Over the past decade, consumer packaged goods (CPG) companies have responded to the proliferation of customer segments and the splintering of media channels with a competitive escalation and explosion of brands, distribution channels and stock-keeping units (SKUs). The production and logistics issues associated with this are daunting, but we also should pity the poor finance department that needs to get a handle on marketing investments, revenue forecasting, and – even worse – margin and cash flow projections.
Dealing with product complexity in any business today is a substantial challenge. One of the leading manufacturers of lighting products – desk lamps, ceiling fixtures, bedside lights – manages more than 450,000 SKUs! It’s even worse for all but the smallest CPG companies, especially those in the food and beverage category. For while a majority of adults stick to eating the same thing for breakfast every day, they crave variety at other times, while segments like teens and foodies are on the prowl for the next new thing. Line extensions proliferate; large corporations buy hot new start-ups and are constantly rejiggering their category and product portfolio. How do you forecast revenues and measure performance (revenue attainment, customer profitability and product profitability) at this level of complexity in a way that is demonstrably accurate, doesn’t require an army of full-time equivalents and is available “yesterday?”
You can’t hope to do this using desktop centric spreadsheets. I’ve said it many time before – spreadsheets are indispensable – but they cannot deal with more than a couple of business dimensions at a time. And because of this proliferation of segments, SKUs, regions, channels and pricing over time (to name just six dimensions) CPG is essentially a multi-dimensional chess board. Using spreadsheets to fight this competitive battle is a bit like stilettos vs. the machine gun. Valiant – indeed potentially elegant and noble for a while – but ultimately hopeless. Technology capabilities like pivot tables will take you only so far. Even in mid-size companies, sales, marketing and revenue plans are created in part of the business while operating cost estimates are forecast in another and indirect operating expenses are forecast on a business unit or departmental level. In addition leverage market intelligence data to know penetration into market and potential of product and category investments. Pulling together all of this data on an ongoing basis using email attachments is a lot of work.
What companies need is a way of integrating all of these routine forward-looking activities so that the finance department can access up-to-the-minute forecasts from across the organization and translate this into an integrated plan, one that will be able to forecast revenue, expense and margin and allow managers to slice and dice these data anyway they like. Not only will this enable finance departments to have a better forward financial visibility, the same structure can support financial performance measuring, monitoring and analysis that is considerably faster and probably more accurate.
In the past, even larger corporations used spreadsheets because they were the most practical alternative. Few wanted to rely on the IT department and only a relative handful of finance departments had the kind of people needed to support this kind of data collection and management. Moreover, many finance departments did not want to (or could not afford) to spend the money. Today, however, corporations have many more options that they need to explore. Even midsize CPG/food and beverage companies can afford to get away from desktop spreadsheets, especially since this option is now available “in the cloud.” This approach limits the up-front cost and eliminates the need to have people supporting the software and hardware.
Dealing with data complexity is an ongoing challenge for companies but it’s especially acute in CPG. Desktop spreadsheets are part of the problem, not the solution.
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Robert Kugel CFA – SVP Research