driving profitability in turbulent times with agile planning and forecasting the view from...
TRANSCRIPT
-
8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing
1/16
Driving Profitability in urbulentimes with Agile Planning andForecastingTe View from Manufacturing
A report prepared by CFO Research Services in collaboration with SAP
-
8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing
2/16
Driving Profitability in urbulentimes with Agile Planning andForecastingTe View from Manufacturing
A report prepared by CFO Research Services in collaboration with SAP
-
8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing
3/16
cfo publishing corp. December 1
Contents
Executive summary 2
Managing the bottom line 3
Te forecasting gap 6
Getting the numbers right, 7or getting the right numbers?
Te value of integration and automation 9
Working closely with business management 10
Conclusion 11
Sponsors perspective 12
-
8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing
4/16
DrivingProfitab
ilityinurbulentimeswith
AgilePlanningandForecasting:TeViewfromManufacturing
2 December cfo publishing corp.
About this report
In March 2009, CFO Research Services conducted an electronicsurvey of senior finance executives. We gathered a total of 231responses from a broad cross-section of company segments, a sfollows:
Annual revenue
$100 million$50 0 million 40%
$500 million$ 1 billion 18%
$1 billion$5 billion 19%
$5 billion$10 billion 5%
$10 billion+ 18%
Title
Chief financial officer 33%
Director of finance 16%
Controller 15%
VP of finance 11%
EVP or SVP of finance 3%
Treasurer 4%
CEO, president, or managing director 4%
Other 14%
Industry
Consumer products/Retail/Wholesale 20%
Discrete manufacturing 20%
Financial services 15%
Business/Professional/Information services 9%
Energy/Utilities/Telecommunications 8%
Health care/Life sciences 8%
Process industries 6%
Entertainment/Travel/Leisure 4%
Other 11%
Region
Europe 36%
Asia 32%
United States 31%
Note: Percentages may not total 100%, due to rounding.
We subsequently conducted in-depth interviews with seniorfinance executives at the following companies, which are basedin several regions around the world:
3MElectroluxHero HondaThe LEGO GroupMichelinSilgan PlasticsTaiyo Yuden
Executive summary
CFO Research Services conducted this research program
to better understand the impact that economic uncertainty
is having on the finance function and its role in developing
accurate forecasts and actionable plans, particularly in the
manufacturing sector. In the best of times, a forecast isonly as good as the assumptions on which it is built; those
assumptions are continually tested against internal and
external realities, and either validated or adjusted. Even when
events play out in line with forecast scenarios, a companys
business plans, budgets, and resource allocations must be
constantly updated as conditions change. But as the demand
outlook grows increasingly unpredictable, forecast horizons
contract, accuracy declines, and new forecasts are required
more often and more quickly.
Our electronic survey gathered responses from senio
finance executives worldwide in March 2009, as the globa
economy was plunging into recession at a pace unseen in
many decades; our interview program among manufacturer
was conducted in the somewhat quieter period following the
steepest economic decline (Fall 2009). Over these periods
the orderly progression of business cycles was disrupted, and
both the range of variability of input assumptions and the
speed at which they changed often pushed forecasts to the
breaking point. Input prices, labor costs, market demand
energy prices, partner viability, sourcing strategies, capita
costs, capital expendituresthese are among the funda-
mental givens upon which companies have built their fore
casts and plans, but which began changing at rates that had
forecasters scrambling to keep up.
In such an environment, manufacturers in particular face
considerable challenges regarding inventory management
production resource allocation, and maintaining appro
priate headcount. In this research program, we looked at the
changing priorities for finance, new demands being placed
on the finance teams time and abilities, and challenges to
forecasting and planning activities being created by the
unprecedented uncertainties in economic outlooks. Our
research revealed four major results:
I a vt tat ff td vty
t v wt, fia t a atvt tat t a aa t tt
. Finance executives expect little or no revenue growth
in the near term, and more than 8 out of 10 manufacturing
respondents say that their companies will focus more on
increasing bottom-line profits than on top-line revenue in
the next 12 months. In response to an increasingly harsh
external environment, finance began turning its attention
inward, spending more of its time on cost reduction, perfor
mance management, and profitability analysis.
