By Steve Banker, ARC Advisory Group-ARCwire News
During a recent briefing by River Logic, I saw the coolest product demo I’ve seen in years. This company has developed a product designed for Integrated Business Planning. Basically, what this means is that historically we have done budgeting on one type of platform (business intelligence) and supply chain planning in another (constraint based models running in real-time memory). This has created a disconnect between the budgeting and Sales and Operational Planning (S&OP) processes on one hand, and the budgeting and capital planning processes on the other.
This solution combines the two on one platform. The constraint-based supply chain model is linked directly with the hierarchical financial roll-up model with financial transactions as the drivers linking the two. A constraint-based product mix/selling plan can be simulated in S&OP; i.e. for sales they can do product price elasticity curves, and the financial model will print out the actual income, cash flow, and the resulting balance sheet.
In the budgeting cycle at the beginning of the year, you can create your operational goals for the year based on product mix, operational costs, and demand goals, and that can drive optimal capital budgeting. You can iterate back and forth between capital budgeting plans and the operational results that can be achieved under a certain set of demand/product mix assumptions. Very cool. Very, eye opening. Very, thought provoking. I think this is a game changer.
The best way to use this would be to combine a rolling budget process that in a certain planning horizon merges with S&OP. Ideally, the S&OP process should be chaired by Finance.
River Logic is still a relatively small company in start-up mode. Their initial customers seem to be mainly in heavy process industries. My goal now is to talk to some of their customers and see if the results they are getting mirror the innovative product that River Logic has developed.
