Thanks to recent advances in both hardware and software, however, a genuine opportunity now exists to connect these corporate worlds, thus allowing the creation of one cohesive plan for an organization. While such a connection has been theoretically possible for years, increased processor speeds and improved OLAP technology have really opened the door for a service called supply chain financial management (SCFM).
The benefits of this service are fourfold: speed, accuracy, efficiency and cost. Once this type of solution is in place, the speed with which a financial plan can be formulated is expedited significantly because the two most complicated parts of the process are done automatically: the variable costs and the revenue forecasts. The only major component that must still be generated manually is that of fixed costs, and those tend to be much easier to predict than revenues or variable costs.
Accuracy improves dramatically because financial planners no longer need to guess what the variable costs and revenue forecasts will be. Rather, those numbers are fed directly into the financial planning system from the supply chain solution. Further, because supply chain solutions are constraint-based systems, they naturally gravitate toward accuracy - they are designed to give a clear picture of what is possible within an organization, taking into account such constraints as time, personnel, machinery and supplies.
Efficiency improves for several reasons. Because planners and senior executives have more accurate information upon which to base decisions, there are fewer surprises down the road, financial or otherwise. Since plans can be formulated much more quickly, more time is left for fine-tuning, ad hoc reporting and other more value-adding activities, all of which ideally improve enterprise efficiency. Communication between two formerly disparate departments of the enterprise also increases, which is usually a good way to improve efficiency.
Overall cost for developing a company's cohesive plan decreases because less resources are necessary. Exact reductions depend on the company and situation, but a savings of 50 percent is not unreasonable to expect. There's also an indirect cost benefit in that the organization will be further leveraging an existing asset: the supply chain solution.
How It is Done
The toolset: Any number of tools can be used to make SCFM a reality at your company. The key elements include a supply chain solution, a front-end tool and a multidimensional database (MOLAP). There are a number of key reasons why a MOLAP database is recommended as the data repository:
Consolidation Engine
MOLAP databases are able to integrate with multiple data sources. This is a necessary capability because data will be coming from different sources that contain Supply Chain, Pricing and Costing data.
Financial Modeling
MOLAP databases have robust functionality to enable them to serve as the backbone for allocating costs, translating currencies and storing chart-of-account hierarchies. Each company has its own set of financial planning requirements. The inherit flexibility of MOLAP allows companies to utilize a standard technology without needing to give up any of their necessary planning requirements.
Reporting and Analytics: MOLAP is designed to meet a company's standard set of internal reports (used by the general users within the planning and performance groups) and their ad hoc analytical reports (used by the most aggressive users).
The intuitive nature of building reports using MOLAP technology enables the users to build and support the reports they need to run the business. The analytical capabilities of this technology give users the ability to produce exception-based reports. These reports identify bottlenecks in supply chains and cost overruns within retail stores and indicate the most profitable product lines.
Integration: The goal of SCFM is the creation of a comprehensive financial plan. The bulk of work in any such engagement is the integration component. This step must be started as early as possible because of the many nuances that arise when a number of data sources are integrated. Figure 1 indicates the types of data that are required within a SCFM solution:
Figure 1: Data Required within a SCFM Solution
Figure 2 illustrates the system data inputs:
Figure 2: System Data Inputs
The financial plan that is built by using SCFM framework consists of the three financial categories. They are revenue, variable cost and fixed cost.
Figure 3 describes how each of these categories is built.
Figure 3: Building Revenue, Variable Costs and Fixed Costs Forecasts
Communication: A successful implementation will hinge on effective, consistent communication between the counterparts: owners of the supply chain data and those of the financial plan. These parties must communicate on both a technical and business level. Just getting financial and operations people in the same room at the same time can be a real challenge, so getting them to really talk to one another (and listen) is no small task. Once this communication commences, however, all sorts of benefits result. Operations people start explaining nuances about their supply plan that finance people need to understand in order to best utilize supply chain data. Conversely, financial executives get a chance to decipher their plan such that operations people can appreciate where the company is trying to go. All sorts of other collaborative initiatives can result, including data swapping and synchronization of meetings, thus generating additional return on investment.