-
8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing
5/16
cfo publishing corp. December 3
Fa xtv va a t a tw t
ta at aa t t
dwt ad t fid t qaty
ad aay t at. Particularly in manufac-
turing, the volatile economic environment heightens the
importance of forecasting for providing the information and
analysis companies need to manage profitability and perfor-mance. However, not even half (41%) of the manufacturing
finance executives taking this survey characterize their
companies forecasts as high quality. At a time when the
need for forecasting accuracy, insight, and agility is greater
than ever, more than half of the manufacturing finance execu-
tives in this survey believe their companies are falling short.
Fa xtv a a ay ty
d aayz ad t data, at ta
y d t. Respondents cite a number of tech-
nology-based actions that companies can take to improve
their ability to produce high-quality forecasts: eliminate
multiple information interfaces, integrate disparate systems,
and employ driver-based scenario modeling. But manufac-
turing finance executives also say that spending more time
on providing analysis of forecast results and making recom-
mendations to the businessas opposed to simply producing
more forecastswould help their companies meet perfor-
mance targets. Nearly three-quarters of the manufacturing
respondents say finance should spend more time analyzing
profitability and performance, as well as more time focusing
business units on financial impacts and metrics.
Fa xtv t a a z
tat v t qaty at t jt a fia
t t a at t . Many of
the respondents indicate that working with business unit
managers to help them understand the financial impact of
operating decisions and to improve the accuracy of inputs is
one of the most important improvements they could make.
o improve the quality of their forecasts, manufacturing
finance executives tell of the need for better communica-
tion and information from customers regarding demand and
inventory levels, and involving more corporate functions in
the planning process to identify key drivers of the business.
Managing the bottom lineIn an economic environment in which revenue growth is
challenging and diffi cult to predict, our research confirms
that companies are devoting more time and resources to
maintaining profitability. Finance executives in our survey
expect little or no revenue growth in the near term, and 84%of manufacturing respondents say that their companies will
focus more on increasing bottom-line profits than on top-line
revenue into the first quarter of 2010.
In response to the harsh externalenvironment, finance is turning itsattention inward, focusing on theelements of profitability the companycan control more directly: reducingcosts and managing performance.
Achieving any such increases will be no small feat for manufac-
turers across the board. With so much uncertainty and vola-
tility affecting consumer demand, manufacturing companies
have been hindered when it comes to capacity and resource
planning, producing plausible forecasts, and negotiating
with suppliers. Critical factors for determining demand
consumer sentiment, credit availability, commodity prices,
government interventionlie outside of manufacturing
companies direct control. Nearly all manufacturing respon-
dents (96%) report that their finance teams are spending more
time on cost control and expense reduction now than they
did two years previously. (See Figure 1, page 4.) Tis change is
not simply a minor adjustment: Due to volatility, a large
majority (71%) say that they are spending much more time
on these efforts. Clearly, finance teams are working hard to
bring costs in line with the anticipated slowdown in revenue.
In response to the harsh external environment, finance is
turning its attention inward, focusing on the elements of
profitability the company can control more directly: reducing
costs and managing performance. As Mike Kronebusch,
finance manager in 3Ms Industrial Adhesives and apes
Manufacturing division, notes [Te downturn has] causedeveryone to take more of an operational mindset as [all
companies] are trying to deliver results and maintain the
bottom line during these tough times.
Finance executives in the manufacturing sector interviewed
for this report express a cautiously optimistic outlook for
the year ahead, although the prospects for a steady, sustain-
able recovery remain uncertain. We definitely have a more
conservative outlook, even though were seeing a substantial
-
8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing
6/16
DrivingProfitab
ilityinurbulentimeswith
AgilePlanningandForecasting:TeViewfromManufacturing
4 December cfo publishing corp.
increase in demand and our revenues are up substantially
from the beginning of 2009, says Joe Wilkinson, vice presi-
dent of operations and CFO of the US division of electronics
manufacturer aiyo Yuden. It is still very tentative whether
that improvement will be sustainable. Mr. Wilkinson goes
on to explain, A lot of people are still hedging, even though
they have the equipment, the factory, and the capabilities. I
think everybody is waiting to see [what will happen], which
is forcing capacity problems in the market and a flattening
of pricing.
