driving profitability in turbulent times with agile planning and forecasting the view from...

8/6/2019 Driving Profitability in Turbulent Times With Agile Planning and Forecasting the View From Manufacturing

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Driving Profitability in urbulentimes with Agile Planning andForecastingTe View from Manufacturing

A report prepared by CFO Research Services in collaboration with SAP


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Driving Profitability in urbulentimes with Agile Planning andForecastingTe View from Manufacturing

A report prepared by CFO Research Services in collaboration with SAP


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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


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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.


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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


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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.


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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?



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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


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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


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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%



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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.


12/16


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.



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


15/16


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.

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