Whether it’s a manufacturer waiting more than a year for semiconductor chips or a construction firm dealing with sharply higher lumber costs, the recent supply chain issues and their effects are impacting the full spectrum of industries and companies of all sizes.
The only constant has been uncertainty. But, when looking at the most agile businesses, it’s the ones integrating cloud-based corporate performance management (CPM) software to streamline their financial planning and analysis (FP&A) processes that can enable better decision-making and reduce the risks the disruptions present.
At a high level, a CPM platform should help your company analyze data better and faster, giving you the capabilities to manage supply chain issues and make smart, nimble pivots when needed. Functionally, your CPM eases your finance team’s major job duties and helps you anticipate and mitigate supply chain disruptions with several key benefits:
It’s likely your finance team uses complex models to calculate assumptions and conduct what-if scenario analysis. The steady stream of supply chain issues has made these tasks more challenging than ever. And if your team manipulates these models manually in a program like Excel, it inhibits their ability to provide timely, actionable insights.
Manually creating a what-if scenario analysis is an extremely cumbersome process that’s prone to human error. For example, you could have multiple people running this analysis using separate sets of data, which could lead to different results and means that your data lacks integrity.
A cloud-based CPM gives your team a single version of the truth — standardizing your data. It helps get your teams out of Excel and working in a more collaborative environment. CPMs also have an audit trail, so you can see who made changes and when.
As supply chain challenges evolve without warning and incur downstream effects that upend your finance team’s forecasts, data collection and what-if analyses, it may take multiple people up to a week to develop the new reports you need. And once you’ve delivered those insights to your stakeholders, it may be too late to act in time. Or in the rush, an error may have been made because the work was done manually.
When managed through an effective CPM, your team can cut that turnaround down to just a few hours. This means they don’t have to waste valuable time reconciling disparate data sets and instead can focus on developing more scenarios to help your organization better prepare for ongoing supply chain issues.
With more accurate and up-to-date data, you can create new versions of your analyses more frequently. You can easily tweak things like cost of materials and cost of goods sold and see how that will affect your balance sheet, income statement or your cash flow. You can then compare current forecasts against previous periods to see the trends in your supply chain changes, and your business leaders can plan accordingly.
One situation that exemplifies the importance of this improved forecasting is revenue recognition based on percent of completion. If projects are on hold because your company can’t receive materials, you also can’t recognize that revenue. If your finance team then reports that you’ll only be able to recognize 20% of your revenue projection, for example, this is crucial information your leadership can use to adjust the budget and determine how much to reduce expenses.
A CPM allows you to consolidate inventory, manufacturing and logistics data originally kept in disparate spreadsheets, providing you that single source of truth throughout your entire supply chain. This unified data provides you faster, more accurate insights into how your supply chain impacts your organization at every level.
With improved data, accessed quickly via a cloud-based system, your team can develop more robust, timely planning models for variables in key metrics such as revenue, cash flow and cost of goods sold. On top of forecasting enhancements, you can also refine your KPIs with greater accuracy.
The overall effect? Greater insight into past and current performance, more powerful forecasting capabilities and seeing that information reflected throughout your entire operations.
Supply chain issues can affect your organization’s bottom line by disrupting your revenue stream, your future ability to supply your product and your costs, which can hurt profit margins. With more insightful analysis informing leadership, you can have a firmer grasp of the effects of these challenges and make smarter decisions addressing them — whether it be cutting costs or potentially passing those costs onto your customers.
Those decisions shouldn’t be made based on instincts. An effective CPM gives your team the time and tools to calculate how much to raise the price of your products and forecast how many customers you could lose if you do.
It’s difficult to predict how much longer the current supply chain disruptions will persist or when the resulting inflation will stabilize. These large-scale issues fall outside anyone’s control, but an effective CPM tool can help you navigate the resulting challenges and adapt to the shifting economic winds. With stronger FP&A processes and more accurate, timely data, you can provide your decision makers the insights that inform better decisions and promote the long-term sustainability of your organization.
To learn more about CPM solutions or get assistance identifying the software that works best for your needs, contact our experts.
