•
Finance’s responsibilities stretch across
multiple areas of Supply Chain and include:
• Directly supporting optimal sourcing
• Partnering with retail teams in vendor
negotiations to drive incremental profitability
through reduced freight costs and increased
freight revenues
• Partnering with research scientists and
economists to build inventory valuation and
optimization models
• Supporting vendor selection programs that
influence nearly all buying decisions for the
business, resulting in multiple decisions daily
and considerable monthly revenue
• Supporting new technology programs that
use inventory management to improve
customer experience and financial
performance
• Reviewing and validating economic models
and analytics to ensure that initiatives are
traceable to financial metrics and resource
allocations are justified
• Developing financial metrics based
on statistical modeling and simulation
techniques to audit initiatives
• Preparing financial updates, including
relevant analyses versus prior periods,
providing forecasts/budgets, and examining
associated risks/opportunities with respect to
technology resources
3
Align financial forecasts
with demand planning
and S&OP
Predicting the future has never been easy. But
it was a lot simpler when past events were the
best indicator of future events. Today, only
uncertainty can be guaranteed. Using last
year’s events as a basis to plan for what will
happen in the current year can be a recipe for
disaster—demand patterns can vary wildly from
week to week and month to month, year-overyear. To match the pace of change, planning
and forecasting processes that used to be
done annually or quarterly are now conducted
monthly and weekly.
But a faster-paced planning process becomes
nearly irrelevant if visibility is lacking and
information is latent. In the traditional monthly
S&OP process, it takes three weeks to address
events from the prior month. As a result, demand
planning based on that information is already
obsolete—demand has likely already shifted by
the time planning is completed. In turn, financial
forecasting, which relies on the demand plan,
becomes unreliable. Without a real-time,
single view of demand, responding nimbly to
disruptions when they occur—and accurately
predicting revenue—becomes impossible.
The cash-up process
The potential perils of disconnected planning
are readily apparent when examining the
relationship between Finance’s cash-up process
and S&OP. Typically used by consumer packaged
goods (CPG) companies, the cash-up process
enables Finance to develop a financial forecast
based on the rates and volume of goods sold
in the market and compare that against Supply
Chain’s SKU forecast. Planners then identify gaps
and assess them as risks or opportunities. Cashups are done on a monthly basis to recalibrate as
needed in response to fluctuations in rates and
volumes that occur because of outside factors.
The cash-up process can be summarized in a
few steps: SKU volumes are multiplied with their
respective rates and then summed up to derive
a financial forecast each month. Brand level
summary of this activity is then published to
validate and justify marketing investments
into the P&L and ensure that the company
is profitable each month with moving rates,
volumes, and costs.
The cash-up process begins in earnest when
the results of the loaded data and transformed
data from calculation are generated and
distributed. That data output is then validated,
analyzed, and reported. The Finance team uses
the report to identify risk and opportunities for
Sales, Marketing, and Supply Chain. Marketing
investments are then consolidated into P&L.
The cash-up process generates data that would
support an accurate S&OP process, both of which
occur on a monthly basis; however, the output
of each is typically finalized in week three of the
month. When the processes are completed at the
same time, the business can’t benefit from the data
generated from the other.
A successful integrated planning environment
assimilates the data and analysis outputs from the
cash-up process and seamlessly flows them into
S&OP.
By timing the cash-up process so that its insights
inform S&OP, companies can close the loop
between Sales, Marketing, Operations, Supply Chain,
and Finance to facilitate operational and financial
modeling and analysis.
Figure 1: Cash-up process sample
WEEK 1
WEEK 2
WEEK 3
WEEK 4
Cash-up inputs
(volume x rates)
Cash-up
Financial review
Executive review
Executive S&OP
Dashboard
COGs
Adjustments
Sent to
S&OP model
Demand Review and
Pre-S&OP Dashboard
Support Sales/Marketing and Supply Chain with identification of risks & opportunities
Finance Process
4
S&OP Process
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