Tis uncertainty surrounding demand has impacts up and
down the supply chain for manufacturers, as evidenced by
the fact that 80% of manufacturing respondents say they
are spending more time negotiating supplier agreements
than they did two years previously. (See Figure 1.) Manufac-
turers are increasingly concerned about getting locked into
commitments for which demand never materializes, leaving
plants with idle capacity and supply chains slack as financial
commitments come due. Consumer worries make for uneven
purchasing patterns and end up squeezing retailers, putting
pressure on manufacturers, who in turn seek bargaining
concessions from suppliers.
Performance improvement is a higher priority for all survey
respondents. But manufacturing companies are especially
burdened by the challenges of demand uncertainty and
proper management of workforce levels. Cutting produc-
tion indiscriminately as demand dries up poses the risk of
leaving companies unable to recover as the economy turns
around in the future. Michelin addressed the weakness in
demand as a short-term condition. In terms of managing the
manufacturing downtime, we wanted to keep all our trained
and skilled staff so that when the activity comes back you
arent lacking people who are trained to run your plant,
says Marc Henry, director of finance operations for the
tire manufacturer. Instead, the company used local legisla-
tion rules about unemployment to affect partial closings, so
that ultimately the company is not overly penalized by this
crisis, notes Mr. Henry.
Figure 1. Controlling costs and managing performance are top-of-mind for finance executives working through a volatileeconomic environment.In your opinion, is the finance team at your company spending more or less time on the following activities in the current business
environment, compared with two years ago?
0% 20% 40% 60% 80% 100%
Competitive intelligence
Strategy development
Pricing
Business process improvement
Profitability analysis
Supplier negotiation andcontract management
Performance monitoringand reporting
Cost control/expense reduction
Much more time Somewhat more time No change Somewhat less time Much less time
12%
14%
21%
23%
32%
43%
50%
71%
26%
42%
26%
57%
32%
50%
34%
25%
49%
35%
42%
16%
30%
5%
11%
2%
9%
5%
5%
7%
2%
9%
2%
2%
2%
7%
5%
Percentage of respondents from discrete manufacturing companiesNote: Percentages may not total 100%, due to rounding.
Tere has definitely been more organizational effort towards forecasting andunderstanding both our internal performance as well as the drivers of theexternal environment, says the CFO of a plastic products manufacturer.
-
8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing
7/16
cfo publishing corp. December 5
Much of this activity translates into keeping a closer eye on
the bottom line, and indeed, more than 9 out of 10 manufac-
turing respondents (93%) say their finance teams are spending
more time on profitability analysis. (See Figure 1.) Te ability
to develop a reliable, forward-looking view of performance
is important for managing profitability in the present while
preserving future opportunities. With the economy so uncer-tain, the diffi culty of developing this forward-looking view
of performance is magnified, and finance must devote more
time and resources to this critical task. Ravi Sud, CFO at Hero
Honda in India, sums up the volatile environment the motor-
cycle manufacturer found itself coping with: With last years
crisis, I think the whole game plan seems to have changed
loss of jobs, pay cuts, liquidity crisis, high interest rates, and
general uncertainty in the minds of the customer that leads to
them postponing their purchase decisions.
Finance executives in our survey indicate that coping with
greater uncertainty in the economic outlook is placing the
largest demands on their time. Large majorities of manufac-
turing respondents report that the current economic uncer-
tainty has increased the amount of time finance spends on
forecasting (85%) and on scenario planning and analysis
(82%)that is, on modeling potential outcomes based on
fluctuations in different sets of drivers. More than half (55%)
of manufacturing respondents say that the increase in time
spent on forecasting has been substantial. (See Figure 2.)
Tere has definitely been more organizational effort towards
forecasting and understanding both our internal perfor-
mance as well as the drivers of the external environment,
notes Derek Schmidt, senior vice president and CFO at Silgan
Plastics, and trying to marry those two things together to
understand where the business is headed and what the finan-
cial outcomes of that are.
