Why Integrate Cash Flow Forecasting in the Sales & Operations Planning (S&OP) Process?

Melissa Takas - V&M Star

Melissa Takas - V&M Star

Tom Wallace and I are currently collaborating on a portion of his new book. According to Tom, the book is titled Sales & Operations Planning: Beyond the Basics and according to Tom, “will focus on innovative enhancements to the basic S&OP set of processes”. One such innovative enhancement that has been made by V&M STAR is the full integration of cash flow forecasting within the S&OP process.

 

At V&M STAR, Finance was involved with S&OP from day one and within six months, after the process was stable, we were able to begin integrating financial data. I believe that one of the best choices we made was involving Finance from the beginning so that they would be able to understand the S&OP process better, and begin to understand where the data would now come from.

Don’t worry though if you didn’t include Finance in your S&OP process in the beginning because it’s not too late! The important thing is that your finance department becomes accustomed to how the S&OP process works and what role they will be expected to play going forward.

At V&M STAR we have seen five major benefits from linking financial data to the S&OP process:

1) Better strategic planning for outages (plant shutdowns) and scheduled downtime. Forecasting this far into the future enables us to plan effectively and schedule efficiently planned outages for capital projects or maintenance repairs.

2) Better alignment with strategic goals. Because the operational and financial numbers are now linked we are better able to align with the strategic goals of the company.

3) A more sophisticated annual budgeting process. Since we are forecasting eighteen months into the future we already have a full year forecast in July when the budget process begins and the data is validated and locked in at the Executive S&OP meeting that month.

4) Better cash flow management. Building too much inventory can cause major issues with the company’s cash flow but by integrating financial data into S&OP the team was able to see the impact of the decision and adjust the inventory build to meet both demand and cash flow needs.

5) Increased credibility with Stakeholders and Stockholders. The monthly forecasts given to Corporate are based on information shared during the S&OP Executive Meeting. This gives an up-to-date picture of the current needs of the business. Another benefit is that Corporate now has a more accurate monthly forecast. This in turn increases the business’ credibility, which in my opinion is the most important benefit of all.

I very much look forward to being able to share insights on V&M STAR’s fully integrated financial data and how it has benefited us. More so I am exited to be able to gain new prospective from a large group of presenters at the APICS & IBF’s Best of the Best S&OP Conference in Chicago.

Your comments or challenges on your S&OP experience are welcome!

Melissa R. Takas
Operations Controlling Supervisor
V&M STAR

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One Response to Why Integrate Cash Flow Forecasting in the Sales & Operations Planning (S&OP) Process?

  1. I like points 1-3, and 5; #4 makes me uneasy:

    4) Better cash flow management. Building too much inventory can cause major issues with the company’s cash flow but by integrating financial data into S&OP the team was able to see the impact of the decision and adjust the inventory build to meet both demand and cash flow needs.

    My read of that is that they are cutting into SS, therefore cutting service level / fill rate to meet cash flow needs. The real S&OP decision, I think, is to understand the drop in fill rate that will likely result from the reduced inventory, an agree that the increased cash flow needs warrant that.

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