Driving Protability in Turbulent Times with Agile Planning and Forecasting

The View from Manufacturing

A report prepared by CFO Research Services in collaboration with SAP

Driving Protability in Turbulent Times with Agile Planning and Forecasting

The View from Manufacturing
A report prepared by CFO Research Services in collaboration with SAP

Contents
Executive summary Managing the bottom line The forecasting gap Getting the numbers right, or getting the right numbers? The value of integration and automation 2 3 6 7

Working closely with business management 10 Conclusion Sponsors perspective 11 12

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About this report In March 2009, CFO Research Services conducted an electronic survey of senior nance executives. We gathered a total of 231 responses from a broad cross-section of company segments, as follows: Annual revenue $100 million$500 million $500 million$1 billion $1 billion$5 billion $5 billion$10 billion $10 billion+ Title Chief nancial ofcer Director of nance Controller VP of nance EVP or SVP of nance Treasurer CEO, president, or managing director Other Industry Consumer products/Retail/Wholesale Discrete manufacturing Financial services Business/Professional/Information services Energy/Utilities/Telecommunications Health care/Life sciences Process industries Entertainment/Travel/Leisure Other Region Europe Asia United States 36% 32% 31% 20% 20% 15% 9% 8% 8% 6% 4% 11% 33% 16% 15% 11% 3% 4% 4% 14% 40% 18% 19% 5% 18%

Executive summary
CFO Research Services conducted this research program to better understand the impact that economic uncertainty is having on the nance function and its role in developing accurate forecasts and actionable plans, particularly in the manufacturing sector. In the best of times, a forecast is only as good as the assumptions on which it is built; those assumptions are continually tested against internal and external realities, and either validated or adjusted. Even when events play out in line with forecast scenarios, a companys business plans, budgets, and resource allocations must be constantly updated as conditions change. But as the demand outlook grows increasingly unpredictable, forecast horizons contract, accuracy declines, and new forecasts are required more often and more quickly. Our electronic survey gathered responses from senior nance executives worldwide in March 2009, as the global economy was plunging into recession at a pace unseen in many decades; our interview program among manufacturers was conducted in the somewhat quieter period following the steepest economic decline (Fall 2009). Over these periods, the orderly progression of business cycles was disrupted, and both the range of variability of input assumptions and the speed at which they changed often pushed forecasts to the breaking point. Input prices, labor costs, market demand, energy prices, partner viability, sourcing strategies, capital costs, capital expendituresthese are among the fundamental givens upon which companies have built their forecasts and plans, but which began changing at rates that had forecasters scrambling to keep up. In such an environment, manufacturers in particular face considerable challenges regarding inventory management, production resource allocation, and maintaining appropriate headcount. In this research program, we looked at the changing priorities for nance, new demands being placed on the nance teams time and abilities, and challenges to forecasting and planning activities being created by the unprecedented uncertainties in economic outlooks. Our research revealed four major results: In an economic environment that oers limited visibility into revenue growth, nance functions are focusing on activities that help their companies manage the bottom line. Finance executives expect little or no revenue growth in the near term, and more than 8 out of 10 manufacturing respondents say that their companies will focus more on increasing bottom-line prots than on top-line revenue in the next 12 months. In response to an increasingly harsh external environment, nance began turning its attention inward, spending more of its time on cost reduction, performance management, and protability analysis.

Driving Protability in Turbulent Times with Agile Planning and Forecasting: The View from Manufacturing

Note: Percentages may not total 100%, due to rounding. We subsequently conducted in-depth interviews with senior nance executives at the following companies, which are based in several regions around the world: 3M Electrolux Hero Honda The LEGO Group Michelin Silgan Plastics Taiyo Yuden

