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In successful FMCG companies, Sales & Operational Planning (S&OP) is the flexible glue that holds your processes together, ensuring demand and supply are balanced along the chain and most importantly, sees everyone operate to the same set of unambiguous sales, volume and financial numbers.
Operational plans must be subjected to rigorous financial evaluation as part of a fully functioning S&OP. This is not additional work for the finance teams, just working smarter.
Top 10 Tips – Financial Evaluation
1. Financial Evaluation Policy. Is there a concise, written policy for financial planning, measurement and reporting that covers the process, purpose, activities, participants and expected results? Is ownership of the policy abundantly clear and routine reviews are carried out at a senior level, and documented?
2. Financial Evaluation Process & Procedures. Do effective and documented procedures exist that define financial planning, measurement and reporting and their relationships within S&OP? Are the required inputs defined in easily understood and precise terms? Are outputs (e.g., management reports) concise, defined and accepted as meeting the data, information and decision making requirements of S&OP process owners and users?
3. Financial Projections & Reporting. Are the financial projections developed within S&OP very closely linked to company operating plans? Are differences between the two reconciled monthly and updates are used as the current measure of financial performance? In reality, are annual financial budget updates accurately represented by the latest monthly S&OP financial evaluations?
4. Source Data. Is there one, definitive source of data for all departments? Does the finance department use precisely the same data for sales, purchases, shipments, inventory and any other operational data and information from the ERP system?
5. Financial Systems. Do you still use ‘under the radar’ spreadsheets? Are all financial systems (e.g. invoicing, purchasing, accounts receivable, accounts payable, inventory) fully integrated with transactional systems?
6. Cash Flow. Do you monitor cash flow on a monthly basis? Is cash flow prepared using source data directly from the ERP system? Does cash flow cover the S&OP planning horizon? Is cash flow reviewed on at least a monthly basis and updated as required?
7. Scenario Analysis. Are simulation tools actively used to convert operational data into financial information quickly for the purposes of ‘’what if’ scenario analysis, simulation testing, decision making and contingency planning?
8. Materials Receipt & Inventory. Are purchasing, materials receipt and accounts payable fully reconciled within the transaction and ERP systems? Is inventory counted frequently either by cyclic or periodic checks? Is the materials inventory accurate, fully visible and reconciled?
9. Inventory Movement & Work in Progress. Where work orders are used, are work order closing transactions used to record the movement of inventory from one account to another in the general ledger? Does this also generate variance reports for cost accounting purposes?
10. Finished Goods Inventory. Do customer order shipment transactions drive the updating of finished goods inventory and the invoicing transaction system in real time? Is there full, current and accurate visibility of finished and intermediate goods inventory as recorded by the ERP system?
Financial colleagues often feel the wrath of CEOs when unexpected financial information is presented. However, they are simply reflecting the reality of the efforts of the wider S&OP team. CEOs may not like what they see but if you are well prepared on items 1-10 above, you will be presenting a robust snap-shot of the true, operational financial health of the company.
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