The planning and budgeting process provides decisions across the organization, requiring a deep understanding of the methodical activities and authorizations followed by a typical CPG or a manufacturing company. Finance leaders who follow this sequence find it easier to deliver long-term value creation:

Step 1: The company leadership and the executive committee discuss organizational goals and business expectations about 4-6 months before the start of the planning year. This is the discussion for the Annual Operating Plan and is based on new product launches, inclusion of new market and plans for existing market share expansion. A strategic plan emerges from these discussions. At this stage, forming a cross departmental executive committee led by CFO’s office is key to success.

Step 2: The executive committee with the CFO’s office prepares a 1-to-3-year strategic plan with revenue, cost and profit targets. This is followed by two activities:

• Basis the business expectation and goals shared by leadership, the executive committee provides its recommendations and feedback to the CFO’s office for revisiting the enterprise level SWOT.
• In coordination with departmental/ functional managers, a data sharing matrix is envisaged, detailing the type and granularity of data to be shared with departments and individuals.

Step 3: The executive committee completes SWOT analysis (based on high-level revenue, profitability and capex and opex and manpower plan) with an aggregation at corporate level, and a break down at business unit, zones and product and channel combinations. The guidance on Annual Operating Plan and a Strategic Plan is then finalized.

Step 4: The business unit/ zonal managers share the Annual Operating Plan and Strategic Plan with the Sales and Marketing function and other related departments such as production and finance. Feedback from the departments is analyzed and passed on to executive committee which may then revisit the Strategic Plan.

Step 5: Sales and Marketing teams devise their zonal plans or customer-wise product mix, etc. The Sales Plan is finalized after incorporating plausible changes suggested by the executive committee. Plans are then aggregated at the business unit/ zone level to create a corporate level plan.

Step 6: Once the demand is finalized, business units/ zones create their plans across production, material requirement, purchase, capex, IT, HCM, etc.

Step 7: Once the executive committee and CFO’s office receives data from business units/ zones it is verified with respect to:

• Pricing of products
• Impact of promotion on volumes
• Cost per unit for variable cost line items
• Capture and allocation of fixed costs
• Authenticity of the numbers
• Completeness of data
• Relevance of data

Step 8: The CFO’s office prepares an income statement and does a profitability analysis of planned numbers. The planned numbers are evaluated against the goals/business objectives setup by the executive committee, which then provides its recommendation to business units/ zones (if deviation occurs).

Step 9: Business units/ zones review the recommendations and incorporate it in consultation with the executive committee and CFO’s office to finalize the plan.

Step 10: The finalized business unit/ zone and aggregated corporate level plans are sent to the CEO’s office for approval.

Step 11: Once CEO approves the Annual Operating Plan and Strategic Plan, the executive committee consolidates all planned numbers (making changes if suggested by the CEO).

Step 12: Following approval from CEO, the plan is sent to the board for approval.

Step 13: On approval, the plan is published and locked for the future performance management.

Step 14: The CFO’s office reviews the plan monthly and compares budget vs. actual. The reasons for variances (on feedback from respective departments) are analyzed with action items. This is reviewed with the business for root cause analysis and shared as input for the rolling forecast.

Step 15: Board, executive committee, management accounting department and GMs review the plan every quarter/ month as per the industry to forecast/re-forecast for the remaining period of the year.

Step 16: On review the root cause for deviation (both favorable and adverse) are incorporated as feedback for the next planning/forecasting cycle as corrective actions as relevant

How ABC Limited used the Intelligent Planning and Performance Management model – An illustration how short term Capex and Production decision can be logically derived through Intelligent PlanningĚý

ABC Limited is in glass bottle manufacturing for one of the leading global beverage manufacturers based in the UK. ABC Limited wants to evaluate its production capacity monthly against the demand plan and take decisions if the capacity is short or in excess.

ABC Limited has three product lines, each having 3 SKUs. The production plan is done based on the sales budget—which may require realignment based on any production constraints.

These steps explain the method for production realignment decisions. With ABC Limited the production order flows through three sub-processes (Furnace, Melting and Forming):

Furnace: Practical capacity of each furnace is 12 tons per batch with two batches per day. If any furnace line faces capacity constraint (cross 100%) as per production schedule, unutilized production capacity of previous period (weeks/ days) can be leveraged by realigning production schedule.

Melting: Practical capacity of each melting pot (2 dedicated melting pots for each category) is 201-meter cube. There is a need to test whether input from furnace (irrespective of realignment) exceeds maximum practical capacity of melting pot. If capacity is exceeded, the plant must go for a new installation.

Forming: Forming lines are interchangeable and the Pressure per Square Inch can be reconfigured as per the requirement. Hence, at any point of time, it can be changed as per the input from upstream production processes.

With ABC Limited, the Intelligent Production Planning model consistently re-evaluates future product demand vs. resource availability and reconfigures the operational/ production plan to maximize profitability.

How organizations can benefit from the Intelligent Planning and Performance Management model

91¶¶Ňő’s Intelligent Planning and Performance Management model centralizes all structured and unstructured data into a single source of truth, and provides these additional benefits:

• Flexible production scheduling to address constraints
• Precise phasing of capex decisions
• Decentralization, enabling departments to become responsible for their budgets
• Complete control over workflows with configurable business processes
• Change from manual spreadsheets to automated forms/ reports streamlines processes and reduces errors
• Ability to accurately analyze costs and base decisions on causal modeling scenarios
• Ability to trace back all costs transparently
• Allow the organization to determine which best practices are required to enable further process improvement

CPG and Manufacturing organizations wanting to create dependable macro level production planning can be sure to gain the ability to optimize their production schedules and manage constraints to determine impact on their bottom lines with 91¶¶Ňő’s Intelligent Planning and Performance Management.