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Finance executives reveal a troubling gap between the importance of forecasting for managing through the economic downturn and their condence in the quality and accuracy of those forecasts. Particularly in manufacturing, the volatile economic environment heightens the importance of forecasting for providing the information and analysis companies need to manage protability and performance. However, not even half (41%) of the manufacturing nance executives taking this survey characterize their companies forecasts as high quality. At a time when the need for forecasting accuracy, insight, and agility is greater than ever, more than half of the manufacturing nance executives in this survey believe their companies are falling short. Finance executives in our research program say they should focus on analyzing and using the data, rather than simply producing it. Respondents cite a number of technology-based actions that companies can take to improve their ability to produce high-quality forecasts: eliminate multiple information interfaces, integrate disparate systems, and employ driver-based scenario modeling. But manufacturing nance executives also say that spending more time on providing analysis of forecast results and making recommendations to the businessas opposed to simply producing more forecastswould help their companies meet performance targets. Nearly three-quarters of the manufacturing respondents say nance should spend more time analyzing protability and performance, as well as more time focusing business units on nancial impacts and metrics. Finance executives in the research program recognize that improving the quality of forecasts is not just a nance issueit touches all aspects of the business. Many of the respondents indicate that working with business unit managers to help them understand the nancial impact of operating decisions and to improve the accuracy of inputs is one of the most important improvements they could make. To improve the quality of their forecasts, manufacturing nance executives tell of the need for better communication and information from customers regarding demand and inventory levels, and involving more corporate functions in the planning process to identify key drivers of the business.

Managing the bottom line

In an economic environment in which revenue growth is challenging and dicult to predict, our research conrms that companies are devoting more time and resources to maintaining protability. Finance executives in our survey expect little or no revenue growth in the near term, and 84% of manufacturing respondents say that their companies will focus more on increasing bottom-line prots than on top-line revenue into the rst quarter of 2010.

In response to the harsh external environment, nance is turning its attention inward, focusing on the elements of protability the company can control more directly: reducing costs and managing performance.
Achieving any such increases will be no small feat for manufacturers across the board. With so much uncertainty and volatility aecting consumer demand, manufacturing companies have been hindered when it comes to capacity and resource planning, producing plausible forecasts, and negotiating with suppliers. Critical factors for determining demand consumer sentiment, credit availability, commodity prices, government interventionlie outside of manufacturing companies direct control. Nearly all manufacturing respondents (96%) report that their nance teams are spending more time on cost control and expense reduction now than they did two years previously. (See Figure 1, page 4.) This change is not simply a minor adjustment: Due to volatility, a large majority (71%) say that they are spending much more time on these eorts. Clearly, nance teams are working hard to bring costs in line with the anticipated slowdown in revenue. In response to the harsh external environment, nance is turning its attention inward, focusing on the elements of protability the company can control more directly: reducing costs and managing performance. As Mike Kronebusch, nance manager in 3Ms Industrial Adhesives and Tapes Manufacturing division, notes [The downturn has] caused everyone to take more of an operational mindset as [all companies] are trying to deliver results and maintain the bottom line during these tough times. Finance executives in the manufacturing sector interviewed for this report express a cautiously optimistic outlook for the year ahead, although the prospects for a steady, sustainable recovery remain uncertain. We denitely have a more conservative outlook, even though were seeing a substantial

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Driving Protability in Turbulent Times with Agile Planning and Forecasting: The View from Manufacturing

There has denitely been more organizational eort towards forecasting and understanding both our internal performance as well as the drivers of the external environment, says the CFO of a plastic products manufacturer.
increase in demand and our revenues are up substantially from the beginning of 2009, says Joe Wilkinson, vice president of operations and CFO of the US division of electronics manufacturer Taiyo Yuden. It is still very tentative whether that improvement will be sustainable. Mr. Wilkinson goes on to explain, A lot of people are still hedging, even though they have the equipment, the factory, and the capabilities. I think everybody is waiting to see [what will happen], which is forcing capacity problems in the market and a attening of pricing. This uncertainty surrounding demand has impacts up and down the supply chain for manufacturers, as evidenced by the fact that 80% of manufacturing respondents say they are spending more time negotiating supplier agreements than they did two years previously. (See Figure 1.) Manufacturers are increasingly concerned about getting locked into commitments for which demand never materializes, leaving plants with idle capacity and supply chains slack as nancial commitments come due. Consumer worries make for uneven purchasing patterns and end up squeezing retailers, putting pressure on manufacturers, who in turn seek bargaining concessions from suppliers. Performance improvement is a higher priority for all survey respondents. But manufacturing companies are especially burdened by the challenges of demand uncertainty and proper management of workforce levels. Cutting production indiscriminately as demand dries up poses the risk of leaving companies unable to recover as the economy turns around in the future. Michelin addressed the weakness in demand as a short-term condition. In terms of managing the manufacturing downtime, we wanted to keep all our trained and skilled sta so that when the activity comes back you arent lacking people who are trained to run your plant, says Marc Henry, director of nance operations for the tire manufacturer. Instead, the company used local legislation rules about unemployment to aect partial closings, so that ultimately the company is not overly penalized by this crisis, notes Mr. Henry.

