5 key areas in the transformation of auto suppliers' finance function
INSIGHT ARTICLE |
The automotive industry is experiencing unprecedented change. From product mix shifts to technological developments, the future is more uncertain than at any time in the past. Recent product mix changes that prioritize SUVs over sedans caught some suppliers unprepared, with many either experiencing capacity issues or suffering significant demand erosion.
The impact of these trends to overall profitability is often not well understood, and most suppliers’ finance functions are ill-prepared to model and analyze the impact of a fast-moving and unpredictable business environment. It doesn’t make analysis any easier when the quality and accessibility of underlying data is often insufficient to perform timely and accurate examination.
In order to address the new norm of change, the financial planning and analysis (FP&A) function of finance needs to be transformed. Following are five key areas of focus for such a transformation:
1. Improve the quality and accessibility of data
Good, timely data is foundational to good, timely analysis and predictive modeling. Unfortunately, most organizations do not have well-organized, high-quality data that is easily accessible. While data clean up and transformation can often take a lot of effort, it is of fundamental importance to improving the output of FP&A.
2. Understand the drivers of the business
Identifying and defining the key drivers of the business helps an organization focus on what’s important. Driver-based planning and analysis also enables systematic investigation of variances between the plan and actual outcomes, as well as rapid “what-if” modeling of alternative decisions and market conditions.
3. Utilize technology
Technology has advanced rapidly in FP&A. Spreadsheets should no longer be the tools of choice; rather, user-friendly, cloud-based technologies exist that offer a structured platform for automated, efficient and collaborative planning and analysis.
4. Create genuine business analysts
Research indicates most analysts spend their time on data accumulation and manipulation. As the FP&A function transforms, analysts should be able to perform more advanced and meaningful business analysis, such as “what-if” modeling to support business decisions. Workforce development may be required to advance the skill sets of in-house analysts.
5. Take a phased approach to transformation
To ensure success, a phased-implementation approach is advisable. A transformation road map should be developed with initial implementations focused on areas with the greatest impact.
One thing is certain in the automotive industry: disruptive change is here to stay. OEMs and suppliers will need to be much more nimble and adaptable in order to survive and thrive. A transformed FP&A function will be critical to providing the visibility and analysis necessary to navigate the disruption. Focusing on these five key areas will help ensure that transformation is successful.
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