Today's digital economy has not only increased competition across geopolitical boundaries but has also disrupted traditional business models. To succeed in a world fraught with economic uncertainties that have only been accelerated due to the pandemic, businesses need to realign their operating models to become more agile, adaptable, and innovative.
This change has put the operations department of most enterprises under immense pressure to maintain their profitability.
This has compelled businesses to explore new opportunities to align the entire enterprise and foster cross-functional collaboration. The first step towards achieving this goal is to bring the finance and operations departments together.
Many companies have already begun down this path, as revealed by a survey of 100 financial executives done by the Argyle Executive Forum in partnership with Host Analytics. Over 70% noted that they've begun to collaborate more with the CEO. 53% of them also believed that their role was more focused on driving change and adaptability. Another study by the Aberdeen Group also showed that 63% of all respondents had already integrated finance and operations to some degree. But only 4% said that finance was driving that process.
HOW TO INTEGRATE FINANCE WITH OPERATIONS
- Maintain relationships with operating managers - Finance can longer be relegated to a backend role. It needs to be at the forefront influencing key decisions and adding value to the business. To do that, it needs to develop a close relationship with the operations department.
- FP&A professionals can gain first-hand experience of the market, competition, customers, supply chain, and risks by participating in site visits and stakeholder meetings. This information can be used to zero in on the critical measurement metrics relevant to planning. It will also ensure that operating and finance managers are on the same page in regard to business performance.
- Discuss the information needs of operations - Simply reporting crunched numbers with no background will defeat the entire purpose of integrating the two departments. It's necessary to understand what data is required by the S&OP team.
Often, operating managers have trouble reading into the story behind the numbers. It's the FP&A team's responsibility to make sure that ops have all the necessary details behind the numbers. Using data analytics, finance can help operations glean actionable insights from the data.
Active participation of the FP&A team in operations - Finance must become a committed partner of operations for integrated planning to succeed. It can't just wheel in when it deems necessary and expect ground-breaking changes. It is a slow process and requires active collaboration from both ends of the spectrum. Finance must relinquish its role as a mere scorekeeper and reporter and evolve itself into an active participant in the journey to reaching optimum operational efficiency.
There are several benefits to nurturing a sustained relationship between finance and S&OP.
- It can help identify potential risks in the plans and forecasts of the S&OP department. Since the FP&A team specializes in planning and forecasting, they've got the necessary expertise to guide the ops team in the right direction. They can work together to create more efficient plans that are easily executable.
- The Ops team is not optimally equipped to make accurate forecasts for the coming fiscal periods. Inadvertent errors might creep in due to many reasons. The FP&A department can, instead, help operations by developing variance review processes that aid growth and learning.
- The finance team can also guide operations as to which financial metrics to track and prioritize. Since there are several moving parts in supply chain management, operations just require a little help identifying the right tasks.
- The business processes of S&OP can be optimized with mature planning models to reduce error rates, lower overhead costs, and improve profitability.
- Integrating finance and operations can also lower the time taken to plan and budget by combining a forward rolling plan with S&OP business processes. This step enables managers to take streamlined decisions based on common datasets.
- It's not just the ops team that benefits from this idea. Even the FP&A team will gain from improved operational planning. Several financial decisions such as cash management, acquisitions, and expansions are based on the forecasts and predictions of operations. With integrated planning, finance can make timely, data-based strategic decisions that can positively impact the company bottom line.
A FINAL WORD
With so many advantages, it's no surprise that 76% of finance professionals are prioritizing the integration of financial planning and budgeting with S&OP. By integrating both the departments, you'll not only be able to visualize changes in demand and supply but also the impact they create across all financial KPIs.
Eventually, you'll be able to deliver collaborative plans that balance the supply, demand, and finance aspects of your business while increasing operational efficiency.