Figure 1. Controlling costs and managing performance are top-of-mind for finance executives working through a volatile economic environment. In your opinion, is the finance team at your company spending more or less time on the following activities in the current business environment, compared with two years ago? 2% Cost control/expense reduction Performance monitoring and reporting Profitability analysis Business process improvement Supplier negotiation and contract management Strategy development Pricing Competitive intelligence 32% 23% 21% 14% 12% 26% 26% 42% 49% 60% 80% No change Somewhat less time 71% 50% 43% 32% 57% 42% 35% 9% 34% 50% 30% 16% 5% 9% 5% 25% 2% 11% 5% 7% 5% 7% 2% 2% 2%

0% 20% 40% Much more time Somewhat more time

100% Much less time

Percentage of respondents from discrete manufacturing companies Note: Percentages may not total 100%, due to rounding.

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Much of this activity translates into keeping a closer eye on the bottom line, and indeed, more than 9 out of 10 manufacturing respondents (93%) say their nance teams are spending more time on protability analysis. (See Figure 1.) The ability to develop a reliable, forward-looking view of performance is important for managing protability in the present while preserving future opportunities. With the economy so uncertain, the diculty of developing this forward-looking view of performance is magnied, and nance must devote more time and resources to this critical task. Ravi Sud, CFO at Hero Honda in India, sums up the volatile environment the motorcycle manufacturer found itself coping with: With last years crisis, I think the whole game plan seems to have changed loss of jobs, pay cuts, liquidity crisis, high interest rates, and general uncertainty in the minds of the customer that leads to them postponing their purchase decisions. Finance executives in our survey indicate that coping with greater uncertainty in the economic outlook is placing the largest demands on their time. Large majorities of manufacturing respondents report that the current economic uncertainty has increased the amount of time nance spends on forecasting (85%) and on scenario planning and analysis (82%)that is, on modeling potential outcomes based on uctuations in dierent sets of drivers. More than half (55%) of manufacturing respondents say that the increase in time spent on forecasting has been substantial. (See Figure 2.) There has denitely been more organizational eort towards forecasting and understanding both our internal performance as well as the drivers of the external environment, notes Derek Schmidt, senior vice president and CFO at Silgan Plastics, and trying to marry those two things together to understand where the business is headed and what the nancial outcomes of that are.

What I think is important is how you organize yourself to face that very high volatility that, of course, nobody was really able to forecast correctly [in 2009], says Michelins Mr. Henry. It took us some time to make sure we understood where the markets were going. But what is more important is how you organize your company to deal with that problem, which means being more reactive to the current environment and taking appropriate action more quickly than ever.

Another CFO in manufacturing notes, There is a lot more detailed questioning and analysis to better understand whats occurring by business, by product, by customer, by region.Weve been doing more simulation on what the impacts of dierent product portfolios from a nancial standpoint do to our P&L.

Figure 2. Finance teams are spending more time preparing for change. Has the current economic uncertainty increased or decreased the amount of time finance spends on planning, forecasting, and budgeting activities? Forecasting revenues and financial results Scenario planning and analysis Resource and capacity planning Detailed line-item budgeting 0% Increased substantially 41% 32% 32% 20% Increased moderately 40% No change 43% 41% 60% Decreased moderately 55% 41% 21% 23% 80% 30% 14% 18% 5% 2% 2% 100% 2%

Decreased substantially

Percentage of respondents from discrete manufacturing companies Note: Percentages may not total 100%, due to rounding.

