APQC recently talked to Dean Sorensen, founder of IBP Collaborative, on the benefits and challenges of integrating sales and operations planning (S&OP) and enterprise performance management (EPM) in finance and supply chain functions.
Dean Sorensen, a management consultant, helps organizations make step-change improvements to how they plan and manage their businesses. He helps organizations share innovative and integrated planning and performance management practices and technologies that enable these improvements.
You say that forward-thinking finance executives are aware that they need to include manufacturing and supply chain organizations when contemplating an investment in new software to improve financial planning, budgeting, forecasting, and reporting. What insights do these finance executives have that others do not?
They are more operationally savvy and understand that greater financial and operational integration is the key to more effective finance functions for a number of reasons:
- Integration provides the means to expose risk, thereby enabling executable and optimized plans.
- It enables processes that drive sustainable cost reduction and profitable growth and itself is enabled by more mature planning models.
- Greater financial and operational integration is the key to more mature planning models.
- Rolling forecasts and sales and operations planning are part of the same process.
You say that complexity is driving the need for financial and operational integration. Can you be more specific?
Complexity obscures the ability to make decisions that optimize enterprise performance, and it also undermines the quality and speed of decision making, the ability to identify and respond to risk and change, and organizational agility by impeding resource allocation across functions and entities.
Explain what you mean by EPM.
"Enterprise performance management," or EPM, is a term that is used to describe software that supports financial planning, budgeting, forecasting, consolidation, and reporting processes. Some view EPM as a set of integrated financial process. This latter view is not one shared by me.
What is the biggest potential benefit of integrating S&OP and EPM?
There are two benefits. From a tactical perspective, integration provides the means to implement and maintain one system and process versus many, thereby significantly reducing costs. From a strategic, perspective, it provides the means to drive strategies that are based on superior horizontal execution. This includes sustainable cost reduction, profitable growth, operational excellence and flexibility and agility.
How do EPM2 capabilities enable step-change improvements in the speed and accuracy of planning, budgeting, and forecasting?
EPM2 is the next generation of EPM, and it reduces planning cycle time through more concurrent planning processes. And greater model accuracy leads to more accurate and complete plans or forecasts.
What value can a manufacturing or supply chain organization receive by using integrated EPM and S&OP applications?
They can establish more profit-based sales and operations planning processes that effectively engage senior executives because these plans are fully integrated with financial planning processes. They can also more effectively manage supply chain performance, strategic sourcing, and operational excellence programs by measuring and forecasting the value that they create horizontally across functions, business units, and legal entities.
What efforts have manufacturing and supply chain executives made over the past five years to better work with financial executives to close the gaps between S&OP and EPM? What’s been the result and what gaps remain?
Manufacturing and supply chain executives have established integrated reconciliation processes to connect financial and operational plans. The gaps that remain include scenario planning processes that remain fragmented, slow, and often inaccurate, as well as an inability to effectively integrate rolling forecast and S&OP processes in larger, more complex organizations.
What challenges might manufacturing and supply chain organizations face when trying to use these integrated applications? How might they overcome these challenges?
One challenge is the perception in the market that traditional EPM and S&OP applications represent best practices and that two individual applications can deliver the same value as an integrated one. One way to overcome this challenge comes from CIOs that have developed IT strategies around a limited number of larger vendors. Another way is to educate stakeholders about the specific technical and business capabilities that constitute fully integrated financial and operations processes and what they are worth.
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