are gaining competitive advantage in the market by closely linking their IBP strategy with near-term supply chain planning and execution. Once the strategic segments are defined, execution of that strategy can be deployed in a tightly coupled way. Figure 2 highlights several of the segmentation approaches that are being deployed to increase agility and profitability.
IBP and cost-to-serve
Without understanding the true cost to serve each customer, there is no way to accurately calculate profit margins by customer or customer segment. Not only is this a key ingredient of customer segmentation analysis, it provides the ability to balance service trade-offs across planning horizons. That ability is an important contributor to IBP effectiveness over medium to longer range planning.
Like customer segmentation, however, the challenge with cost-to-serve analysis has been gathering and analyzing large amounts of data on a regular basis to agilely respond to market volatility. It is no surprise, therefore, that 70 percent of those companies with effective and impactful IBP technology also have automated cost-to-serve capabilities as show in Figure 3.
IBP technology and business success
A key finding of the JDA/ SCM World research was that the use of IBP technology enables companies to shift their focus from the laborious process of gathering and collating the volumes of data needed for the executive IBP meetings to instead spend that time making and implementing profitable decisions based on streamlined data and risk aware scenarios. Two of the important inputs to the executive IBP meeting are up-to-date customer segmentation and cost-to-serve analysis. It follows that the use of integrated customer segmentation, cost-to-serve and IBP technology provides executives the most accurate, timely and insightful information on which to make decisions that will drive business competitiveness, increase resiliency, and success. That really is the goal of integrated business planning, and technology is the enabler.
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