On 20 April, Larysa Melnychuk, Founder and CEO at FP&A Trends, hosted an insightful global webinar where practitioners shared their views on FP&A transformation and also some case studies on how technology can enhance this process.
FP&A Maturity Model
FP&A Transformation has been taking place for some time, with teams moving from the Traditional FP&A Model to the extended FP&A (xP&A) Model. This represents a move from scheduled to on-demand planning, from one scenario to multiple scenarios and from finance to entire company planning.
FP&A transformation journeys are different for each organisation, but there are some features that are common, and the trends are global. The FP&A Maturity Model can help identify where your company currently stands and determine the steps that can take you forward.
In the polling question, 87% of webinar attendees identified their organisation as being at the basic to defined states of the model.
FP&A Transformation Roadmap
Presented by Vignesh Dumonceau, CFO of Flex Switzerland, Flex.
As we face increasing complexity and volatility, FP&A teams are required to adapt to deliver their objectives, influence financial health, support insightful decisions and nurture the growth of the organisation.
FP&A is moving from a traditional reporting-based approach to a strategic and business partnering approach. They are not only analysing results and variances but identifying which levers can be pushed and pulled to influence the results and providing deeper insights. For example, when looking at unit profitability, to deep dive into customer category, or specific product line, with the ability to zoom in and zoom out of different levels of data, and to integrate information that sits outside of finance, including those external to the organisation.
In his presentation, Vignesh shared an FP&A transformation roadmap that can help practitioners to embrace the journey:
- Create a strategic plan and customer/market-centric FP&A organisation. This will show where the organisation is heading for the next 5-6 years and will help the company define the customer proposition and how resources are deployed.
- Define, analyse and set up an integrated and cohesive process. This will enable goal congruence to be achieved across the organisation.
- Establish a technological roadmap based on budget, skills and need. FP&A needs to ensure that the type of systems is fit for purpose and adapted to the goals set.
- Train, develop and promote skills and continuous improvement projects and processes. Training people to use systems and process will move them from number-crunching to an interpretative standpoint, that will support the business by delivering insights.
How Can Technology Enhance FP&A Transformation
Presented by Lawrence Serven, Regional Director and Thought Leader, Board International
In his presentation, Lawrence looked at four different case studies.
Case Study 1: Scenario Management at Coca Cola
According to John Murphy, CFO Coca Cola Company, scenario management is different to scenario planning. It is not just running a model and determining the impact on the P&L of different what-if scenarios. It tries to identify the likely actions of the organisation and having a suitable plan available and implementable in case a scenario occurs. Scenario management is not about creating a thousand scenarios but rather focusing on key risks and opportunities.
When Coco-Cola considers launching a new product, opening a new warehouse, running a promotional campaign or if there was a need to downsize, a box is put around them as initiatives or projects, and the impact to the P&L is determined (both revenue and cost to derive a bottom-line perspective). Under each scenario, the relevant initiatives can then be included.
It does not provide a complete answer, but it gets people to think beyond if this one thing changes in our model what is the P&L impact, to how would we respond to it from an operational perspective.
Case Study 2: Driver-Based Planning at Coca Cola
Coca Cola European Partners have over 300 million consumers and close to 25,000 employees across 13 countries. They have built a straight through fully integrated planning and budgeting process, going from manufacturing to warehousing to logistics to store operations. They built an elaborate driver-based model, which accounts for plant capacity, materials needed for products, where are materials housed, etc. When they do demand planning and run this model, they can determine overtime requirements, staff augmentation, etc., and their impact on the P&L.
A hidden benefit to driver-based planning is the level of variance analysis and business intelligence is much more advanced. For example, if there was an expectation of productivity improvement that would have improved the cost of goods sold, they would be able to identify if the project is marginally delayed. As a result, they can explain that productivity improvement has not been achieved so the improvement to costs of goods sold did not reach the level expected. This insight is so much more intelligent, in-depth and valuable to management than to just quantify the variance of a sales number.
Case Study 3: Predictive Analytics Applied to Demand Planning at AstraZeneca
AstraZeneca is using technology to do demand planning which, for a pharmaceutical company, is very complex. The system they use applies more than 50 sophisticated predictive algorithms, which is backtested to determine which algorithm produces the most accurate predictive answer and that is used for predictive analytics going forward.
They use a couple of years of historical data, a training set based on the first 18 months and the last 6 months is the test set. All this happens automatically after the data is loaded, and can be applied at any level, e.g. brand, location, factory, stock-keeping unit (SKU), etc.
They typically use this in conversations with sales teams to get their view and then to merge the two. Over the past couple of years, the predictive analytics algorithm is providing a better answer than the view from the sales team, and the sales team now uses predictive analytics as a starting point.
Case Study 4: Fully Integrated Business Planning (xP&A) at Puma
Puma has leveraged xP&A and straight through integrated business planning, from demand planning to manufacturing, warehousing, logistics, marketing, merchandise planning etc.
Puma like many fashion companies uses influencers. In this example, a particular Instagram post from Pamela Reif went viral and everyone was asking about the sneakers she was wearing. Puma recognised the potential of a big spike in the sales of this sneaker, and considering fashion moves very quickly, they had to decide how to take advantage of this opportunity right now.
As they have fully integrated planning, they knew which stores were most likely to see the peak, what raw materials were needed, where they needed to purchase them from, the required lead time, where they were going to be produced and how they were going to be shipped to the stores, etc. They were able to get the right sneakers in the right stores at the right time because they had straight-through processing, a prime example of agile planning. This one event alone more than paid for their investment.
FP&A teams are transforming, moving from a traditional reporting-based approach to more strategic and business partnering capabilities, providing insights and value to the business and supporting decisions.
Leading companies have demonstrated the success of integrated planning, with the use of technology that enhances planning capabilities. Every company has to start somewhere. By identifying which stage of the maturity model the organisation is at, they can determine the relevant steps to advance and transform the FP&A function towards the Leading State.