What I think is important is how you organize yourself
to face that very high volatility that, of course, nobody was
really able to forecast correctly [in 2009], says Michelins
Mr. Henry. It took us some time to make sure we understood
where the markets were going. But what is more important is
how you organize your company to deal with that problem,
which means being more reactive to the current environmentand taking appropriate action more quickly than ever.
Another CFO in manufacturing notes,Tere is a lot more detailed question-ing and analysis to better understandwhats occurring by business, by prod-uct, by customer, by region.Wevebeen doing more simulation on what
the impacts of different product port-folios from a financial standpoint do toour P&L.
0% 20% 40% 60% 80% 100%
Detailed line-item budgeting
Resource and capacity planning
Scenario planning and analysis
Forecasting revenuesand financial results
Increased substantially Increased moderately No change Decreased moderately Decreased substantially
32%
32%
41%
55%
41%
43%
41%
30%
23%
21%
18%
14%
5%
2%
2%
2%
Figure 2. Finance teams are spending more time preparing for change.Has the current economic uncertainty increased or decreased the amount of time finance spends on planning, forecasting, and
budgeting activities?
Percentage of respondents from discrete manufacturing companiesNote: Percentages may not total 100%, due to rounding.
-
8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing
8/16
DrivingProfitab
ilityinurbulentimeswith
AgilePlanningandForecasting:TeViewfromManufacturing
6 December cfo publishing corp.
Te forecasting gap
In this uncertain economic climate, the importance of fore-
casting elevates to critical; 86% of manufacturing respon-
dents in this survey agree with the statement that their
forecasts are important to their efforts to improve profit-
ability. Companies plan out the likelihood of future projec-tions. But just as each element in the plan gains importance,
the proper inputs for each forecast become far more chal-
lenging to determine. Manufacturers in particular bear the
burden of fluctuations in demand, pricing, and inventory as
they seek to maximize usage of capacity and resources.
Te survey reveals a troublinggap between the importance offorecasting for managing through the
economic downturn and financeexecutives confidence in the qualityand accuracy of the forecasts theircompanies are able to produce.
Putting together the ideal resource optimization plan is no
simple task at many companies. In response to the down-
turn, manufacturing respondents say their finance teams are
spending more time on the types of activities used to trans-
late forecasts into actionsresource and capacity planning
(75% of manufacturing versus 65% of all respondents) and
detailed line-item budgeting (73% of manufacturing versus
63% of all respondents). (See Figure 2.)
As Silgan Plastics Mr. Schmidt explains, Probably our
greatest challenge has been consistently predicting our
demand in the short run, and then flexing our manufac-
turing costs and capacity to marry up with that near-term
demand. 3Ms Mr. Kronebusch cites the challenge of
creating forecasts that include finances value-added
insights, which require more time: Tere is a lot more
detailed questioning and analysis to better understand
whats occurring by business, by product, by customer, by
region. Tere has been a lot deeper dive. It has put more
emphasis on the finance function to really align withwhat the business is. It has probably resulted in more of a
workloadall that digging in and reconciling and
analyzing granular detailbut I think its something thats
necessary so everyone is on the same page for what we
need to do to deliver the numbers. Mr. Kronebusch also
notes the challenge of creating scenarios with the right
product mix. Weve been doing more simulation on what
the impacts of different product portfolios from a financial
standpoint do to our P&L, he explains.
However, the survey reveals a troubling gap between
the importance of forecasting for managing through the
economic downturn and finance executives confidence in
the quality and accuracy of the forecasts their companies are
able to produce. Despite the importance placed on forecasts,
only 41% of manufacturing respondents rate those forecasts
as high quality (i.e., timely, relevant, and accurate)much
lower than the percentage of respondents from other indus-
tries who believe they have high-quality forecasts (55%),
and well below the number who say forecasts are important
to their efforts to improve profitability. (See Figure 3.) At
a time when the need for forecasting accuracy and agility
is greater than ever, many finance executives in this survey
believe their companies are falling short.
