Avoid These Common Financial Planning Process Mistakes for Manufacturers
The digital era has brought about many causalities for manufacturing. Businesses across numerous industries have been forced to close up shop, while those that survived are left with never-before-seen challenges.
Consumer demand and self-service options have created the need for manufacturers to improve the speed and efficiency of their operations. They need to go-to-market more quickly, and easily adjust to consumer fluctuations. Sweeping changes from automation have placed pressure on manufacturers to adjust to newly digitized ways of doing things. The introduction of more mechanized workflow has created skilled labor shortages, and the need to bolster their workforce with additional skill sets.
The solution is tied to a real need to improve the financial planning process for manufacturing businesses to support agile planning and adaptive insights.
Enabling strong corporate financial planning and analysis (FP&A) provides opportunities for manufacturers to streamline processes, improve productivity, and increase profitability. These improvements are guided by intelligent manufacturing financial planning software that provides vital financial advice.
For the most part, savvy manufacturers have jumped on board, integrating planning solutions through corporate FP&A for better budgeting and forecasting. But while the addition of a planning software solution is an integral change, many manufacturers still struggle to maximize its productivity and efficiency.
Here are two of the most common mistakes manufacturing businesses make with their financial planning processes, and some tips to avoid them:
Mistake #1: Not Considering the Cloud
To call the manufacturing sector a Luddite—that is, an opponent of new technologies—is unfair. After all, manufacturing has traditionally relied on technology to produce the goods we all enjoy today. That said, many manufacturers struggle to keep up with the pace of change arising from new technologies. They have their reasons: Shifting manufacturing processes is slow, arduous and, oftentimes, costly. Despite this, the need to be more adaptive is necessary to continued business growth.
When it comes to the corporate financial planning process, many businesses rely on familiar, grandfathered enterprise resource planning (ERP) systems. Many of these legacy ERP systems, built before the boom of digitization, rely on on-premise hardware storage to house their data.
Not considering the switch to cloud hosting is a common mistake manufacturing businesses make in their financial planning process. Today’s cloud architecture provides a host of benefits including greater security, ability to access data from anywhere, opportunity to scale data and operations, and improved ease of use.
Why does this mistake happen?
Cross-sector research shows that 94 percent of companies have cloud hosting or would consider it in future. But manufacturers, more than any other sector, are slow to move the needle on this change.
Part of the hesitation arises from the fear of disrupting important financial processes that companies rely on. However, changing over with the right financial planning software minimizes disruption. This is true not only during the initial implementation period, but also on an ongoing basis. Leaning on robust software supported by an expert vendor reduces the burden on IT for maintenance and upgrades. This increased agility allows finance professionals to focus on the numbers and producing more valuable financial reports.
How can it be avoided?
While cloud is without a doubt the best practice for financial planning software, intelligent software vendors in the financial planning space offer an array of hosting options. The key is to choose a platform like Tidemark that is highly adaptable and fully operational via on-premise or cloud hosting.
More importantly, Tidemark is the same corporate FP&A software on all systems. This means you can easily move from on-premise to cloud without disruption. This ability to “lift and shift” enables manufacturers to be nimbler in their operations.
Manufacturers should talk to their FP&A vendor about how their financial planning software can “lift and shift” to leverage the benefits of cloud architecture. Consider your business cycle, needs, and resources and work with your vendor to develop a transitional plan that can reduce your reliance on on-premise resources.
Mistake #2: Not Putting Data in Context
It’s important for manufacturers to be forward-thinking in their financial planning. However, without the ability to properly put financial data in context, it is impossible to plan properly.
Manufacturers glean important financial results by analyzing cash flow, regulating inventory management, and paying attention to job costing, budgeting, and operating expenses. The data required for each of these vital outputs requires different source inputs. Depending on the scale of the business and the resources available, some of these inputs may be manual, and others digitized.
What’s vital is that manufacturers use all this data in an integrated capacity in their financial reporting. A business gets the most out of their operations from financial forecasting that draws insights from as many business facets as possible.
Even better is when businesses can view the trends in their financial data over time. This gives much needed context for forecasting, budgeting, and costing. Working with a broad set of historical data provides rich insights for corporate financial planning processes. It enables manufacturers to look toward the past to inform the financial decisions of the future. With more robust long-term data, businesses can more easily execute strong financial forecasting as part of their FP&A.
Why does this mistake happen?
In the interest of changing with the times, manufacturers oftentimes plow ahead with legacy technology that does not provide full integration and consolidation of data. Quite often, their financial data sources are siloed and do not have the capacity to fully integrate.
Many manufacturers also worry that upgrading software would slow overall performance. For this reason, they continue to process cubes and duplicate data. However, this is a lengthy process that can take hours, and sometimes even days.
Many businesses also cannot take advantage of all their available historical data for forecasting because of data limits imposed by their software. Legacy platforms or space restrictions from on-premise hardware are two common reasons why data is curtailed.
How can it be avoided?
Take advantage of financial planning software that offers peak performance with scalable data and full integration capabilities. Some FP&A software pushes through once-a-day calculations that require more than 200 jobs to manipulate and load data.
This arduous undertaking produces high strain on a manufacturing finance team. Look for software with asynchronous loads and no cube processing—this produces real-time financial reports vital for business development.
Manufacturers should also choose a vendor with ability to leverage the largest amount of historical data possible.Tidemark does not impose data limits, enabling businesses to gain deep insights from trends over time. In fact, most Tidemark users have an average of three plus years of historical data at their fingertips. The ability to display that rich data in insightful data visualizations as part of financial planning is invaluable.
Final Thoughts on the Financial Planning Process for Manufacturing
Legacy finance systems long used by manufacturing companies are challenged to keep up with the pace of today’s business. But because these systems were useful in the past, many manufacturers are reticent to change their financial planning processes.
But the major problem is that legacy FP&A systems do not offer full scalability and the necessary context needed for making key financial decisions.
Without data that can integrate and pull insights over time, manufacturers are missing vital information for their corporate financial planning process. In this way, the odds are stacked against them. Without the ability to harness all their data in context, manufacturers that resist digitizing their FP&A processes will surely get left behind.
In order to harness the intelligent insights they need for an efficient FP&A process, manufacturers should consider a dynamic platform like Tidemark. Part of a valuable suite of connected finance offerings, Tidemark offers full integration of broad financial data supported by a secure cloud framework. Dynamic modeling and in-line analytics help manufacturers understand the full context of their data, removing resource and time barriers to achieve full productivity.