On the horizon, many manufacturers can see a sunset for the software that performs their financial planning, budgeting, forecasting and other administration.
So, what should come next?
Often, manufacturers are using consolidation software or enterprise resource planning (ERP) solutions that they implemented decades ago — but their companies have grown and changed since then. Many have also inherited a jumble of solutions from mergers or acquisitions.
“A lot of the manufacturing companies I've been talking to have grown through acquisitions, and those acquisitions each have different systems that they're still using,” said Grant Thornton Manufacturing Industry National Leader Kelly Schindler. Schindler said that one manufacturer now has 40 different ERPs within its enterprise.
“Manufacturers are very cost-conscious,” Schindler said. “They aren't likely to integrate those acquisitions onto one set of systems, or platform, because if it's not broke, don't fix it. Implementations can be timely and costly, and they take resources away from things that are important to the operations. Manufacturers are not in the business of implementing systems.”
However, companies might not notice that their jumble of systems is costing them efficiency and decision-driving insight — especially as they change and grow.
“Often, manufacturing companies are growing more and more, and I ask the CFO, ‘How are you getting the information you need on a timely basis?’” Schindler said. To stay competitive, leaders need to answer their questions with clarity and speed.
“At the end of the day, working with many ERPs is an obstacle,” said Grant Thornton Technology Modernization Advisory Services Principal Sanjiv Raman. But, the biggest concern is that leaders often don’t have good information. “The real question is: Can you understand where the business is headed, and the decisions you need to make to drive the metrics that matter?”
The other challenge
To turn your outdated financial planning system into something that works for today, you might need more than just new technology.
“In addition to the decentralization of systems, there's also the decentralization of FP&A,” Schindler explained, “because it's siloed at all the subsidiaries. Those FP&A functions are often using old models — the spreadsheet models that use historical data to plan the next year, rather than coming up with what they truly think next year could or should be. You have that challenge in and of itself.”
“When you have all those entities, no two teams provide something that looks the same,” Schindler said. “It's not mapped the same, to compare apples to apples within the company. It's usually apples, oranges and bananas, honestly.”
Most manufacturers bridge these disconnected functions and systems with a lot of manual workarounds. “The CFO has to wait to get the information with the close process, then pull something together — they have their own spreadsheets and are asking, ‘Please populate this,’ because they can't get that data on their own. So, here we are, populating spreadsheets again,” Schindler said. “None of it's forward-looking. It's all reactive. They've gotten into this habit of doing things the old way, and I think they're going to get passed up if they can't get out of that habit.”
“Even the leaders who say they need a new system are often doing it only because the support for their current system is ending,” Schindler said. But, that reactive motivation can lead manufacturers to settle for a newer version of the same ill-fitting systems they have — or, worse, to pay for full-featured systems that they never really adopt. “One client got the Cadillac of systems implemented, but they don't know how to use it. Their people are still falling back to their spreadsheets, and their old ways of doing things.”
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A new approach
“When we talk to manufacturers about implementing newer enterprise solutions, we typically want them to take a step back and evaluate where they want to go, instead of replicating all of their legacy inefficiencies from their past,” Raman said.
“People are often anchored to how they've been doing things, be it spreadsheets or legacy tools,” Raman said. “If all you're doing is taking what you did in the past and putting it in a shiny new toy, you're still driving in second gear on a Ferrari.”
“For a successful implementation, one thing to note is that enterprise solutions have moved away from a platform that's managed by IT to a platform that's managed by the business,” Raman said. Today’s advanced solutions have the power to directly answer questions from business users — with the interfaces to let users ask. Business users no longer need to translate their functions into a long list of technical programming requirements, hoping that the information they need will come out the other end of the IT development cycle.
Today’s advanced enterprise solutions let users tailor outputs or integrate elements that meet their needs. That freedom comes with more responsibility.