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The forecasting gap

Driving Protability in Turbulent Times with Agile Planning and Forecasting: The View from Manufacturing
In this uncertain economic climate, the importance of forecasting elevates to critical; 86% of manufacturing respondents in this survey agree with the statement that their forecasts are important to their eorts to improve protability. Companies plan out the likelihood of future projections. But just as each element in the plan gains importance, the proper inputs for each forecast become far more challenging to determine. Manufacturers in particular bear the burden of uctuations in demand, pricing, and inventory as they seek to maximize usage of capacity and resources.

Figure 3. Forecasts are important for managing profitability and performance, but forecast quality falls short. To what extent do you agree or disagree with the following statements concerning forecasts at your company? 100% The forecasting gaps 80% 60% 57% 40% 20% 16% 41% 86% 45%

The survey reveals a troubling gap between the importance of forecasting for managing through the economic downturn and nance executives condence in the quality and accuracy of the forecasts their companies are able to produce.
Putting together the ideal resource optimization plan is no simple task at many companies. In response to the downturn, manufacturing respondents say their nance teams are spending more time on the types of activities used to translate forecasts into actionsresource and capacity planning (75% of manufacturing versus 65% of all respondents) and detailed line-item budgeting (73% of manufacturing versus 63% of all respondents). (See Figure 2.) As Silgan Plastics Mr. Schmidt explains, Probably our greatest challenge has been consistently predicting our demand in the short run, and then exing our manufacturing costs and capacity to marry up with that near-term demand. 3Ms Mr. Kronebusch cites the challenge of creating forecasts that include nances value-added insights, which require more time: There is a lot more detailed questioning and analysis to better understand whats occurring by business, by product, by customer, by region. There has been a lot deeper dive. It has put more emphasis on the nance function to really align with what the business is. It has probably resulted in more of a workloadall that digging in and reconciling and analyzing granular detailbut I think its something thats necessary so everyone is on the same page for what we need to do to deliver the numbers. Mr. Kronebusch also notes the challenge of creating scenarios with the right product mix. Weve been doing more simulation on what the impacts of dierent product portfolios from a nancial standpoint do to our P&L, he explains.

0% Our forecasts are Our forecasts Business unit managers rely high quality are important to our efforts to on our forecasts (i.e., timely, relevant, and accurate). improve to help them meet profitability. performance targets. Percentage of respondents from discrete manufacturing companies agreeing with these statements

However, the survey reveals a troubling gap between the importance of forecasting for managing through the economic downturn and nance executives condence in the quality and accuracy of the forecasts their companies are able to produce. Despite the importance placed on forecasts, only 41% of manufacturing respondents rate those forecasts as high quality (i.e., timely, relevant, and accurate)much lower than the percentage of respondents from other industries who believe they have high-quality forecasts (55%), and well below the number who say forecasts are important to their eorts to improve protability. (See Figure 3.) At a time when the need for forecasting accuracy and agility is greater than ever, many nance executives in this survey believe their companies are falling short. Manufacturing in particular is vulnerable to this gap between forecast importance and information quality. In an environment of uncertainty, manufacturers have had to adapt their forecasting and planning processes to their customers changing inventory strategies. Planning assumptions are less secure, and the outlook timeline has contracted to adapt to the increased short-term variability of todays economy. Taiyo Yudens Mr. Wilkinson says, The largest impact of the recession, in terms of our forecasting, would be battling inventory impacts based on customers changes in demand. Many no longer want to carry inventory, so they forecast and give out purchase orders based on the forecast in order to get more of a just-in-time type of scenario for product