Manufacturing in particular is vulnerable to this gap between
forecast importance and information quality. In an envi-
ronment of uncertainty, manufacturers have had to adapt
their forecasting and planning processes to their customerschanging inventory strategies. Planning assumptions are
less secure, and the outlook timeline has contracted to adapt
to the increased short-term variability of todays economy.
aiyo Yudens Mr. Wilkinson says, Te largest impact of
the recession, in terms of our forecasting, would be battling
inventory impacts based on customers changes in demand.
Many no longer want to carry inventory, so they forecast
and give out purchase orders based on the forecast in order
to get more of a just-in-time type of scenario for product
Figure 3. Forecasts are important for managing profitabilityand performance, but forecast quality falls short.To what extent do you agree or disagree with the following
statements concerning forecasts at your company?
86%
57%
41%
0%
20%
40%
60%
80%
100%
Our forecastsare important
to our efforts to
improveprofitability.
Business unitmanagers rely
on our forecasts
to help them meetperformance targets.
Our forecasts arehigh quality
(i.e., timely, relevant,
and accurate).
The forecasting gaps
16%
45%
Percentage of respondents from discrete manufacturingcompanies agreeing with these statements
-
8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing
9/16
cfo publishing corp. December 7
delivery. We are sometimes forced into a tentative situation
when the forecast is not accurate due to changes in demand.
We are either expediting delivery or in a negotiation with the
customer to accept excess inventories.
Sten Daugaard, CFO at toy manufacturer Te LEGO Group,
says their forecasting process works in this environmentbecause of the integration of information from various
groups: Within our company it is not only a finance effort.
It is an effort that incorporates basically every function in the
company. Te people from sales and marketing are involved,
the people from global supply chain are involved, the people
from finance are involved. It is an important central nerve,
a main artery, in the company, so everybody who is part of
that process is also committing resources. And that makes it
possible to [create dynamic forecasts]. But even with this level
of commitment, there is still room for improvement. In some
markets, a very high percentage of consumer data is covered
and we get that on a daily or weekly basis, and we have other
markets where we basically have no consumer data available
in running the business, Mr. Daugaard continues. One of
the areas where we would very much like to improve, is to
work with our retailing customers. We would like to let them
know that there are systems in place that can help themand
usdo business together, better.
People tend to think that theyspend more time than they shouldpreparing the forecast, and its
probably because its done at a levelof granularity that sometimes hidesthe real issues. As we improve, we alsotry to simplify, the CFO at anappliance manufacturer notes.
Getting the numbers right, orgetting the right numbers?
Finance executives in this survey point to the need to analyze
and understand key drivers of performance instead of simply
producing reams of data. It is more important to have theright numbers than to have all the numbers, say these finance
executives. As Mr. Daugaard of Te LEGO Group notes, Te
higher the accuracy of your forecasts, the less flexibility you
need in your supply chain pipeline to fulfill those orders. Tere
is an economic advantage to being very good at predicting
what happens in the market.
While a large majority of manufacturing respondents (85%)
say that their finance teams are spending more time fore-
casting revenues and financial results (see Figure 2), only 32%
believe that increasing the amount of time spent developing
new forecasts will help their companies improve perfor-
mance. (See Figure 4, page 8.) In fact, 21% of manufacturing
respondents think they should spend less time developing
new forecasts.
Understanding the business and the factors that have the
greatest impact on profitability is crucial for managing
effectively through the economic downturn, but not to the
point where it obscures the forces that make the business
model succeed. In an open response question, one director
of finance stresses that people need to think critically about
what are the true levers that impact profitability [and how
they impact profitability]. A CFO writes that his companys
greatest challenge to developing and carrying out actionable,
effective plans is relying too much on a too-detailed forecast
instead of just focusing on drivers. He implies that focusing
just on the numbers, without focusing on what the numbers
mean, is counterproductive and runs the risk of introducing a
false degree of accuracy.
Finance executives in the survey understand that compa-
nies need to focus on the larger trends affecting their busi-
nesses, not on the minutiae of detailed line items. We try to
de-complexify the forecast process, says Jonas Samuelson,
CFO at the appliance manufacturer Electrolux, because right
now, people tend to think that they spend more time than
they should preparing the forecast, and its probably becauseits done at a level of granularity that sometimes hides the real
issues. As we improve, we also try to simplify.
