By: Alexander Miltenburg
Published in Supply Chain Management Review
IBP aligns top-down and bottom-up signals, keeping organizations on track and fostering the essential discussions needed to achieve both short-term and long-term goals.
Getting inventories right is hard—but why? In this age of advanced technology, ERP systems, and AI, one would expect companies to leverage these tools as a competitive advantage or, at the very least, have inventory management under control. Yet, many don’t. Why? Because inventories are often perceived as a functional responsibility rather than a cross-functional asset that aligns with a company’s overall strategy and goals. As a result, some companies face empty shelves, while others are stuck with overstocked warehouses filled with products that no longer align with consumer demands.
Many organizations struggle to meet consumer expectations, risking lost sales and decreased customer loyalty. If left unaddressed, these challenges can directly impact overall financial performance, profitability, and a company’s ability to scale efficiently.
While inventory issues are easy to spot, they often mask a deeper problem: a disconnect between planning horizons (strategy, planning, execution), conflicting KPIs, and an understanding across departments around the real capabilities of the organization. The gap between high-level goals and day-to-day operations leads to inefficiencies that affect cost management, revenue growth, and consumers. Misalignment between broader business goals and inventory management at the operational level can lead to costly inefficiencies, making it imperative for commercial organizations and supply chains to understand how well the business currently can and should service customer expectations.
Integrated Business Planning (IBP) comes into play by driving a key cross-functional conversation by asking: “How do we intend to service our customers effectively, balancing their expectations with our overall business targets and strategies?
To drive this aligned approach, business leaders should consider IBP as a solution. IBP is a decision-making process that aligns strategy with portfolio, demand, supply, and financial plans through a focused, exception-driven monthly replanning process. As a result, companies become equipped to achieve organizational goals, which include optimizing cash flow and enhancing customer satisfaction.
To address inventory challenges effectively, leaders should focus on three key steps:
Step 1: Align inventory strategy with business goals
The foundation of effective inventory management begins with alignment from the executive team through the operational staff, top-down and bottom-up. C-suite leaders must ensure inventory targets and policies deliver corporate objectives, like financial targets and market demands. When leaders clearly understand how inventory and its leading indicators impact and drive the business strategy, along with current and potential future capabilities, it becomes easier to set realistic inventory targets for the short, medium, and long term. Aligning inventory policies with broader business objectives ensures decisions are not made in isolation but as part of a cross-functional approach between plan, buy, make, and deliver, all while delivering financial targets. This is where Integrated Business Planning facilitates the right conversation to make sure inventory decisions reflect the company’s strategy, balancing cost control with revenue growth and risk mitigation.
Once these inventory policies are identified, it’s essential to continually assess them. The balance between inventory levels, investments, and market dynamics should be routinely reevaluated to help the company’s inventory strategy align with its financial and operational goals. Monthly IBP reviews and potential adjustments to inventory targets help a company remain agile and responsive to changing market dynamics, safeguarding profitability and long-term competitiveness.
Step 2: Identify and address root causes of inventory imbalances
With alignment on inventory policies in place, the next step is to actively manage inventory to meet those targets. Excessive stock or stockouts aren’t just operational inefficiencies; they are often symptoms of deeper, systemic, and behavioral issues. If inventory levels exceed what’s necessary, it’s important to deplete stock that isn’t immediately needed—ideally by selling it rather than letting it sit idly and take up resources. But this only solves the inventory issue. Through the IBP process, leading indicators that drive inventory must be reviewed monthly to offer insights into underlying issues. For example, while inventory policies may be correct, leading indicators can sometimes be off. This could happen if there’s bias in the planning process, such as overly optimistic sales projections, or if a plant over-produces due to productivity goals. Similarly, new SKUs launched through innovation that don’t meet performance expectations can result in excess inventory and dilute the portfolio both from a commercial and supply perspective, driving inventory levels up unnecessarily.
Addressing these underlying challenges is key, and leaders must be willing to face uncomfortable truths, especially when the root cause is self-inflicted. Examples of this could be procurement driving costs down, but as a result, packaging lot sizes increase (productivity); planning needed to react to changing portfolios and produce more SKUs on scale assets (efficiency); and commercial hurdle rates driving inflated initial plans while planning new product launches (bias). By identifying discrepancies between planned and actual inventory, leaders can trace these issues back to their root causes. IBP ensures that inventory targets are aligned not only with broader business strategies but also measures leading indicators that drive those targets for portfolio, demand, and supply. These insights enable companies to anticipate issues before they escalate, optimizing resources and ensuring inventory aligns with operational needs. Regularly revisiting and adjusting inventory policies, in line with evolving market dynamics, helps create a more resilient, agile organization ready for sustainable growth.
Step 3: Drive sustainable change and continuous improvement
Addressing immediate inventory challenges is only the beginning. The long-term success of any inventory strategy relies on embedding sustainable practices into the organization’s DNA through Integrated Business Planning. This requires strong leadership, clear communication, and a commitment to fostering a culture of continuous improvement. Change management is critical here. By embedding better inventory practices and fostering a culture of honesty and accountability, organizations can establish a lasting new normal—turning inventory challenges into opportunities for ongoing improvement.
A key part of maintaining these improvements is implementing inventory governance policies. These policies not only reinforce actions needed to support better practices but also help guarantee that inventory issues are consistently seen as signals to identify and address root causes. Governance creates a framework for consistent performance, driving long-term operational excellence and reducing the risk of future disruptions.
IBP ensures that any deviations from the plan are addressed quickly. If a change is considered impactful and permanent, policies are adjusted to reflect this new reality. However, if the change is considered minor, the organization stays on the current course, reinforcing the importance of staying aligned with the original plan when necessary.
Determining, in advance, what is considered Green and Red is key to running an effective IBP process.
By integrating these processes and fostering a culture of continuous improvement, organizations can transform inventory management into a dynamic system that evolves alongside business needs, driving sustainable success over the long term.
Turning inventory challenges into strategic opportunities
Inventory management isn’t just an operational issue—it’s a strategic imperative that impacts revenue, growth, and risk. By embracing IBP, leaders can turn inventory management into a cross-functional competitive advantage, driving efficiency, enhancing customer experience, and optimizing working capital.
Adopting an integrated approach to inventory management not only mitigates risks but also fuels long-term business success. Through strategic planning, execution, and continuous improvement, IBP ensures that the strategy is translated into actionable plans. By establishing a monthly cadence, IBP aligns top-down and bottom-up signals, keeping organizations on track and fostering the essential discussions needed to achieve both short-term and long-term goals.