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delivery. We are sometimes forced into a tentative situation when the forecast is not accurate due to changes in demand. We are either expediting delivery or in a negotiation with the customer to accept excess inventories. Sten Daugaard, CFO at toy manufacturer The LEGO Group, says their forecasting process works in this environment because of the integration of information from various groups: Within our company it is not only a nance eort. It is an eort that incorporates basically every function in the company. The people from sales and marketing are involved, the people from global supply chain are involved, the people from nance are involved. It is an important central nerve, a main artery, in the company, so everybody who is part of that process is also committing resources. And that makes it possible to [create dynamic forecasts]. But even with this level of commitment, there is still room for improvement. In some markets, a very high percentage of consumer data is covered and we get that on a daily or weekly basis, and we have other markets where we basically have no consumer data available in running the business, Mr. Daugaard continues. One of the areas where we would very much like to improve, is to work with our retailing customers. We would like to let them know that there are systems in place that can help themand usdo business together, better.

Getting the numbers right, or getting the right numbers?

Finance executives in this survey point to the need to analyze and understand key drivers of performance instead of simply producing reams of data. It is more important to have the right numbers than to have all the numbers, say these nance executives. As Mr. Daugaard of The LEGO Group notes, The higher the accuracy of your forecasts, the less exibility you need in your supply chain pipeline to fulll those orders. There is an economic advantage to being very good at predicting what happens in the market. While a large majority of manufacturing respondents (85%) say that their nance teams are spending more time forecasting revenues and nancial results (see Figure 2), only 32% believe that increasing the amount of time spent developing new forecasts will help their companies improve performance. (See Figure 4, page 8.) In fact, 21% of manufacturing respondents think they should spend less time developing new forecasts. Understanding the business and the factors that have the greatest impact on protability is crucial for managing eectively through the economic downturn, but not to the point where it obscures the forces that make the business model succeed. In an open response question, one director of nance stresses that people need to think critically about what are the true levers that impact protability [and how they impact protability]. A CFO writes that his companys greatest challenge to developing and carrying out actionable, eective plans is relying too much on a too-detailed forecast instead of just focusing on drivers. He implies that focusing just on the numbers, without focusing on what the numbers mean, is counterproductive and runs the risk of introducing a false degree of accuracy. Finance executives in the survey understand that companies need to focus on the larger trends aecting their businesses, not on the minutiae of detailed line items. We try to de-complexify the forecast process, says Jonas Samuelson, CFO at the appliance manufacturer Electrolux, because right now, people tend to think that they spend more time than they should preparing the forecast, and its probably because its done at a level of granularity that sometimes hides the real issues. As we improve, we also try to simplify. When asked how they believe they should be spending their time to help their companies meet performance targets, nance executives in the survey call into question the value of spending more time simply producing reports, as opposed to producing targeted, useful analyses. At 3M, the emphasis is on the value-added work. I think we have got a lot of information

People tend to think that they spend more time than they should preparing the forecast, and its probably because its done at a level of granularity that sometimes hides the real issues. As we improve, we also try to simplify, the CFO at an appliance manufacturer notes.

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Figure 4. Finance executives in the survey say they should be focusing on analyzing and using the data, rather than simply producing it. In your opinion, would increasing or decreasing the amount of time your companys finance team spends on the following activities be useful in helping your company meet its performance targets?

Driving Protability in Turbulent Times with Agile Planning and Forecasting: The View from Manufacturing

Analyzing profitability

73%

23%

5%

Analyzing performance data Focusing business units on financial impacts and metrics Instilling more discipline in resource planning Providing analysis of forecast results

73%

23%

5%

71%

27%

2%

63%

28%

9%

60%

31%

10%

Developing new forecasts

32%

48%

21% 100%

0% 20% 40% 60% 80% Finance should spend more time on this activity NeitherFinance doesnt need to change the amount of time spent on this activity Finance should spend less time on this activity Percentage of respondents from discrete manufacturing companies Note: Percentages may not total 100%, due to rounding.

