Financial planning can sometimes feel like it’s on an island of its own, isolated from the day-to-day realities of operations. Finance departments are often some of the most siloed divisions of an organization, and that separation can make integrated business planning (IBP) difficult.
In a strong IBP framework, financial planning shouldn’t be on an island. It should be more like a ship’s navigation system — setting the initial course, monitoring conditions and adjusting direction as new data comes in. At the start of the year, financial planning helps define the destination: revenue targets, margin expectations and capital plans. But as the journey gets under way, the financial plan needs to pivot in response to what is actually materializing with supply and demand. That makes financial planning for supply chain management both a starting point and a dynamic guide. Sales activity, production changes, inventory shifts — all of these operational realities should shape and refine the financial outlook over time.
Take inventory for example. If your days of inventory on hand rises unexpectedly, that can be an indicator that you need to adjust your financial planning. The numbers coming from sales and operations and the numbers coming from finance should complement one another, not compete. If your numbers are consistently out of sync, causing surprises, panic or firefighting, it’s a clear sign the planning process isn’t truly integrated.
Financial planning for supply chain management works best not as a distant observer, but as a connected, responsive system. In this blog, we’ll explore some best practices to help your financial planning steer the business through changing supply chain conditions, not just chart the course from afar.
Incorporate Consistent and Regular Reforecasting
If your annual financial forecasting is in “set and forget it” mode, your business won’t be prepared to adapt to evolving demand or emerging supply chain challenges. Reforecasting should be calendar-driven and circumstance-driven.Your initial yearly goal might be optimistic, but if it’s anchored in reality through regular adjustments, the end-of-year results for finance and operations shouldn’t be miles apart. Of course, you allow for some level of divergence, but so long as you can pinpoint where the disconnects are and understand why they are present, you’ll avoid major surprises or misses.This consistent reforecasting process needs to include both finance and demand, with give and take from both sides. You don’t want a situation where finance is completely controlling the conversation and demand planners are left scrambling to tweak numbers to defer back to what the financial planning forecast dictated. Sales numbers don’t lie — customer demand is what it is. When finance and demand work together, the financial plan becomes a flexible tool to highlight and support real-world goals.
Employ Technology to Give all Teams a Single Set of Numbers as the Source of Truth
When there are discrepancies in the numbers coming from finance and operations, questions of trust arise. What’s the reality of the business? Technology and automation can help address this dilemma.The right technology solutions allow for fast, or even real-time, updates and organizational collaboration that spreadsheets likely can’t match. Ideally, organizations would work from one centralized tool, but if multiple platforms are in play, they should be interoperable so data can easily flow between systems and teams. Supply chain planning software with robust financial planning dashboards gives everyone, from operations to finance, a window into the most up-to-date numbers and insights. When everyone is on the same page — all working from the same source of truth — more successful financial planning can happen. Decisions can be made faster, more confidently and with a full understanding of the financial or operational implications.For example, let’s say the supply planning team is trying to meet demand but is constrained by other factors of the business. You can remedy these constraints with solutions like third-shift overtime or expedited freight shipping, but those come with added costs. If departments are communicating and have visibility to shared data, finance can weigh in early to evaluate trade-offs, greenlight cost-effective actions and guide decisions that balance service levels with financial impact.
Establish a Financial Review Process and Create Accountability
Getting to a single source of truth requires clearly defined roles and responsibilities. An ownership matrix or audit can help show how that number came to be. From who contributed what, to where adjustments were made, this transparency not only promotes accountability but reinforces trust that the numbers are a true reflection of the organization’s standing.Supply chain software has rolling forecasts built in, and incorporating the financial data into that planning cycle facilitates a regular, structured review. Using a unified solution helps put the numbers in front of those who need to see them, so the operational data is not just available — it is being seen and used. This allows for quicker collaboration and enables everyone to react appropriately without the need to re-do time-consuming annual budgeting. In other words, it brings financial planning off the island and up to the helm, working alongside operations to steer the ship through its course.
This blog is part of a series examining best practices to refine your processes and develop a more reliable, more robust supply chain. You can use the following links to review other blogs in the series: demand planning, scheduling, inventory planning and supply chain sustainability.
