Imagine this: you’re the CFO of a manufacturing company, and you notice that confusion over financial reports is becoming more frequent. It seems like everyone has their own Excel files and no one is using the same numbers. Sound familiar? This happens more often than you’d think, especially in companies that are experiencing rapid growth or have recently merged. In this blog, we’ll dive into the integration of logistics processes into financial reporting.
What I find particularly interesting as a CFO in manufacturing companies is how everything is so concrete and tangible. If you don’t fully understand something from the information provided by the administration, you can always dive into the underlying production process and work with the factory employees to figure out exactly what’s going on. Often, the primary production processes are smart and well-thought-out, and when you can link financial data to these processes, it can significantly contribute to a more efficient administration and better reporting.
During a growth phase, the focus is often on recruiting new employees, expanding distribution channels, warehouses, and securing external financing. In the case of acquisitions, the focus is often on integration activities. At least, that’s how it should be. While this is understandable, the necessary attention to aspects such as a uniform and clear product assortment definition, including the documentation of required logistical and financial parameters, often doesn’t receive the priority it deserves. Yet, these logistical parameters are crucial for accurate cost pricing and the associated variance and margin analyses.
When logistical and financial processes are not properly aligned, “workarounds” emerge. Employees work outside the system, often using their own Excel files, to generate the required information. This leads to a parallel world of information and reporting, causing confusion and inefficiencies. The figures often don’t match the data in the administration or the ERP system, leading to confusion and unnecessary discussions. Not to mention the issues this causes during the audit.
In my view, this is a missed opportunity. A lot of management hours are wasted putting together reports and later trying to explain the discrepancies between their own reports and those from the administration… a challenging task, to say the least. The worst part, however, is the increased risk of making wrong decisions.
The manufacturing companies in my practice are often dealing with (international) growth and company acquisitions. The setup of logistical information and its integration with finance is always high on the agenda. A smart setup, with a clear vision of which information should be available to whom, immediately sets a number of prerequisites for the configuration of the administrative system.
However, proper setup is only one side of the coin. The other, and often overlooked, side is its maintenance. Clear agreements must be made about who is authorized to change which (master) data and on what basis. This also applies to the logistical and technical parameters. If this starts to shift, it will ultimately affect the quality of the reports, and one may still be tempted to revert to the familiar Excel files.
In short, take on the challenge of making the ERP system work for you. Don’t be tempted to rely on Excel reports. Yes, it takes time and effort to get it right, but the lasting results are definitely worth it!