at our disposal, notes Mr. Kronebusch. Its interpreting that information and analyzing it, thats the increase in time. More than 70% of manufacturing respondents say spending more time on analyzing protability and performance would help their companies meet performance targets. This need to understand the numbers better is not restricted solely to nance, however; more than 71% of manufacturing respondents say that nance should be spending more time focusing business units on nancial impacts and metrics as well. (See Figure 4.) In interviews, nance executives from manufacturing companies note that they regularly collect data on customer demand and have close communication with customers; however, the degree to which they can rely on that data varies substantially. Manufacturers have had to modify their approaches and practices to apply more of their in-house expertise in adjusting near-term forecasts. The job of my nance organization is going to be to give the business as much insight as they can in terms of the possible demand scenarios and to help guide them in terms of what our cost structure, our capacity, and our asset utilization should be in each of those scenarios, says Silgan Plastics Mr. Schmidt. Right now the insights that were providing are suboptimal

because they are not as timely as we would like. The agility to react with operational tactics to demand uncertainty is absolutely critical for our success next year. Finance executives in the survey also recognize the importance of remaining agile in a volatile and constantly changing economic environment. However, four out of ve manufacturing respondents (80%) estimate that their companies reforecast quarterly or even less frequently, and many respondents believe that this may be inadequate for dealing with the current market volatility. One director of nance writes that it is important to compress the cycle time to reduce variability between the start of revenue forecasting to the nalization of the plan, due to changes in external factors such as volume or commodities [prices]. Manufacturers are tasked with improving not just the quality of the information they provide but also the speed with which they deliver it. To achieve these goals, nance must harness the power of their technology.

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The value of integration and automation

In open-text responses, many nance executives in the survey identify the need for better information systems and better processes in order to provide a dynamic and agile forecasting capability. Respondents from companies that have more automated forecasting and planning processes are also more likely to say that their forecasts are of high quality. We segmented all respondents into those who say their forecasting and planning processes are highly automated (14%); those who characterize their processes as partially automated, requiring some degree of manual manipulation (50%); and those who report that their processes are primarily manual (36%). Three-quarters (75%) of the relatively small number of respondents who characterize their companies as highly automated also say that their forecasts are high quality, compared with 57% of respondents from partially automated companies. As Mr. Sud at Indias Hero Honda explains, We rely very heavily on automation, so we can take action when we have all the correct information. If your data is not available at the right time, its possible you might miss the bus. Respondents from companies whose forecasting and planning processes are primarily manual express the least satisfaction by far with their forecasts: only 36% of these executives say that their companies have high-quality forecasts. At Silgan Plastics, many of the processes are extremely manual, says Mr. Schmidt: I would foresee and hope that we transition away from the traditional static forecasting model, which is a very myopic perspective of how you view your demand and where your business is going to be, and begin to gravitate toward a forecasting process that is much more dynamic. Were starting to think about all the potential scenarios, both upside as well as downside, and were starting to plan operationally how we would react to those various scenarios. Right now we dont have the organizational capacity or the resources to forecast out two, three, or four dierent likely scenarios and build operational tactics to respond to each of those. But in the future, when the vast majority of the forecasting process is streamlined and systematized, our people will focus their eort on trying to prepare the business to react to each of those potential scenarios. In open-text answers to the survey, respondents list a number of technology-based actions that companies can take to improve the quality of their forecasts, such as eliminating multiple information interfaces, integrating disparate systems, and providing driver-based scenario modeling. Others cite the need to integrate forecasting and

scenario-planning processes and applications that obviate the need for spreadsheet manipulation, as one director of nance from the manufacturing industry writes. Several respondents comment on the usefulness of having an integrated data-warehouse capability that would allow them to work with a single set of data conforming to standard formats and denitions. But challenges persist, including how to determine appropriate period comparisons. As noted by Mr. Kronebusch at 3M, A lot of supply chain tools looked at past statistics, which may not be relevant at this pointbecause the future now is likely to be very dierent from the past. In the quest for agility and responsiveness to rapidly changing market conditions, systems that rely on information that is primarily historical may not only be limited, but also misleading. Other respondents look to ERP or business intelligence software to provide more structured and automated models for planning and forecasting. Several respondents outside of manufacturing note that they are in the process of implementing these systems, which they expect will improve their planning and forecasting abilities. In particular, a number of respondents say they are looking for a driver-based scenariomodeling capability that would help both nance and business unit management to think critically about actions that impact protability. By making these kinds of technology changes, companies can reduce the time nance teams spend on collecting, consolidating, and conforming data inputs and increase the time they spend on analyzing the data. Automation initiatives are noted by many nance executives in our survey as the most important improvement their companies could make in their planning and forecasting practices to help meet protability targets.