When asked how they believe they should be spending their
time to help their companies meet performance targets,
finance executives in the survey call into question the value of
spending more time simply producing reports, as opposed to
producing targeted, useful analyses. At 3M, the emphasis is on
the value-added work. I think we have got a lot of information
-
8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing
10/16
DrivingProfitab
ilityinurbulentimeswith
AgilePlanningandForecasting:TeViewfromManufacturing
8 December cfo publishing corp.
at our disposal, notes Mr. Kronebusch. Its interpreting that
information and analyzing it, thats the increase in time.
More than 70% of manufacturing respondents say spending
more time on analyzing profitability and performance would
help their companies meet performance targets. Tis need
to understand the numbers better is not restricted solely to
finance, however; more than 71% of manufacturing respon-
dents say that finance should be spending more time focusing
business units on financial impacts and metrics as well. (See
Figure 4.)
In interviews, finance executives from manufacturing
companies note that they regularly collect data on customer
demand and have close communication with customers;
however, the degree to which they can rely on that datavaries substantially. Manufacturers have had to modify their
approaches and practices to apply more of their in-house
expertise in adjusting near-term forecasts. Te job of my
finance organization is going to be to give the business as
much insight as they can in terms of the possible demand
scenarios and to help guide them in terms of what our cost
structure, our capacity, and our asset utilization should be
in each of those scenarios, says Silgan Plastics Mr. Schmidt.
Right now the insights that were providing are suboptimal
because they are not as timely as we would like. Te agility to
react with operational tactics to demand uncertainty is abso-
lutely critical for our success next year.
Finance executives in the survey also recognize the impor
tance of remaining agile in a volatile and constantly changing
economic environment. However, four out of five manu-
facturing respondents (80%) estimate that their compa-
nies reforecast quarterly or even less frequently, and many
respondents believe that this may be inadequate for dealing
with the current market volatility. One director of finance
writes that it is important to compress the cycle time to
reduce variability between the start of revenue forecasting to
the finalization of the plan, due to changes in external factor
such as volume or commodities [prices]. Manufacturers aretasked with improving not just the quality of the information
they provide but also the speed with which they deliver it. o
achieve these goals, finance must harness the power of their
technology.
Figure 4. Finance executives in the survey say they should be focusing on analyzing and using the data, rather than simplyproducing it.In your opinion, would increasing or decreasing the amount of time your companys finance team spends on the following activities
be useful in helping your company meet its performance targets?
0% 20% 40% 60% 80% 100%
Developing new forecasts
Instilling more disciplinein resource planning
Providing analysis offorecast results
Focusing business units onfinancial impacts and metrics
Analyzing profitability
Analyzing performance data
Finance should spend more time on this activity
NeitherFinance doesnt need to change the amount of time spent on this activity
Finance should spend less time on this activity
32%
60%
63%
71%
73%
73%
48%
31%
28%
27%
23%
23%
21%
10%
9%
2%
5%
5%
Percentage of respondents from discrete manufacturing companiesNote: Percentages may not total 100%, due to rounding.
-
8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing
11/16
cfo publishing corp. December 9
Te value of integrationand automation
In open-text responses, many finance executives in the
survey identify the need for better information systems and
better processes in order to provide a dynamic and agileforecasting capability. Respondents from companies that
have more automated forecasting and planning processes are
also more likely to say that their forecasts are of high quality.
We segmented all respondents into those who say their
forecasting and planning processes are highly automated
(14%); those who characterize their processes as partially
automated, requiring some degree of manual manipula-
tion (50%); and those who report that their processes are
primarily manual (36%).
Tree-quarters (75%) of the relatively small number of
respondents who characterize their companies as highly
automated also say that their forecasts are high quality,
compared with 57% of respondents from partially automated
companies. As Mr. Sud at Indias Hero Honda explains, We
rely very heavily on automation, so we can take action when
we have all the correct information. If your data is not avail-
able at the right time, its possible you might miss the bus.
