IBP: Better decision-making to close the gap

Numerous companies are ready for the next phase of their S&OP journey: Integrated Business Planning (IBP). But how can they actually make that transition? And which pitfalls lie ahead? This article discusses short-term versus medium-term planning, the problem of having information that is too detailed and unstructured, and the annual budget rounds. “Directors are used to talking about money rather than volumes.”

By Marcel te Lindert

Kathrein is a 100-year-old German supplier of technology for mobile communication, satellite reception and transmission masts. 80% of the company’s products are destined for the mobile communication market, which is extremely volatile and difficult to predict. “We have a lot of proposals pending in various countries. Those proposals often entail a large volume of antennas. Nobody wants to split their antenna order between multiple suppliers, so it’s usually a case of all or nothing,” explains Frank Stegherr, Group Vice President at Kathrein.

And when customers give a proposal the go-ahead, they expect immediate action. “Take the countries that will soon be auctioning off their 5G frequencies, for example. Telecom providers place their orders as soon as they win a frequency. Then, we only have a certain amount of time to implement a network with nationwide coverage. But there are limits to the agility of our supply chain. Although the lead time on the production of antennas is a maximum of four weeks, we have to order some components six months in advance,” continues Stegherr.

Stegherr is heading up a major transformation project that will set Kathrein up for the future. The project has been initiated by the third generation of the Kathrein family. It is aimed at redesigning all the processes related to purchasing, sales, manufacturing and supply chain based on a single IT system: SAP. “The implementation of Sales & Operations Planning (S&OP) forms part of that transformation. We hope S&OP will give us more control over the volatile mobile communication market,” states Stegherr.

Double counting

Kathrein has spent a lot of time on setting up the S&OP process, which starts with analysing the market demand. That goes further than merely adding together the various forecasts, according to Stegherr: “Our customers include the likes of Ericsson, Nokia and Huawei. They make the base stations and we supply the passive antennas. It’s not unusual for our products to be included in several bids for the same tender, but only one of them can win so we have to be able to check the forecasts for double counting.”

Next, Kathrein analyses its supply side. What production capacity does it have available? Are there opportunities to scale up production? Is it possible to speed up the delivery of crucial components by paying the suppliers a bonus? The next step is to balance supply with demand. “Importantly, we work on the basis of unlimited demand. We don’t want our supply chain to be a restricting factor. If it is, you risk Sales submitting a 20%-lower forecast because they think there’s no chance of getting what they really need anyhow.” This results in two or three scenarios that are presented to the board of directors during the monthly S&OP meeting. “The final decision lies with them. Will we pay our suppliers extra to enable us to fulfil a particular order after all? Or will we let it go because of the lower margin?”

When asked whether the S&OP process has worked, Stegherr’s reaction is mixed. “A successful S&OP process requires a cultural change. That’s always a challenge. But the biggest problem is that we have 1,500 products in our portfolio. It’s impossible to make a detailed monthly forecast for each one, so our forecasting accuracy was very low,” comments Stegherr. … … …

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This article was first published in Supply Chain Movement 33 | Q2 – 2019