A business director for a manufacturing company in Asia writes, The forecast is only useful information when utilized in an integrative approach by the operations for decision-making processes.

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Working closely with business management

Driving Protability in Turbulent Times with Agile Planning and Forecasting: The View from Manufacturing
Finance executives in the survey also recognize that improving the quality of forecasts is not just a nance issueit touches all aspects of the business. Many respondents across industries indicate that working with business unit managers to help them understand the nancial impact of operating decisions and to improve the accuracy of inputs is also one of the most important improvements they could make. To get production, planning, and stang just right at 3M, Mr. Kronebusch says opening communication lines for sales and operations planning is key: [It is critical] to connect all the dierent functions of manufacturing, supply chain, and marketing, get them to have at least a monthly dialogue on what the demand outlook is in the U.S. and all the dierent geographical regions in order to be able to build production plans that are based on the future outlook, not history.

Working with business unit managers, nance can improve their understanding of how operating decisions can have benets on both the front and the back ends of forecasting and planning processes. Improving coordination between business units, and between business units and nance, can improve the accuracy of data inputs and reduce the time expended in collecting, consolidating, and scrubbing the data. Encouraging involvement inand even ownership ofthe forecasting process among business unit managers also leads to more accurate, timely inputs, resulting in live forecastsrather than static or backward-looking onesand reducing the need to continually correct forecasts made on the basis of faulty assumptions. Finally, when business unit managers are more invested in the forecasting process, they develop a deeper understanding of the nancial impacts of their operating decisions and can use the results more eectively in making course corrections to the business. At Silgan Plastics, Mr. Schmidt knows that producing better quality forecast information will pay o down the line. In order for our business to be successful in the coming year, the forecasting process needs to be more agile and exible, he says. If were prepared well in advance, we can immediately react to whatever the demand scenario is, both shortterm as well as long-term. And those reactions will be faster and better-informed if there is a higher level of engagement from the business units. We used to have the quality of forecasts in the hands of controllers, says Michelins Mr. Henry. We [have now] also put it in the hands of the commercial people, the supply chain people, so the quality of forecasts will be shared by many people. A business director for a manufacturing company in Asia makes this point succinctly in a survey verbatim: The forecast is only useful information when utilized in an integrative approach by the operations for decision-making processes. Otherwise, it is just a set of data to satisfy corporate reporting [requirements]. Another respondent starkly states the need for business unit managers to become more involved in forecasting: Increase training of key management to generate vital market insights. Otherwise, [we are] groping in the dark.

In order for our business to be successful in the coming year, the forecasting process needs to be more agile and exible, says a CFO at a manufacturer of plastic products. If were prepared well in advance, we can immediately react to whatever the demand scenario is, both short-term as well as long-term.

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Conclusion
This survey and interview program provides a snapshot of some of the new challenges todays unprecedented economic uncertainty has created for nance functions in manufacturing around the globe. With little or no revenue growth expected in the near term, manufacturing nance executives from all regions in our survey say they are focusing more on preserving the bottom line. Cost, performance, and protability are top-of-mindnot just to survive the current downturn, but also to ensure that companies will retain the ability to ramp up quickly, allocate production resources properly, and reinvigorate their businesses as the economy inevitably improves. In their eorts to preserve protability, manufacturing nance executives tell us their teams are spending more time than ever on preparing forecasts, developing scenarios, negotiating with suppliers, and analyzing the results. This group faces particular challenges of balancing uctuating customer demand, maintaining appropriate inventories, optimizing resource allocation, and projecting proper stang levels through this period of economic uncertainty. A majority of manufacturing respondents say they spend substantially more time preparing forecasts than previously. They place more importance on their ability to provide insightful analysis to executive and business unit management than on simply producing more data. Nearly all survey participants agree on the importance of forecasting to their companys eorts to improve protability in this volatile environment. However, manufacturing respondents in particular identify a gap between the stated importance of such forecasts and the actual delivery of high-quality forecastsfewer than half of these respondents agree that their companies forecasts meet the criteria of timeliness, relevance, and accuracy.