“The pace of change and the growth in complexity necessitates that solutions are owned by the business, so that they can continuously tune, tweak and evolve them to meet the growing and evolving needs of the organization,” Raman said. This can sound like a new skill set for business users but, with intuitive interfaces that access a central data structure, it’s really just giving people powerful access to standardized results.
“Think of the business ownership in a similar way to building your own spreadsheet models, except it's accurate at an enterprise scale,” Raman said.
So, manufacturing leaders need clear and consistent information across the enterprise — and business functions need to accept their role in providing and maintaining that information. To give your business functions the right enterprise technology, with a centralized and integrated data structure beneath it, you have to start with a business mindset.
Don’t build a system based on the system you have — build a system based on the answers you need.
The answers you need
Answers for today
Manufacturing leaders might be used to working with the information their systems already provide, or they might have workaround processes to get the answers they need. As you consider a new solution, think of the questions that it should answer directly. Then, think of the follow-up questions.
“Production is more than just making sure the lines are running. Manufacturers want to know, ‘What's the profitability by customer? What's the profitability by product?’” said Grant Thornton Technology Modernization Advisory Services Principal Greg Davis. As a follow-up, you might need to explore variants, like engineering variants, labor variants and material usage variants.
“Those are key questions for manufacturers, and they’re aligned more to enterprise performance management — EPM — than ERP,” Raman said. “ERP is the data collection tool. EPM is the vehicle by which you ask questions, understand trade-offs, evaluate risks and opportunities, and then pull the trigger on the operating plan you want to execute as an organization.”
An EPM can work across multiple ERPs, but you need a consolidated framework to help you understand the levers and drivers for the business. “You need a consolidation layer that sits on top of multiple systems to pull and aggregate all the data together so that you can understand the pulse of the business,” Raman said. That framework should be designed around your measurement, data and reporting strategies:
- Measurement strategy
Is your current solution providing the metrics you need across your enterprise, or do you depend on second-level processing, spreadsheets and other workarounds? If you think beyond the metrics you have now, are there other metrics you’d like to measure? "What are the metrics that matter to you?” Davis asked. “What are the metrics that matter to your competitors or your industry? Identify those first." - Data strategy
Your data strategy needs to identify the data that contains the metrics you need, and where that data is stored. “That could be in several different systems,” Davis said. “You consolidate as much as you can because you want to reduce data passes. Then, when you can't consolidate any more, you have an integration plan.” - Reporting
Your reporting strategy defines how you need to receive information. "How are you going to report those metrics?" Davis asked. The reporting strategy is an important factor in choosing your solution, because you need to make sure the solution can deliver the reporting as defined. If your reporting has been pre-defined by your current system’s constraints — maybe for decades — then you might not have considered a reporting strategy before. “Most manufacturers are really flying without a reporting strategy,” Davis said.
“Once you establish the metrics that matter, the data strategy, and the reporting strategy, that will inform the architecture for EPM solutions,” Raman said. However, your architecture also needs to account for new questions — ones that you’ve never been able to ask before.
Answers for tomorrow
Manufacturers need answers for today, but they also need to answer new questions that will inform what they do tomorrow. “It's about timely, enhanced decision-making, with real-time data and analytics,” Davis said. Manufacturers might be looking for system capacity in constrained areas, with sales and integrated operations planning that analyzes at the whole supply chain from the demand side to the supply side.
“EPM tools can really help customers and manufacturers with sales and integrated operations planning, which everybody's struggling to do right now, especially given supply chain disruptions,” Davis said. “It’s about speed to value.”
This is an area where the business needs to be responsible for the information it provides. “As the role of FP&A has moved from scorekeeping to business partnership, integrated business planning is essentially the central process mechanism to draw in sales, draw in operations, and tie that together with financial outcomes to more effectively make decisions across the organization,” Raman said.
To identify your answers for tomorrow, think about planning. “Let's think about where we see the business going in the next five years, and let's make sure we're bringing to bear some leading practices to help drive the outcomes we want to get,” Raman said.
