Achieving Supply Chain Finance Transformation through a Driver-Based Planning Approach
18 September 2018
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.
What is Driver-Based Planning?
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).
What is the difference between KPIs and 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.
What are the benefits of Driver-Based Planning?
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:
- Better, More-Informed Decisions: With the most up-to-date information visible across the business, and different departments able to see the impact of their activities on the bottom line, decisions can be made based on a much more robust foundation. In the case of Supply Chain vs Finance, operational KPIs like productivity, production volume, and line speed can be linked to financial profitability or growth, giving a clear indication of the impact any changes will have on the achievement of financial goals.
- Increased Efficiency: Removing the need to compare outputs from multiple planning systems, manually cross-examine multitudes of spreadsheets, and find common ground for evaluation can save a lot of time. The use of a single, unified planning solution can enable information to be reviewed in real-time. Analyses and decisions can be made faster thanks to the link between analytical data and planning, and the potential for future activity can be predicted in seconds. This increases the responsiveness of the business, gives it a more competitive edge, and ensures decisions are made using a solid foundation.
- Business Modelling, Simulation, and Forecasting: Driver-Based Forecasting pushes organizations to translate their business into measurable indicators (KPIs and KBIs), identify which are the most important and most changeable factors, and gain a clear understanding (through simulation) of the extent they’ll have on the bottom line. This process focuses the attention and efforts of the entire organization on the most relevant areas for improving performance.
- Increased Collaboration (Closing the gap between Finance and Operations): Instead of working towards departmental goals, driver-based planning encourages a unified approach. All teams can work towards one vision and see the impact that their activities are having on that vision. Supply Chain professionals can be clear about the impact that changes in factors such as productivity and output have on the financial success of the business, and Finance can understand the needs of the Operations department and budget accordingly.
How to achieve an effective Driver-Based Planning approach – a story of Supply Chain Finance Transformation
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:
- Huge increases in time efficiency thanks to P&Ls which are 90% populated by the system based on value driver methodology and the automation of operational data input, as well as the ability to perform full country consolidation with one click of a button.
- Standardization and data centralization, meaning data loading, analysis, planning, and reporting can be conducted in a consistent way using the most up-to-date information, ensuring synergy between the Finance and Operations departments and removing the reliance on spreadsheets, disparate planning tools, and alternate methodologies.
Transformational change requires more than just a solution
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:
- Strategic alignment – are the relevant stakeholders on the same page about the reason for the change, and supportive of it? Without this unified understanding, projects are set to fail at the first hurdle.
- Communication – vital for ensuring that everyone understands the purpose of the change and the benefits it will bring.
- Data – is it available, accurate and up-to-date? A tool is only as good as the data that’s been inputted.
- Change management – is a ‘big bang’ approach best suited to the change? The chances are that you’re asking people to change habits they have gained throughout their careers, so a more considered approach is more than likely required.
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.