Who is steering the ship? An integrated approach to business planning

20 February 2012

David Williams

David Williams

Head of Consumer Products

The stress of delivering the plans for the festive season is now firmly behind us. It's time to have a good look at how the Commercial teams' plans are shaping up for the year ahead.  But where do you go to find the answer?

  • The Marketing view - The Marketing team sets the direction for the business so it should have a grip on the P&L for the forthcoming year.  But does it understand how the plans will be delivered in the customers?
  • The Sales view - Joint business planning is in full swing with customers- the Sales team should give us a clearer picture.  But how do you add these plans together? And what does this mean for our brands?
  • The Forecasting view - The Forecasting team looks after the SKU level forecast so it must have an accurate view.  But who has put this plan together? What objectives have been set? Has everyone updated their forecast to the end of the year?  And how will others understand what is in the plan and what isn't?

The answer is that all 3 departments have useful and valid inputs into the future demand plan. However, without a common process and system to capture them, there will be several versions of the truth leading to confusion and tension at best but more likely, large hidden contingencies (and therefore increased cost) being built into everyone's plans.

All hands on deck!

Assumption-based planning addresses this issue by creating a single demand plan that can be owned by those responsible for delivery; and shaped by the senior management team. Using last year as a fixed base, the Commercial teams can build their plans using assumptions (or changes) to the previous year.  This concept is familiar to both the Marketing and Sales teams as it is typically how brand and account plans are built.  The difference is that instead of being put in a drawer, the plans are entered and updated in a system, such as SAP BPC. With clear accountabilities for assumption types and time horizons, ownership of the plan can sit across the Commercial & Supply Chain teams rather than having 3 separate plans.

A demand plan based on assumptions means that the drivers of the plan can be easily understood and therefore challenged and re-shaped by the management team. For example, if the volume growth in the plan is being driven largely through deeper promotions and this is having a detrimental effect on profit, this can be quickly identified and more resource can be dedicated to other drivers such as distribution to rebalance the profitability.

Plotting the course for calmer waters

Having a single plan owned across the Commercial teams doesn't remove tensions and challenges that can occur in the creation of plans, but it does move the debate to a timeframe where they can be resolved.  For example, if Marketing creates the assumptions from 10-18 months out and Sales reviews and amends these assumptions in the 1-9 months time horizon, the period of tension will be in the few months surrounding the transfer of ownership. As this is 9 months before the plans are due to be delivered, the assumptions can be challenged and amended and, if necessary, opportunities developed without impacting the near-term.  With the near-term Commercial tension removed, Sales can focus their efforts on delivering the plan and ensuring that the Supply Chain can service the demand.

Assumption-based planning creates a more commercially-minded Marketing and Sales team who understand & shape the drivers of their plans through their P&Ls. It focuses their efforts on the timeframes they can best influence and enables them to build a single agreed Commercial plan. This ensures that less time is spent trying to understand what is in the plan and more time steering the company towards its strategic goals. Apart from the benefits of alignment & clarity in the Commercial plans, there are tangible benefits to the P&L and balance sheet.  More efficient and accurate planning allows the reduction in stock-holding through the supply chain and removing confusion reduces the need for analysts to explain "what's in the plan?" which could in turn release headcount savings.

So the question isn't "Who's steering the ship?" but rather "How can I make sure that everyone is helping to steer the ship in the same direction?"

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