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In a recent study of supply chain impact on financial performance, companies with superior supply chain performance had 50 percent higher average annual sales growth and 20 percent higher profitability than their industry peers. A deeper dive shows that companies with high-maturity, IT-enabled S&OP processes have significant advantages in working capital (over 25 percent lower), SG&A (more than 10 percent less), and profitability (over 30 percent higher).
Nevertheless, many companies struggle with basic operations-centric S&OP, and even those with strong S&OP foundations have trouble moving to the next level – integrating decision-making with sales, marketing, R&D and finance. What is holding them up? Drowning in a sea of data, and buried by mounting business and economic complexity, companies can lose focus on the truly core, profit-impacting decisions driving their business—and while there are relatively few of these big-impact decisions, the bar for making them well is higher than ever. Data and analytics are replacing gut feel and intuition, decision cycles and feedback loops are compressed, and decisions should now reflect an ever-broadening scope that includes suppliers, customers, partners, regulatory and tax implications, risk, and sustainability.
Companies can succeed in IBP by focusing first on the difficult, big-impact decisions using an approach called Profit-Focused Planning (PFP). PFP involves developing detailed planning specifications—“planning books”—for a company’s most critical and difficult decisions. Processes, data and decision-making authority are all carefully architected so that managers can make the most critical decisions on the basis of the best information, the right organizational input, and—most importantly—the right timing.
PFP is a simple concept, yet analyzing the bottom-line profit impact of decisions can be extremely complex. Time horizons, customer/market/competitor responses, cost-allocations, and many other considerations should all be factored into the profit analysis. Companies can get lost by trying to tackle this complexity across a wide range of decisions, often without regard to their true impact. By focusing on key decisions first, PFP helps make this complexity manageable, unlocking the true power of IBP.
In 2015 and beyond, expect to see the highest-performing companies making the leap from operational S&OP to profit-focused IBP. The leaders can drive superior profit growth by developing a mastery of their most impactful business decisions and harnessing the power of data and analytics to make higher-precision, more agile, and more coordinated decisions. Do you have a handle on what decisions are most important for your business? Are you basing these decisions on all of the best information?
© 2015 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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