Author:

Rajarshi Gupta
General Manager – Data
91¶¶Ňő

The post How the CPG and Manufacturing industries can improve outcomes using an Intelligent Planning and Performance Management model appeared first on 91¶¶Ňő.

The shortcomings of existing methodologies

• Traditional Planning and Performance Management processes are a minefield of challenges.Ěý
• They are manual, slow and prone to human mistakes.Ěý
• They also present the difficult task of integrating scattered and non-standard data from varied upstream source systems.Ěý
• The process is tedious but, more importantly, it does not allow teams to account for changes in business scenarios (new product introduction, new pricing strategy, non-availability of raw material/ talent, etc.). Without this capability, no business can respond quickly and accurately.Ěý
• Workflow limitations in existing systems are an additional problem. These result in situations where accountability of various functions remains obscure.Ěý
• Modern businesses also need to allow various users to access the data simultaneously and work in collaboration to drive consensus. These challenges and needs are becoming the prime drivers for organizations to re-visit and upgrade their Planning and Performance Management systems.

Depending on the type of industry – B2B, B2C Manufacturing or FMCG—an organization can change its planned numbers every quarter, if not more often, making it imperative to have sufficient dynamicity and flexibility in the planning and budgeting process.

Budgeting and planning data can be made most effective when it is distributed across business units. While this is necessary, it presents a security challenge. Organizations would like to make certain the data is made available on a need-to-know basis with adequate security and access controls.

Leading practices for tomorrow’s organizations

Figure 1 provides a comparative overview of traditional/ archaic/ poor practices versus common practice and leading practices including the involvement of reporting, forecasting and rolling forecasts. The figure shows the processes modern planning and management practices must possess.

Figure 1: Leading Practice

Many organizations invest considerable energy in identifying and listing the best practices most suited to their strategic objectives. The list can be dauntingly long. However, there are a set of practices that cannot – and should not – be ignored. These are central to dependable and reliable Planning and Performance Management that meets future needs:

1. Ensuring corporate objectives are aligned with the organization’s budgeting process: This calls for transparent two-way communicable between the strategic planning function and the budgeting procedure. The goal is to map high-level organizational objectives with resource allocation. To achieve this, an organization should:Ěý

• Formulate processes that allow top management to collaborate with teams directly involved in the day-to-day functioning of the organization.
• Maintain a transparent and fluid flow of information across functions that participate in the budgeting and planning exercise—maintain a uniform level of understanding of strategic goals and explicitly state the roles each team plays to fulfil the goals.
• Drive clarity of vision so that departments produce their budgets inclusively rather than in seclusion, leading to better coordination of tactics and support activities amongst the functions.

2. Designing comprehensive budgeting procedures to ascertain desired results: A typical planning and budgeting exercise recognizes the factors vital to a company’s success and the ways in which those factors relate to the KPIs which measure business growth. Another way to look at them is as Business Drivers which can be further categorized as Revenue Drivers and Cost Drivers. Budgeting processes must be designed to ascertain these by:

• Acting as a “sanity check” for the strategic plan, allowing only those procedures that turn plans into action.
• Associating planned objectives with optimum resource allocation for process management. For example, if a target objective for a manufacturing organization is “less than1% defective products”, the drivers for achieving the same will have to be “ensuring stringent and state-of-the-art product quality tests” and “keeping track of products sold vs. products returned or repaired”.
• Preventing functions from becoming over burdened with procedures and unnecessary levels of granularity. These end up making processes cumbersome without adding significant value. For example, budgeting at a project/module level is always better than budgeting at an individual line-item level.
• Maintaining proper documentation with guidelines, accurate timelines, clear objectives, and appropriate resource assignment to enhanced efficiency and increased accountability.
• Creating driver-based planning and rolling forecasts. The absence of rolling forecasting results in hiding the true picture leading to incorrect conclusions and decisions.
• Integrating rolling forecasting with a driver-based approach by leveraging both financial and operational data to achieve optimal effectiveness of budgeting practice.

3. Activity-based budgeting approach: Activity-based budgeting is derived from activity-based costing. Activity-based budgeting establishes the relationship between resources and activities and maps it to cost objects or services. This provides the actual cost for each object or service and aids in eliminating hidden costs, preparing accurate budgets and assigning accountability to managers who have control over the resources. Activity-based budgeting leads to:

• Optimal needs-based assignment of resources.Ěý
• Clarity on most and least expensive products/ services, providing visibility into real product/ service profitability.
• Assessment of the existing efficiency of the organization, leading to decisions around capex investments or disposal.
• Determination of appropriate cost baseline—which can be influenced through process or technology that reduces the effort for the activity.

These best practices, especially those with a 3-month rolling forecast, provide a dependable way for CPG and Manufacturing organizations to navigate volatile business environments. They are necessary to lay the foundation for realistic and real-time Planning and Performance Management.

• Learn about intelligent Planning and Performance Management to gain total operational control and agility
• Learn about the sequence of activities and authorizations of a typical planning and budgeting process of a CPG or Manufacturing company following industry leading practices

Leverage intelligence to improve your Planning and Performance Management — download our whitepaper now!

Author:

Rajarshi Gupta
General Manager – Data
91¶¶Ňő

The post Overcoming the challenges of conventional Planning and Performance Management through leading best practices appeared first on 91¶¶Ňő.

The post Intelligent Planning and Performance Management to gain total operational agility appeared first on 91¶¶Ňő.