Facing challenges like economic uncertainties, supply chain disruptions, sustainable manufacturing, and a skills gap in the workforce, the manufacturing industry is dealing with various issues impacting its financial performance.
Being able to create strategic and operational plans enhances decision-making for better business outcomes. FP&A software does just that by providing automated processes, budgeting and forecasting insights, and forward thinking.
Biggest Challenges of Manufacturing Companies Today
What are the main problems that manufacturers and suppliers are dealing with in 2024? Our perspective highlights these major challenges and the ways to deal with them.
Addressing Inflation and Margin Pressure - Many experts anticipate a prolonged period of inflation, but predictions vary. It's crucial for business leaders to navigate the impact of rising prices on goods and services.
Managing Supply Chain Disruptions - Challenges like global wars, the effects of inflation, and supply chain disruptions make it difficult for manufacturing companies to predict output and plan for the future. One solution to this is a shift to regional sourcing and production to adapt to these changes.
Optimizing Talent Management - The shortage of skilled workers poses a hurdle to manufacturing growth. It's vital to engage and retain employees through technology, career growth opportunities, and addressing disengagement issues like "quiet quitting."
Improving Procurement and Sourcing - Manufacturers aim to accelerate procurement but face challenges with data scattered across systems. Standardizing information sharing and implementing self-service quoting capabilities can enhance collaboration and speed up the process.
Digitizing and Streamlining Processes - Digital transformation in manufacturing involves linking product design and operations through a digital thread. This fosters informed decision-making, efficient simulations, and collaboration across the product lifecycle, reducing late-stage design changes.
Prioritizing Innovation - Amid economic uncertainties, it's crucial to balance cost-cutting measures with investment in innovation. Quick and efficient operations, real-time collaboration, and adoption of technologies will help save manpower and increase productivity.
Perks of Using FP&A Tools
One of the most important tools that help address many of these issues is FP&A software. Let’s go over a few of the benefits.
1) Organizational Agility
Leaders should actively explore various avenues for growth, assess the market, and focus on a select few initiatives. The ability to do this quickly, with input from all planners at the right time, enhances an organization's agility.
2) Data- driven Decision- Making
It provides stability over time, unaffected by organizational changes or the person making the decision. This method helps organizations achieve three main results: improved internal decisions, the development of new products or services, and the capability to enter new markets by clearly identifying what works and what doesn't.
3) Scenario Planning for Growth
To be effective, scenario planning should be thorough, regularly updated with the latest information, and continuously adjusted based on the impact of considered strategies.
Specialized scenario planning software allows real-time linkage of departmental plans, facilitating quick updates as needed. Business leaders can use this software to test the effects of external events (e.g., supply chain disruptions) and internal changes (e.g., launching a new product) on revenue and cost efficiency. Altering a variable in the scenario instantly updates the affected areas, ensuring that all plans and forecasts remain current.
One example of a company that successfully improved scenario planning through FP&A software is Echo Engineering & Production Supplies, a manufacturing company based in Indianapolis. Initially, Echo struggled to make well-informed financial decisions due to incomplete data. However, after adopting Datarails, the company efficiently consolidated data sources, enabling a more in-depth analysis of customer margins. This empowered Echo to make better pricing decisions, leading to increased revenue despite inflationary pressures on material and freight costs. Additionally, Echo Engineering now saves 24 hours a month by streamlining financial reporting and planning processes.
4) Greater Collaboration
Creating a successful collaboration strategy begins with the organization's goals, such as boosting market share, promoting product innovation, or broadening product usage. The key to effective collaboration is shared knowledge. It serves as a common understanding that helps teams interpret situations, make better decisions, enhance mutual understanding, and improve efficiency.
5) Optimized Financial Forecasting
An effective forecasting method helps organizations understand their future direction based on current actions and plans. However, productive forecasting doesn't occur in spreadsheets alone. Employing analytics technology can significantly enhance budgeting, forecasting, and decision-making by making data more easily available.
Top 4 FP&A Tools for Manufacturing Companies
1) Datarails
Datarails makes it easy to gather data from different places, organize it according to a shared chart, and allows users to keep using their Excel models in the platform. It can also combine various data sources into a single reliable source and provide quick access to data for better business decision-making.
In addressing the challenges faced by Echo Engineering, particularly the escalating costs of materials and shipping impacting customer profit margins, the incorporation of Datarails proved instrumental. By integrating their data with Datarails, Echo Engineering gained analytical insights into customer margins. This information empowered the company to implement targeted price adjustments and address payment gaps among customers. Despite inflationary pressures, these strategic changes led to a substantial increase in overall revenue, contributing up to 8 percent of the company's baseline revenue. This boost played a crucial role in mitigating the impact of inflation on freight and material costs.
The integration not only facilitated swift analyses at the customer and product levels but also empowered Echo Engineering to establish personalized sales targets. These strategic pricing modifications were made feasible through the efficient consolidation of data and expedited analysis processes.
2) Anaplan
Anaplan links revenue reporting, financial planning, and S&OP for companies, enabling them to utilize enterprise-wide data for navigating changes in manufacturing and distribution. The interconnected Anaplan models facilitate data sharing, such as direct input of sales results by teams, which then influence the weekly forecast, financial plan, and production planning. This integration enhances decision-making, reduces excess inventory, and increases sales opportunities.
Read the case study of how manufacturing company Daikin successfully integrated Anaplan.
3) Jirav
Jirav provides ready-to-use software that saves time analyzing data and minimizes errors in spreadsheets. It helps prevent costly mistakes in financial modeling by allowing you to analyze and compare budgeted numbers with actual performance. This streamlines financial planning and eliminates the hassle of dealing with constant spreadsheet errors.
4) Jedox
Jedox offers dependable predictions and instant reporting. It includes planning and forecasting from the ground up for staffing and expenses, monthly reports on actuals, and reporting for cost centers and elements. Jedox remains cost-effective for companies as it's user-friendly and needs minimal IT assistance. It provides flexible reporting for the business control division, enabling easy comparisons and forecasts with readily available historical data.
Read how Jedox helped manufacturing company Lowa improve their processes.
Conclusion
The manufacturing industry faces a myriad of challenges, including economic uncertainties, supply chain disruptions, sustainable manufacturing, and a skills gap in the workforce. The adoption of FP&A tools is highlighted as a means to overcome these challenges, offering benefits such as organizational agility, data-driven decision-making, scenario planning for growth, greater collaboration, and optimized financial forecasting. The use of specific FP&A tools provides practical solutions to enhance financial performance and decision-making in the manufacturing sector.