CFO Magazine: 4 Tips for Cutting Indirect Spend

“In light of price inflation, companies are weighing their options for cost transformation, said Mahoney. Cost transformation is about simplifying and refocusing the organization. It involves a soup-to-nuts analysis of any action taken by a company and deciding: Is this something we should build? Is this something we should deliver internally, or does it make more sense to buy or outsource to an external supplier?”

Read More at CFO Magazine >

CFO Journal: Look Beyond Direct Suppliers to Procure New Savings

“Despite the ongoing quest many CFOs have undertaken to turn the procurement function from a cost center into a source of value, optimizing indirect spend all too often is lower on the priority list. But CFOs and CPOs can collaborate to gain control over such spending —and now is a propitious time to do it.”

Read More at The Wall Street Journal >

Raw Material Annual Spending – Is it Relevant for Your Budget?

by Ganesh Subramanyan

When calculating the total spend on raw materials in your annual budget, do you evaluate the spending level for varying volume, mix, or inventory assumptions? My guess is no because changes in these areas are irrelevant to the total profits for the year. When budgeting, most calculate gross margin by just subtracting the cost of goods sold from the selling price, ignoring the impact on inventory and raw material spending as it only affects the Balance Sheet.

Current conditions have placed a spotlight on cash flow and understanding the cash requirements of raw material spending is now a critical metric for all CFOs. With shifting customer demands, supply chains, and commodity prices, finance teams need a way to analyze cash flow through the lens of raw material and inventory requirements.

The biggest challenge to getting this level of insight – your ERP. Is it possible for an ERP to take finished goods volumes, explode the bill-of-materials to calculate material requirements, match those requirements with vendor prices and accumulate the raw material spend for the period? Probably, but that would be a challenging – and expensive – road to travel.

Using Where Used logic, most ERP systems can convert annual budgeted volumes by finished good SKU into raw material requirements. But that’s typically where ERP stops, and the spreadsheet analysis starts. To match the quantity material requirements against prices (standard or actual), most build complicated spreadsheets with V-lookups, index matches, and sometimes VB Scripts or macros, to calculate spending requirements.

Then the real-world kicks in. Sales loses (or wins!) a new deal, customer behavior changes, or your suppliers raises their prices. What does that mean for your analytics process? More and more spreadsheets – one for each volume, or customer, or vendor, or scenario – with so many columns and tabs and formulas that make it impossible to decipher. It also means the executive team is asking more questions, expecting deeper insights, and demanding answers faster.

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Finance teams have done the Texas Two-Step since the days of Lotus 1-2-3 managing this crazy spreadsheet process. Others have struggled to manage the process when the person who owns the spreadsheets leaves the company. To compete, finance teams need tools to create a connected process that starts with volume and mix requirements and ends with a calculated P&L and B/S to drive meaningful decisions.

With the ImpactECS platform, you can build and enable models that recalculate raw material spending dynamically when the sales team changes expected volumes or your supplier changes prices of your raw materials. Easy-to-follow model logic creates transparency that leads to better insights and ultimately better decisions when it comes to managing cash flow during uncertain business conditions.