It’s no secret that, despite their best efforts, many organizations struggle to bring together Finance and Operations departments effectively, and it’s no surprise why. Supply Chain professionals are battling constant changes in supply and demand, requiring continuous adjustments to production schedules and logistics, which is at odds with the longer-term business planning approach of Finance teams who typically take a monthly, quarterly, or annual view of the business for planning and reporting.
With such different planning needs and various tools, models and spreadsheets in place to manage the process, it can be difficult to imagine how the Finance and Operations departments could be integrated, or other areas of the business for that matter. Closing the gap between Finance and Operations is a key factor in increasing efficiency, effectiveness, and ultimately profitability, but how can organizations achieve this unified approach? Certainly not through disparate planning and analysis systems, methodologies and models.
In this blog, we explore how a driver-based planning approach can create synergy between Finance and Operations departments. We also examine a real-life example of how one of the world’s leading brands – Coca-Cola – has undergone a Supply Chain Finance transformation initiative, supported by a driver-based planning approach.
But first, let’s be clear about the terminology.
Driver-Based Planning is an approach in which the key business variables which drive a company’s success are identified and used to forecast where the company is heading, with the results being used to produce plans and budgets. Essentially, it involves the linking of analytics data to the financial planning and budgeting process.
In a Supply Chain context this might be, for example, the use of output and productivity data for a production line to inform the budgeting of salaries, electricity, maintenance, and more. This is in contrast to traditional planning and budgeting activities in which Finance teams produce overall budgets for cost centers and attempt to tweak them monthly in line with how the department as a whole is performing – typically a much slower approach.
The business drivers used in the driver-based planning approach are usually factors which may have an impact on the bottom line of the business, such as Key Performance Indicators (KPIs) or Key Behavior Indicators (KBIs).
Key Performance Indicators (KPIs) are measures used by organizations to assess the performance of the business by identifying improvements or decreases in areas considered to have an impact on overall success. KPIs vary from business to business but typical examples include profitability, the volume of backlogged work, the utilization rate of staff, or costs.
KPIs are typically used by senior management teams to monitor overall success but they are not always relevant to frontline staff. Those on the production line, for example, may not see the impact of their daily tasks on the profitability of the company. As a result, recent years have seen the rise of Key Business Indicators (KBIs); measures which have an impact on KPIs but are more tangible to those on the frontline and more related to process output. In the case of operations, measures such as production volume, productivity, and FTEs.
Both KPIs and KBIs can be used in the driver-based planning approach as factors which will have an impact on planning and budgeting.
If organizations have been functioning for years with traditional approaches to planning, and maintaining profitability, why should they change? Here are some of the benefits of taking a more integrated approach:
Overcoming the traditional ways of working and closing the gap between Supply Chain and Finance requires a significant change in approach and mindset, so how do you achieve it?
In order to answer this question, we consider a best practice example from one of the world’s leading brands; Coca-Cola.
Coca-Cola European Partners (CCEP) is the largest independent bottler of Coca-Cola products worldwide. Selling to over 300 million customers in 13 countries, with 2.5 billion unit cases sold annually, the company is supported by an extensive set of operational activities. Like many businesses, Excel spreadsheets and Access databases were heavily relied upon for analysis, planning and budgeting activities in a ‘classic’ Finance approach.
Wanting to modernize its processes, CCEP embarked on a Supply Chain Finance Transformation initiative with the aim of automating planning, optimizing reporting and delivering a leaner Finance function. With 48 plants, 85 warehouses, and logistics/distribution covering everything from trade to local stores to vending machines, this was no simple task.
Utilizing BOARD, the unified decision-making platform, CCEP overhauled its Supply Chain Finance processes. Removing the reliance on spreadsheets and creating the ability to quickly and easily model the impact of drivers on the bottom line, the project resulted in:
As illustrated above, the use of a robust planning solution provides the foundations for better decisions and can greatly increase efficiency and effectiveness, but it is not the full story. As with all major change projects, bringing Finance and Operations together such a transformative way requires other considerations to ensure success:
The process of transforming your Supply Chain Finance processes isn’t simple, but the implementation of the right tools, combined with a willingness to change and the backing of the business, can set you on the right track.