The Financial Planning and Analysis (FP&A) function in the CPG and Manufacturing sectors can be dramatically affected by change, whether from a pandemic, the competitive environment or a policy change. To respond to these changes, we have created a model for Intelligent Planning and Performance Management. The model allows organizations to improve operational control and boost agility (for details, go here ). The FP&A function can further improve its capabilities by incorporating the latest industry-accepted best practices into their Planning and Performance Management systems (for details, go here).
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 Planning
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
ITC Infotech’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 ITC Infotech’s Intelligent Planning and Performance Management.
General Manager – Data
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