VANTAGE POINT: Creating a Cohesive Financial & Operational Plan

The consumer goods industry requires its planning and operational processes to be smart, agile and aligned, in order to compete in an increasingly dynamic and fragmented market. An integrated business planning environment supports this requirement by effectively aligning operational and financial planning processes.

 

Budgeting and planning in the consumer goods industry is traditionally a regimented and hierarchical exercise. Although this approach may help promote organizational control and accountability, it highlights the gap between how the business is traditionally managed and actual, ongoing activities -- where 'work' is not linear and sequential. Rather, âworkâ progresses from the company to wholesalers, brokers, and retailers before returning back to the company in the form of additional orders, thereby passing through multiple nodes in a network of activities.

 

With the consumer goods businesses effectively organized as networks rather than a hierarchical supply chain, product and functionally oriented planning approaches fall short. Thus, a planning solution that can accommodate both demand and supply signals in an integrated network manner has the decided advantage. Apart from the changing structure of companies, economic circumstances pressuring this industry also require a different approach in the budgeting and planning activities. Much has been written about the difficulty of forecasting business performance even with stable markets. With increasing globalization -- 'a make-anywhere, buy-anywhere model' -- the consumer markets have become more dynamic as customers demand a complex combination of lower price and higher quality. Thus, consumer goods companies are forced to pay equal attention to strategy / long-term planning, and short-term performance, cash preservation and working capital management. This must be done in an effort to retain fickle consumers and bolster product or brand loyalty.

 

These tough market conditions definitely require an agile, integrated and real-time management response, which can be achieved only when the functional areas work in alignment with each other. Consumer goods companies are managing their business through a variety of plans including:

 

Strategic Financial Planning: Define long-term objectives; implement long-term planning; manage value delivery based on corporate KPIs; link to corporate development; manage treasury.

 

Profitability and Cost Management: Identify cost and profit drivers; allocate costs and revenues to departments, activities and products; calculate and analyze product and customer profitability; perform root cause analysis.

 

Budgeting and Forecasting: Manage annual budgeting; manage periodic forecasting; plan workforce and capital assets; leverage what-if scenario planning; plan cost of goods sold and margin.

Sales & Operations Planning (S&OP): Balance demand and supply; deliver consensus planning across sales and operations; maintain plan in near real-time to respond to variability; monitor operations performance.

Demand Management: Sense demand based on near real-time sales capture; manage statistical forecasting and demand modeling; plan demand across multiple dimensions; collaborate on consensus demand forecast.

 

Supply Chain Planning: Plan supply based on constraints; manage production and distribution planning; determine supply / demand variability; determine safety stock levels; determine order policies.

 

Strategic Network Optimization: Analyze what-if S&OP scenarios; optimize supply chain network based on flexible objective functions; simulate contingency and scenario planning.

 

What if all these plans could come together in a cohesive manner so that the various lines of business could collaborate and have confidence in their plans? What if these plans could be inextricably linked into a near real time environment?

 

Conclusion:A cohesive integrated business planning approach provides the finance function with deep insights into operational matters which would otherwise be obscured, remain unresolved and provide room for error. This integrated business planning approach enables the congruence of goals and assumptions between operational and financial plans allowing them to be expressed in the same or tightly coupled models. This is virtually impossible to emulate in a spreadsheet environment.

 

Chief Financial Officers of leading consumer goods companies have implemented integrated business planning at various levels, resulting in reduced planning cycle times, increase speed of decision making, and robust reporting. Now is the time to transform the disconnected operational forecasting and financial budgeting exercise into a single, near real-time integrated, business planning process. The resultant operational and financial excellence is a requirement for growth in the 21st century.