Within manufacturing organizations, each department ideally views the corporate financial planning and analysis (FP&A) team as a partner taking the role of strategic advisor working closely with business units. Its duty is, in part, to identify opportunities for investment and savings while mitigating costs.
However, for many manufacturing organizations, the lack of modern software tools can make it difficult to gain necessary visibility into financial performance. FP&A leaders often find themselves in a defensive, reactive position unable to provide necessary advisory to support the entire organization. And, they certainly do not have clarity around the true profitability of the organization.
The FP&A role is evolving, as software advancements have made the collection and analysis of data easier. It’s time to shift to a proactive role because, in today’s fast-paced, globally competitive business environment, the FP&A role has become forward-looking. You can seize this opportunity.
OneStream: The Right Platform to Support FP&A Leaders
Armed with the knowledge of what has happened in the past, the focus for FP&A leaders is increasingly on looking at the “why” and determining what the future likely holds. In other words, forecasting and planning have become a primary focus to help each business unit make informed decisions on the path to profitability. But, can your current tools help you achieve this objective?
To perform these duties using all available data requires flexible reporting tools and automated allocations that provide visibility into profitability across key products and customer segments. Proper execution of these tasks requires intelligent software tools, such as the OneStream™ intelligent finance platform.
OneStream provides a unified finance platform built to conquer complexity so that FP&A leaders can lead at speed and enable confident decision-making. It’s about gaining confidence in your ability to analyze financial performance, identify profit (or loss), and then present findings to decision-makers across the organization.
OneStream unleashes the power of finance by unifying planning and analysis with the financial close, consolidation, and reporting in a single, extensible solution. This enables FP&A leaders to get back on the offensive delivering timely financial and operational insights.
This creates a waterfall effect supporting each critical area of the business, as OneStream provides visibility into profitability across key products and customer segments. By expanding the scope of analysis to include development, sales, distribution, and even spare parts, you can calculate and analyze a product’s profitability across the entire business, drilling down to analyzing profitability by customer.
Use OneStream to Determine Customer Profitability
Customer profitability is multifaceted. It includes the calculation of the lifetime value of a customer, but it also goes deeper than that. Done properly, a customer profitability analysis looks at every instance of interaction between your organization and the customer. This includes returns, purchases, customer service touchpoints, and so on.
By going deeper than lifetime value, a thorough analysis can lead to insights for greater business profits, as the process determines whether or not a customer is a source of profit or loss. By looking at each aspect of customer interaction, it becomes possible to determine areas of loss that need to be addressed.
This process can lead to insights that counteract profitability assumptions. For instance, a customer group assumed to be a source of high value may, on deeper analysis, reveal itself to be of lower value. These insights into the value of each customer group, in turn, should inform shifts in priorities and business strategy.
In determining customer profitability, the following are a few steps that will give you a better understanding of how to prevent customer groups from undermining profits.
1. Define Customer Groups
Defining customer groups allows for a streamlined approach to customer profitability analysis by consolidating multiple data points into larger collections. These groupings can be based on behavior, geography, or other parameters. And, automated cost allocations make it easier to quickly perform this analysis.
When determining customer groupings, it can be helpful to ask why certain customers are buying from you. Using data from other teams such as sales, marketing, and customer service can lead to greater insights into customer motivation, which helps to further segment customers.
2. Gather Customer Data
The likelihood of sourcing granular data on a per customer basis is low. More often, data will be at the category level, such as line items denoting costs related to customer service. Through analysis, you can distill insights about customer groups.
Once you have identified which customer groups are less profitable, you can then begin to look at answering questions related to why they are a source of cost, rather than profit. Once the exercise is completed, the result will be greater insights into the cost of various customer activities. For instance, you can determine:
- The cost to market to a specific customer group.
- How many times customer service is engaged per order and the related cost.
- Average costs for shipping and returns.
With some adjustments to this process, the same can be done for products. Ideally, you would implement this process for both customers and products. This way, you can determine which products are providing the best return or profit margin, and why profits are lost for low- performing products or categories.
3. Use Data to Complete the Analysis
Through analyzing all aspects of the product life cycle — from development through to distribution — it’s possible to determine the profitability of a product across the breadth of business operations. Doing so can identify products with higher-than-normal costs, regardless of their gross margin.
Identifying high-cost products is useful in itself, but the real value comes from further analysis of the data to identify efficiencies and opportunities for cost-savings.
Armed with these insights delivered through the OneStream platform, you will be well-positioned to recommend changes to business strategy. Your organization will have the necessary insight to shift focus to higher profit customer groups while also trimming product costs that may have been hidden from view. This is how you can turn insights into action.
Ready to Transform FP&A Through OneStream?
Don’t let outdated software tools or manual-entry spreadsheets slow you down. Get up to speed using the OneStream platform to unleash the power of finance. By utilizing OneStream to gain visibility into profitability, you can empower the entire organization with insights to support decision-making — from management all the way to business unit leaders.
Want to learn how to turn your insights into action becoming a leader in your organization? Contact HollandParker for a consultation about migrating to OneStream. As a OneStream Diamond Implementation Partner, we can support your organization’s journey to making confident, forward-thinking financial decisions.