Finance Forecasting in the S&OP Process

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Vanguard has seen an ever-increasing trend of organizations wanting to integrate Finance into their S&OP meetings. While this is a valuable concept, it is easier said than done. It is important to understand that the Finance team is less concerned with supply constraints, market demand, or product transitions; rather, they are looking at costs, profit, and cash flow. Following are ways to get Finance on board, which we like to call finance forecasting.

Start and end in dollars

From a Finance perspective, seeing the total number of units in a demand plan is not as interesting as seeing this forecast in dollars. Using selling prices that are updated frequently rather than a fixed value also allows Finance to trust the forecast.

If you continue this thought to the demand and supply balance discussion, Finance wants to understand what the cost side is relative to the revenue side. Projections should be able to show the net outcome in dollars. This approach should use actual costs (or as close as possible) rather than costs that were set nine months ago. It is possible that some material input costs may have changed, for example. Some Vanguard clients even forecast their costs.

More mature companies integrate Finance to such a point that they run their own financial forecasts dynamically by having access to the system. Enabling Finance to be involved in developing the cost models for COGS or Cost to Serve is another example of integrating Finance. Having each line of business working off the same metrics, definitions, and plans is a fundamental necessity for an optimized S&OP process.

Cashflow, profit plan, and balance sheet

Once you have Finance involved in your S&OP process, you must keep them happy. Let them run what-if analyses that show the resulting cashflow, balance sheet, and profit plan. For many companies, finance forecasting simply means exporting demand and supply plans in a format that Finance can use. This is sub-optimal, however. What if Finance wants to explore the acquisition of new equipment to run a third shirt? Or acquiring a new warehouse? How do they evaluate different financing options or impact of debt?

All of this should be supported in a single system with a unified data model connecting all plans. When a change happens in the sales forecast, the cashflow statement is updated in real-time. When an input cost changes, the financial forecasts are updated. In today’s dynamic environment, having real-time availability of plans is essential. Now you are empowering Finance with true, real-time finance forecasting visibility into the health of the organization, such that all lines of business understand the impact of specific decisions. In the end, if an organization underperforms for too long, solvency becomes a real concern.

Why Vanguard

Vanguard Predictive Planning is intuitive and easy to use, which makes on-boarding a breeze. There are many reporting options and ways to slice and dice date for any use. Vanguard is a unified platform that accounts for multiple lines of business, including Finance. Vanguard differentiators include the following:

  • End user experience: By combining an intuitive user interface, a process-centric workflow, and a market-leading collaboration portal, Vanguard Predictive Planning is continually selected by organizations due to the uniquely positive user experience. Users are delighted with Vanguard’s features, which improve their day-to-day performance.
  • Probabilistic planning: Vanguard Software is known in the market as a leader in advanced analytics-based planning. Vanguard Predictive Planning includes artificial intelligencemachine learningpredictive and prescriptive analytics, and an optimization engine (including stochastic optimization). For example, Monte Carlo simulation lets users compare hundreds of what-if scenarios, including best, average, and worst cases. This lets you plan in a probabilistic way, accounting for any potential future scenario.
  • End-to-end view of the supply chain: At the heart of Vanguard Predictive Planning is the Unified High-Performance In-Memory Object (UHIO) database, which supports a unified data model across all plans. This lets you plan faster, in a more collaborative framework, and see more accurate forecasting, planning, and decision-making across the entire supply chain. No jobs to run; no imports or connectors from module to module. Realtime, S&OP teams can make a change to the sales forecast and see the implications on the demand, supply, capacity, schedule, and financial forecasts.
  • True IBP: True Integrated Business Planning (IBP) is the ability to create plans for SalesSupply ChainWorkforce/HRIT, and Finance, all on a unified data model. Organizations can truly implement IBP across all lines of business. While some software companies say that they support IBP, Vanguard Predictive Planning delivers on it.