Have you Heard? The Business is Screaming for ONE Single Plan with Financial Ties: S&OP, IBP, FP&A, xP&A (almost a poem)

Jan 9, 2024 | S&OP/ IBP

Loud and clear. The business is begging for one single plan with financial ties. Acronyms flourish all around. But, if you go deep, you will find out that to thrive in operational and financial performance, all the business wants is the one game plan—marketing, sales, operations, supply chain, finance.

Have you heard? The business has spoken with S&OP, IBP, FP&A, and xP&A. If you don’t know them well, there’s nothing to be concerned about. In this article, we will unveil what they are in a simple way.

S&OP is the Supply Chain Thing

S&OP stands for Sales and Operations Planning. It has been with us since the late 1980’s, attempting to balance demand with supply. This is a delicate act for fast-growing companies, where supply chain may be behind.

For example, the market demand is greater than what supply chain can provide. Because of its origin in matching demand with supply, S&OP has become “the supply chain thing.”

S&OP follows a bottom-up approach in a five-stage process to get to the plan:

  1. Data gathering
  2. Demand plan
  3. Supply plan
  4. Pre-review S&OP meeting
  5. Executive S&OP meeting

A key output is the inventory plan that is an important buffer to match supply and demand. In these stages, the team mostly uses physical units and supply chain metrics including on time in full (OTIF) and demand forecast accuracy.

Over time, S&OP has evolved and now everyone talks about S&OP maturity levels. There are different maturity level scales, Gartner’s being one of them.

Such S&OP maturity scales indicate that the most advanced level integrates finance and supply chain. This is how IBP has emerged.

IBP is the Supply Chain Thing Extended to All Business

IBP stands for Integrated Business Planning. This is an extension of the S&OP concept born in supply chain to the business itself. IBP entails a close integration with finance, translating operational plans into financial plans.

Through scenario-based simulations, the team quantifies the operational impact on the financials. Most focus on the P&L (profit and loss statement), but the balance sheet and cash flow statement are also part of the game. New product introductions and SKU rationalization with their financial effects are assessed as well.

IBP focuses on making decisions considering the business as a whole, by demolishing the individual functional walls. The team uses value or monetary units and financial metrics including operating income, EBIT, and cash flow.

You may have noticed that I have not included EBITDA. This is because I have my reservations to use such a metric as a proxy for cash flow. It may also lead to overstated earnings that for sure you want to avoid.

In short, IBP is S&OP extended to all the business. Something similar is happening with FP&A in Finance and xP&A for all company areas. Can you spot the similarities and differences? Keep reading this blog to know it all.

FP&A is the Finance Thing

FP&A stands for Financial Planning and Analysis. While S&OP is the supply chain thing, FP&A is the finance thing. FP&A involves budgeting, forecasting, management reporting; all forward-looking activities.

Together with the analysis of both operational and financial data, great FP&A teams work around the clock to drive growth.

Of course, this implies creating financial models to estimate future revenue and expenses, with focus on the P&L. Unlike in S&OP, they do this by following a top-down approach.

Like in IBP, the team may also forget about cash flow. However, in a full FP&A, the team unlocks the three financial statements with no second thoughts.

Coming from finance, value or monetary units prevail. Naturally, FP&A includes financial metrics such as revenue growth, gross margin, and cash flow. Definitely, in strategic decision making, FP&A plays an important role.

By now, you may be wondering what the story is with FP&A today. Far from being dead, FP&A is extending to all the business to propel its growth. With this expansion, a new acronym is born: xP&A.

xP&A is the Finance Thing Extended to All Business

xP&A stands for Extended Planning and Analysis. Gartner coined the term and predicted that xP&A will become the future of FP&A. As per its name, xP&A covers all the business, adding operations, marketing, and S&OP with it.

Like in IBP, finance and operations integrate. Like in IBP too, there are multiple what-if scenarios for the business to make better decisions as a whole.

No more functional silos after all. Being an evolved version of FP&A, xP&A keeps its mother tongue, talking about revenue growth, gross margin, and cash flow.

We can elaborate more on xP&A, but, it looks like we addressed this before. IBP is the same with a different name. So are the differences in the approach? It makes sense as both come from a different source.

IBP is the S&OP extended version, coming from the supply chain field. xP&A is the FPA extended version, coming from finance. In having one single plan for the business, both IBP and xP&A are alike.

One Single Plan is the One Thing for the Business

All the business wants is one game plan. We can’t fool ourselves with the name. Call it IBP, xP&A, or the acronym of your choice. However, we can’t ignore the business voice.

One single plan is the one thing for the business. Such a single plan marries supply chain and finance for the business to thrive in the years to come.

Are You Ready For A Supply Chain Transformation?

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