Your business success depends on your ability to answer these questions, and update your answers over time. Make sure your system is designed to support that activity. “Some EPM implementation teams will design a system based on how you've always done things,” Schindler said. “Then there are teams that will ask, ‘What is it you need to do? What do you need to accomplish? What is the end game?’ They can stay with you to train you and make sure you're achieving those things. There are two different groups of providers, and the good ones are solution-focused.”
What’s next
The next thing on the horizon is: More change. So, the manufacturers that can change with the greatest speed and effectiveness stand the best chance of success. That’s why it’s so important to have technology and processes that are ready to change together.
“There is an evolving need to look at your ways of working, and to have your ways of working evolve in conjunction with your technology, which goes back to the design for your EPM,” Raman said. “How do you evolve your processes to keep pace with the technology infrastructure and growing needs across your organization?” That can sound like a big question — but it can be a big opportunity, if you’re ready for change.
“One of our customers was budgeting once a year in their legacy financial system,” Raman said. “Now, they're budgeting and re-evaluating their financial forecast quarterly, if not monthly. The sooner you can get to your signals of demand, supply and cost — and look at your entire P&L on a continuous basis — the sooner you're able to respond to evolving business conditions. Plus, the fidelity of looking at plans based on customer and product profitability, as well as raw material pricing, gives them better control over how they grow their profit. They can make sure they're meeting their sales objectives for their customers.”
“Scenario planning helps them understand the impact of changing levels across the business — and the potential impacts to customer and product profitability — so that they can drive their decisions based on those scenarios,” Raman added.
Davis added, “Predictive modeling and innovation play out what-if scenarios. I say ‘innovation’ because these technology tools can provide a sandbox where your strategic people work out scenarios.” Raman agreed, “We're actually seeing a lot more predictive modeling in play, and it uses machine learning algorithms to provide insights and forecasts. The generative AI components of EPM solutions can essentially respond to quick insights as opposed to creating tailored reports.”
With GenAI interfaces, manufacturing managers and leaders can essentially ask questions about the company’s data just as easily as they would ask another person. “AI is not going to solve all of your problems, but it will help to answer the questions you're asking more quickly,” Raman said. “With natural-language questions, you can get to business intelligence quickly, and that’s something we're seeing more and more, as in, ‘Give me the top 10 products that performed over X% in this market.’ Instead of having your IT team query that question across your systems, AI engines can generate that output in real time. The CFO doesn't have to wait for two or three degrees of separation to get those questions answered.”
Today’s EPM solutions are giving manufacturers immediate insights and long-term clarity. They’re giving you the power to stop just asking “What’s next?” and start answering it instead.
“Enterprise extended planning is the next evolution of EPM, and it’s starting to become a mainstay for a lot of organizations,” Raman said. “They're tying in operational plans, financial plans and commercial plans, so that there is constant communication and a common set of assumptions and scenario questions to understand financial impact in real time. The idea of innovative business planning existed 20 years ago, but technology has caught up to deliver it at scale.”
Contacts:
Greg S. Davis
Principal, Technology Modernization Services
Grant Thornton Advisors LLC
Greg Davis is a Principal within Grant Thornton’s Advisory services and a leader in the Technology Modernization practice. In addition, Greg is the global leader of the award winning JD Edwards Practice at Grant Thornton.
Kansas City, Missouri
Industries
- Construction & real estate
- Healthcare
- Manufacturing, Transportation & Distribution
- Transportation & distribution
- Energy
Service Experience
- Advisory
Sanjiv Raman
Principal, Technology Modernization Services
Grant Thornton Advisors LLC
Sanjiv is a leader of Grant Thornton's Transformation Advisory practice. He advises clients across a broad range of industries on how to enable best-in-class business connected planning capability across the organization through technology-enabled transformations.
Philadelphia, Pennsylvania
Industries
- Manufacturing, Transportation & Distribution
- Energy
- Retail & consumer brands
Service Experience
- Advisory
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