Many of the nance executives in this research program say that their forecasting and planning practices can be improved through the use of technology by reducing or eliminating manual collection and analysis, building integrated data warehouses, and adopting simulation or other scenario-modeling software. Manufacturing nance executives identify the need for technology to yield better information and communication from customers regarding demand and inventory levels, and involve more corporate functions in the planning process to identify key drivers of the business. Manufacturing nance executives say that spending more time on providing analysis of forecast results and making recommendations to the businessas opposed to simply producing more forecastswould help their companies meet performance targets. A majority of the manufacturing respondents say nance should spend more time analyzing protability and performance, as well as more time focusing business units on nancial impacts and metrics. Simply having the data is not enough, they sayjust as important is increasing the time spent working with business units to provide insight into the true drivers of performance and to strengthen business unit managements understanding of the nancial implications of their actions. Without this eort, and without building a common understanding of the direction of the business with other managers, nance executives feel they are left groping in the dark.

Respondents from the manufacturing industry say that nance should spend more time analyzing protability and performance, as well as more time focusing business units on nancial impacts and metrics.

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Sponsors Perspective

Sponsors perspective
Responses to this CFO Research Services survey clearly indicate the current economic climate is driving the nance function in discrete manufacturing companies to spend more time on planning and forecasting, cost control, and almost every other aspect of performance management. This research also reveals a troubling gap between the increased need for high-quality forecasts to manage through dynamic economic conditions and the lack of condence in the accuracy of these forecasts. A large number of discrete manufacturing companies see performance management and business intelligence solutions as key to improving planning and forecasting practices. Many of the respondents from the research who say their companies rely on highly automated processes also characterize their forecasts as high quality. This suggests they have overcome the shortcomings inherent in working with inadequate tools and disparate data sources. Relying on applications that are more ecient and eective than the still widely used practice of manipulating spreadsheets, these organizations have a head start on their peers and may be able to weather current economic uncertainties better than most. Furthermore, once economic conditions improve, they may be more agile in taking advantage of the upturn. SAP BusinessObjects solutions can help organizations consistently manage performance, enabling them to become more agile and competitive by providing alignment, visibility, and greater condence. The SAP BusinessObjects portfolio includes leading solutions for enterprise performance management, governance risk and compliance, and business intelligence. These solutions can help overcome the challenges that have been highlighted in this research.

For example, SAP BusinessObjects Spend Performance Management can help maximize cost savings and reduce supplier risk by providing continuous visibility into company-wide spending patterns, savings potential, and external market factors. SAP BusinessObjects Supply Chain Performance Management helps measurably improve supply chain eectiveness by focusing on actionable, operational process metrics that impact supply chain performance. SAP BusinessObjects solutions can help organizations quickly gain insight into the real drivers of protability and successfully manage through todays dynamic environment. For more information on SAP BusinessObjects solutions, please visit our website at: http://www.sap.com/solutions/sapbusinessobjects/large/ enterprise-performance-management/index.epx

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Driving Protability in Turbulent Times with Agile Planning and Forecasting: The View from Manufacturing is published by CFO Publishing Corp., 51 Sleeper Street, Boston, MA 02210. Please direct inquiries to Jane Coulter at 617-790-3211, or e-mail janecoulter@cfo.com. SAP funded the research and publication of our ndings. At CFO Research Services, David Owens directed the research, and Peter B. Lull wrote the report. CFO Research Services is the sponsored research group within CFO Publishing Corp., which produces CFO magazine. CFO Publishing is part of The Economist Group. December 2009 Copyright 2009 CFO Publishing Corp., which is solely responsible for its content. All rights reserved. No part of this report may be reproduced, stored in a retrieval system, or transmitted in any form, by any means, without written permission.