Peace of mind: Integrated Business Management at Lamb Weston / Meijer
"What has Integrated Business Management delivered for Lamb Weston / Meijer (LWM)?" asks CFO Peter van Wouwe - LWM being one of the world's largest companies in frozen potato products, appetizers and dehydrated potato flakes. "Peace of mind, that’s what." In this article, Marco van Alfen, business planning and control expert at consultancy firm EyeOn, unpacks and demonstrates the concept of Integrated Business Management. Integrated Business Management, Integrated Business Planning (IBP), Sales & Operations Planning (S&OP), Sales Inventory & Operations Planning (SIOP): these are all terms used to indicate the multidisciplinary process by which demand and supply are tuned in an organisation. This is the most basic point at which they agree. During the eighties, the term S&OP marked this reconciliation process. TF Wallace had the key elements of a good S&OP process as: “… a set of decision-making processes to balance demand and supply, to integrate financial planning and operational planning, and to link high-level strategic plans with day-to-day operations.” In many organisations, however, S&OP became a short-term planning process where the past was more often looked at than the future, and the link with strategy was often missing.
Decision making, matching supply and demand, integration of volume and financial planning, and linking strategy and execution: that's what it's about. Only that's not what everybody does. Initially the intention may have been to cover everything, but in reality one or more elements appear to be lacking.
Ton Maltha, LWM Supply Chain Manager, says: "We already had a pretty well-running S&OP process. Only it was short-term oriented and not horizontally and vertically integrated. This was really needed. We saw Integrated Business Management as a solution to better manage and integrate the business and also give people more space to look forward and take independent decisions. This need was widely felt in the company, from management to execution and the layer in between."
When setting up Integrated Business Management, you often see that the term S&OP is abandoned. In order to really take a step forward, one wants to leave out a term which, internally and usually after a period of time, is mainly associated with the short term and operational aspects. Integrated Business Management assumes primarily that you allow people to do the right things in order to follow the strategy while supported by a good process and systems.
LWM chose the name LWM Business Navigator to indicate that this was the ultimate process by which the business navigates to its chosen point on the horizon: realisation of the strategy. But changing the name alone is not enough, you should also do things differently; actually take a step back and with a helicopter view look at what exactly is done and not done in your current process, and whether or not you're really achieving your strategy in the right way. Where can it be improved, how can you be better at making the right decisions?
Peter van Wouwe endorses the role of the process in helping to realise strategic ambitions: "A very important reason to extend the S&OP process and to transform it into an Integrated Business Management process lay in the strategic choice for business growth and the need to do this in a controlled manner. In addition, there was a growing need for accurate financial forecasting of results and cash. In the periodical (volume-driven) S&OP review there were already a lot of drivers for this, so it made sense to start integrating this volume planning with the financial planning. And in a period of uncertainty in which actuals significantly differed from the forecasts, the momentum was there that led to the decision to further professionalise our process."
LWM together with EyeOn, began the journey to a better process in mid-2014. From the outset it was clear that the process had to be tailor-made. There was no standard solution. After a company-wide kick-off, functional teams laid down the basic framework that took into account the specific characteristics of the LWM business. The tailor-made process was translated into a booklet in which all disciplines described what the process would look like when it had been implemented and how it would help the organisation to make the right decisions. "A clear description of the overall process 'to be' contributed greatly to the speed of implementation," says Peter.
The integrated approach also ensures that functional areas increasingly cooperate, because Integrated Business Management connects functional silos. Without openness and empathy for what is important to the other person, fully integrated control is not possible. Peter explains: "Financial planning will no longer be the domain of the controller, but of the business, aided by the controller. This should lead to more frequent, more accurate financial forecasts." He adds that he has already experienced an increasing level of pro-activity and end-to-end visibility by using this approach. Ton agrees that he can already see this all happening in practice. "We want to understand exactly the cause behind deviating figures, so we can finish the plan-do-check-act cycle and determine what we need to do to adjust. This requires a comprehensive look at the underlying business processes, rather than thinking in functional silos, and then making these processes better where necessary," he says.
An integral approach also means using only one plan to steer the business, not a separate volume and financial plan in which the underlying assumptions differ.
"It is important that we have one version of the 'truth' that we control integrally," says Peter. "No second guessing, but acceptance of the forecasts in earlier stages of the process, although you should continue to challenge each other." He adds that the design of the process is also important: "The process design forces you to think about performance indicators that are needed at different levels and at different stages of the process for control purposes."
However, something that is important for operations to measure may be too detailed at the executive level, Overall Equipment Effectiveness (OEE) for example. An organisation may choose each of the underlying elements (availability, performance and quality) to be seen as a key performance indicator (KPI) in operations because they cannot otherwise control effectively. At the executive level, OEE may be a KPI. At LWM, this layering of KPIs is designed using the KPI Pyramid: from a broad set of KPIs for the basic operational level of the organisation to a handful of KPIs at executive level, which is sufficient for efficient and effective control. This is possible because the people who participate in the meetings before the Executive meeting (Marketing meeting, Demand meeting, Supply meeting and Consensus meeting) have the mandate to make decisions autonomously as long as the common interest of the organisation is served.
Setting up a good Integrated Business Management process takes time. Most of the changes require, above all else, a mind-shift. If you are accustomed to having worked for years in a certain way (in your silo) that does not automatically change when redesigning a process. But, if you have the right attitude - one of learning - within a few cycles you can already see changes and a continuous upward trend.
"Directly from the start of implementation, we already began to steer the company via Integrated Business Management thinking and have embraced mistakes and learn by doing," says Ton. "Even Marketing, which didn't participate in the old S&OP process, has participated from the start. Really huge steps have been taken."
Once the new process starts working it will save the entire organisation time because meetings are efficient and everyone knows exactly what his or her role is in the bigger picture. In the words of CFO Peter van Wouwe: "Already after one year the process gives 'peace of mind' because the right issues are addressed and the focus on the future and achievability of strategic objectives has been made visible."