In the first months of the year, I have spoken to many CPG companies and retailers about the challenges they face and the benefits that can be unlocked from linking financial planning and Supply Chain Planning. At the heart of the issue is aligning long-term financial goals and the annual financial budget process with shorter term operational activities that are often driven by reactive execution. Linking these processes and understanding whether your daily activities are in line with your budgeted goals and business targets can be challenging. Companies need to be able to manage the complexities of integrated planning and execution with confidence, understanding the financial impacts of operational decisions.

Annual budgeting is typically focused on fixed targets and top-down directives, which then does not easily translate and align with the more dynamic and granular demand-driven nature of supply chain planning and execution. This can lead to a misalignment of goals, causing inefficiencies, missed opportunities, and ultimately causing financial underperformance and impacting customer satisfaction.

The difference in granularity and timings of the two activities further exacerbates the challenge. Financial budgets are developed at a high level, with data in monthly buckets with a focus on the desired financial outcomes for the year. S&OP and S&OE activities demand more granular insights into customer and channel demand fluctuations, multiple inventory stocks and locations, and an understanding of production capacities and distribution constraints on a weekly and daily level. Many companies still focus on fulfilling demand based on units sold without understanding the financial impacts of decisions. Bridging this divide requires advanced forecasting capabilities, data integration, and cross-functional collaboration between finance, operations, merchandising and sales and marketing. Decisions need to be made collaboratively with insight into the impact on top and bottom-line performance.

For effective results embrace three guiding principles:

1. Integrated Planning: Break down silos between teams to create a holistic aligned view of the business. Implement integrated planning processes and technologies that enable real-time data sharing, scenario planning, and enable cross-functional decision-making. Align operational execution with financial goals and ensure all decisions are made in line with overall business goals.
2. Budgeting: Prioritize flexibility and adaptability. Implement rolling forecasts and continuous planning processes that allow for different scenarios in response to evolving market dynamics reconciled to your long-term goals. Iteratively refine forecasts and scenarios understanding the financial impacts of short-term decisions, such as customer and channel order prioritization, campaign and promotional impacts and mark downs. In doing so companies can optimize outcomes and mitigate risks more effectively.
3. Target setting: Ensure your performance management metrics are aligned both across departments and with longer term goals business. Leverage advanced analytics and visualization tools to gain actionable insights for decision making at all levels.

The journey towards aligning financial budgets with supply chain planning and execution is not just a system choice or technical challenge, it is more about how you integrate and align departments around shared goals. This often requires cultural change and breaking down silos. By fostering collaboration and setting performance targets to shared business goals, companies can navigate increasing market and customer complexities with confidence.

If you recognize and relate to any of these challenges; contact us to see how we have helped companies similar to yours in addressing and overcoming these challenges.

In the first months of the year, I have spoken to many CPG companies and retailers about the challenges they face and the benefits that can be unlocked from linking financial planning and Supply Chain Planning. At the heart of the issue is aligning long-term financial goals and the annual financial budget process with shorter term operational activities that are often driven by reactive execution. Linking these processes and understanding whether your daily activities are in line with your budgeted goals and business targets can be challenging. Companies need to be able to manage the complexities of integrated planning and execution with confidence, understanding the financial impacts of operational decisions.

Annual budgeting is typically focused on fixed targets and top-down directives, which then does not easily translate and align with the more dynamic and granular demand-driven nature of supply chain planning and execution. This can lead to a misalignment of goals, causing inefficiencies, missed opportunities, and ultimately causing financial underperformance and impacting customer satisfaction.

The difference in granularity and timings of the two activities further exacerbates the challenge. Financial budgets are developed at a high level, with data in monthly buckets with a focus on the desired financial outcomes for the year. S&OP and S&OE activities demand more granular insights into customer and channel demand fluctuations, multiple inventory stocks and locations, and an understanding of production capacities and distribution constraints on a weekly and daily level. Many companies still focus on fulfilling demand based on units sold without understanding the financial impacts of decisions. Bridging this divide requires advanced forecasting capabilities, data integration, and cross-functional collaboration between finance, operations, merchandising and sales and marketing. Decisions need to be made collaboratively with insight into the impact on top and bottom-line performance.

For effective results embrace three guiding principles:

1. Integrated Planning: Break down silos between teams to create a holistic aligned view of the business. Implement integrated planning processes and technologies that enable real-time data sharing, scenario planning, and enable cross-functional decision-making. Align operational execution with financial goals and ensure all decisions are made in line with overall business goals.
2. Budgeting: Prioritize flexibility and adaptability. Implement rolling forecasts and continuous planning processes that allow for different scenarios in response to evolving market dynamics reconciled to your long-term goals. Iteratively refine forecasts and scenarios understanding the financial impacts of short-term decisions, such as customer and channel order prioritization, campaign and promotional impacts and mark downs. In doing so companies can optimize outcomes and mitigate risks more effectively.
3. Target setting: Ensure your performance management metrics are aligned both across departments and with longer term goals business. Leverage advanced analytics and visualization tools to gain actionable insights for decision making at all levels.

The journey towards aligning financial budgets with supply chain planning and execution is not just a system choice or technical challenge, it is more about how you integrate and align departments around shared goals. This often requires cultural change and breaking down silos. By fostering collaboration and setting performance targets to shared business goals, companies can navigate increasing market and customer complexities with confidence.

If you recognize and relate to any of these challenges; contact us to see how we have helped companies similar to yours in addressing and overcoming these challenges.