Respondents from companies whose forecasting and plan-
ning processes are primarily manual express the least satisfac-
tion by far with their forecasts: only 36% of these executives
say that their companies have high-quality forecasts.
At Silgan Plastics, many of the processes are extremely
manual, says Mr. Schmidt: I would foresee and hope that
we transition away from the traditional static forecasting
model, which is a very myopic perspective of how you
view your demand and where your business is going to be,
and begin to gravitate toward a forecasting process that is
much more dynamic. Were starting to think about all the
potential scenarios, both upside as well as downside, and
were starting to plan operationally how we would react
to those various scenarios. Right now we dont have the
organizational capacity or the resources to forecast out two,
three, or four different likely scenarios and build opera-
tional tactics to respond to each of those. But in the future,
when the vast majority of the forecasting process is stream-
lined and systematized, our people will focus their efforton trying to prepare the business to react to each of those
potential scenarios.
In open-text answers to the survey, respondents list a
number of technology-based actions that companies
can take to improve the quality of their forecasts, such as
eliminating multiple information interfaces, integrating
disparate systems, and providing driver-based scenario
modeling. Others cite the need to integrate forecasting and
scenario-planning processes and applications that obviate
the need for spreadsheet manipulation, as one director of
finance from the manufacturing industry writes. Several
respondents comment on the usefulness of having an
integrated data-warehouse capability that would allow
them to work with a single set of data conforming
to standard formats and definitions.
But challenges persist, including how to determine appro-
priate period comparisons. As noted by Mr. Kronebusch
at 3M, A lot of supply chain tools looked at past statistics,
which may not be relevant at this pointbecause the future
now is likely to be very different from the past. In the quest
for agility and responsiveness to rapidly changing market
conditions, systems that rely on information that is primarily
historical may not only be limited, but also misleading.
Other respondents look to ERP or business intelligence soft-
ware to provide more structured and automated models for
planning and forecasting. Several respondents outside of
manufacturing note that they are in the process of imple-
menting these systems, which they expect will improve their
planning and forecasting abilities. In particular, a number of
respondents say they are looking for a driver-based scenario-
modeling capability that would help both finance and busi-
ness unit management to think critically about actions that
impact profitability.
By making these kinds of technology changes, companies
can reduce the time finance teams spend on collecting,
consolidating, and conforming data inputs and increase the
time they spend on analyzing the data. Automation initia-
tives are noted by many finance executives in our survey as
the most important improvement their companies could
make in their planning and forecasting practices to help
meet profitability targets.
A business director for a manufactur-ing company in Asia writes, Teforecast is only useful informationwhen utilized in an integrative
approach by the operations fordecision-making processes.
-
8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing
12/16
-
8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing
13/16
ConclusionTis survey and interview program provides a snapshot of
some of the new challenges todays unprecedented economic
uncertainty has created for finance functions in manufac-
turing around the globe. With little or no revenue growth
expected in the near term, manufacturing finance execu-tives from all regions in our survey say they are focusing
more on preserving the bottom line. Cost, performance, and
profitability are top-of-mindnot just to survive the current
downturn, but also to ensure that companies will retain the
ability to ramp up quickly, allocate production resources
properly, and reinvigorate their businesses as the economy
inevitably improves.
In their efforts to preserve profitability, manufacturing
finance executives tell us their teams are spending more time
than ever on preparing forecasts, developing scenarios, nego-
tiating with suppliers, and analyzing the results. Tis group
faces particular challenges of balancing fluctuating customer
demand, maintaining appropriate inventories, optimizing
resource allocation, and projecting proper staffi ng levels
through this period of economic uncertainty. A majority of
manufacturing respondents say they spend substantially
more time preparing forecasts than previously. Tey place
more importance on their ability to provide insightful analysis
to executive and business unit management than on simply
producing more data.
Nearly all survey participants agree on the importance of
forecasting to their companys efforts to improve profit-
ability in this volatile environment. However, manufac-
turing respondents in particular identify a gap between
the stated importance of such forecasts and the actual
delivery of high-quality forecastsfewer than half of
these respondents agree that their companies forecasts
meet the criteria of timeliness, relevance, and accuracy.
Many of the finance executives in this research program
say that their forecasting and planning practices can be
improved through the use of technology by reducing or
eliminating manual collection and analysis, building inte-
grated data warehouses, and adopting simulation or other
scenario-modeling software. Manufacturing finance
executives identify the need for technology to yieldbetter information and communication from customers
regarding demand and inventory levels, and involve more
corporate functions in the planning process to identify
key drivers of the business.
Manufacturing finance executives say that spending
more time on providing analysis of forecast results and
making recommendations to the businessas opposed
to simply producing more forecastswould help their
companies meet performance targets. A majority of the
manufacturing respondents say finance should spend
more time analyzing profitability and performance, as
well as more time focusing business units on financial
impacts and metrics.
Simply having the data is not enough, they sayjust as
important is increasing the time spent working with
business units to provide insight into the true drivers of
performance and to strengthen business unit manage-
ments understanding of the financial implications of
their actions. Without this effort, and without building a
common understanding of the direction of the business
with other managers, finance executives feel they are left
groping in the dark.
Respondents from the manufacturingindustry say that finance should spendmore time analyzing profitability andperformance, as well as more timefocusing business units on financialimpacts and metrics.
cfo publishing corp. December 11
-
8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing
14/1612 December cfo publishing corp.
Sponsors perspective
Responses to this CFO Research Services survey clearly
indicate the current economic climate is driving the finance
function in discrete manufacturing companies to spend
more time on planning and forecasting, cost control, and
almost every other aspect of performance management.Tis research also reveals a troubling gap between the
increased need for high-quality forecasts to manage through
dynamic economic conditions and the lack of confidence in
the accuracy of these forecasts. A large number of discrete
manufacturing companies see performance management
and business intelligence solutions as key to improving
planning and forecasting practices.
Many of the respondents from the research who say their
companies rely on highly automated processes also charac-
terize their forecasts as high quality. Tis suggests they have
overcome the shortcomings inherent in working with inad-
equate tools and disparate data sources. Relying on appli-
cations that are more effi cient and effective than the still
widely used practice of manipulating spreadsheets, these
organizations have a head start on their peers and may be
able to weather current economic uncertainties better than
most. Furthermore, once economic conditions improve,
they may be more agile in taking advantage of the upturn.
SAP BusinessObjects solutions can help organiza-
tions consistently manage performance, enabling them
to become more agile and competitive by providing
alignment, visibility, and greater confidence. Te SAP
BusinessObjects portfolio includes leading solutions for
enterprise performance management, governance risk and
compliance, and business intelligence. Tese solutions can
help overcome the challenges that have been highlighted in
this research.
For example, SAP BusinessObjects Spend Performance
Management can help maximize cost savings and reduce
supplier risk by providing continuous visibility into
company-wide spending patterns, savings potential, and
external market factors. SAP BusinessObjects Supply
Chain Performance Management helps measurably
improve supply chain effectiveness by focusing onactionable, operational process metrics that impact supply
chain performance.
SAP BusinessObjects solutions can help organizations
quickly gain insight into the real drivers of
profitability and successfully manage through todays
dynamic environment.
F at SAP BOjt
t, a vt wt at:
http://www.sap.com/solutions/sapbusinessobjects/large/
enterprise-performance-management/index.epx
SponsorsPerspective
-
8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing
15/16
-
8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing
16/16
Driving Profitability in urbulent imes with
Agile Planning and Forecasting: Te View from
Manufacturingis published by CFO Publishing Corp.,51 Sleeper Street, Boston, MA 02210. Please directinquiries to Jane Coulter at 617-790-3211, or [email protected].
SAP funded the research and publication of ourfindings. At CFO Research Services, David Owensdirected the research, and Peter B. Lull wrote the report.
CFO Research Services is the sponsored research groupwithin CFO Publishing Corp., which produces CFOmagazine. CFO Publishing is part of Te EconomistGroup.
December 2009
Copyright 2009 CFO Publishing Corp., which is solelyresponsible for its content. All rights reserved. No partof this report may be reproduced, stored in a retrievalsystem, or transmitted in any form, by any means,without written permission.