Detroit Chapter Event

Transcription

1 Detroit Chapter Event Performance Management and Trends in the Auto Supply Industry March 26, 2015 Jeffrey Thomson, CMA, CAE President and CEO IMA (Institute of Management Accountants)

2 Agenda The Quest for Operational Excellence The State of Cost Analysis Trends in Manufacturing and Auto Supply Resources and Solutions Q & A

3 Executive Summary 1. CFOs are increasingly responsible for operations and supply chain success. 2. The state of costing analysis (e.g., product and supply chain) is still primarily reliant on standard costing, yet better methods exist to make more insightful decisions for top and bottom lines. 3. The auto supply industry is like most intense pressures from the C s (cost, customers, consolidation, competition, commoditization) and yet costing methods are outdated. 4. IMA has resources to help address the challenge (

4 1) A Quest for Operational Excellence. Now CFOs are playing!

5 The CFO/Controller s Evolving Business Partner Role

6 Today s CFO/Operations Controller: Four lines of sight

7 Top 5 Challenges Data and Tools Related Finance functions need to streamline the number of finance systems. Financial planning and forecasting could be improved by better technology. September 2014 IMA/ACCA Study Financial Insight

8 Exacerbated by Cost Pressures With finance budgets increasing only by single digits if at all, organizations must continue their aggressive search for opportunities to trim costs while finding innovative ways to support company growth Finance wants to be seen as a true partner to the business, not merely a cost center. While some organizations are doing a better job of delivering on this goal than others, all have room to improve.

9 9 point plan for better business partnering September 2014 IMA/ACCA Study Financial Insight

10 Hackett: Focus on 3 Rs to Reinvent Finance 1. Realign talent: competency crisis / skills development / training & development (CMA) 2. Re-architect service delivery: migrate transactional processes to Global Business Services/shared services organizations 3. Retool finance: Once routine transactions are migrated out, acquire technology tools and automation to create competitive advantage in emerging capabilities such as analytics.

11 2) The State of Cost Analysis

12 The State of Cost Analysis (Primer first!) Activity-Based Management at AT&T Terrence Hobdy, Jeff Thomson; Paul Sharman (consultant to AT&T) Management Accounting, April 1994

13 The Primer on Cost Analysis Sorting out the Clutter Jeff Thomson and Jim Gurowka Strategic Finance, August 2005

14 The Primer on Cost Analysis Lowdown on Lean Jeff Thomson and Anton vandermerwe Strategic Finance cover, February 2007

15 Strategic Cost Management What is it? Strategic Cost Management is part of a broader performance management process which converts usage quantities to monetary units. The objective is to drive better decisions on resource allocation, pricing and profitability for products, customers, regions and distribution channels.

16 Strategic Cost Management A Continuum of Approaches Standard Costing Activity-Based Costing (ABC) German Cost Accounting (GPK) Resource Consumption Accounting (RCA) Lean, Target Costing, Theory of Constraints, and Goal is to evolve Practice Guidance with costing best practices and a continuum of approaches (e.g., method to use based on business model and decision to be made)

17 Strategic Cost Management: State of the Union IMA/Ernst and Young Survey (2003) o o o o o 80% say Management Accounting (MA) data is important. Only 23% are satisfied with their decision support information. 98% say their MA information is distorted. 80% say change is not a priority study update: Not much has changed!?? Why??

18 Strategic Cost Management: State of the Union (cont d) BOTTOM LINE: Methods are not satisfying managers need for better decision support data and yet there is little sense of urgency. Possible reasons for this dilemma: Clutter of costing methodologies. Bad implementation experiences. Lack of competency to implement new methods. Lack of practice guidance (aka standards ). Lack of a robust evaluation criteria framework.

19 Discussion Question Do you directionally agree with these findings?

20 Strategic Cost Management Yesterday s Hope. Tired of Standard Costing It s as Easy as A B C (Activity-Based Costing)

21 ABC: Yesterday s Hope?? Resources $ $$ $ $ $ $ $ RESOURCE DRIVER # Sq. Feet # Hrs # PCs # Mach Hrs # Run Hrs # RM $ s # KW Hrs $Supervising $ Maintenance Activities $ Run Machine $ Assemble Product $Process Orders $ Pick & Pack Order $ Set Up ACTIVITY DRIVER $ $ $ $ $ $ $ $ $ Cost Objects $$$ $$ $$ $ Products Services Customers Sustaining

22 Strategic Cost Management Yesterday s Hope. ABC Many initial successes, but not sustained. Why??? Stand alone, separate from G/L and performance management process. The A in ABC Allocation? It stands for Activity, but what about Inactivity (idle capacity) Lack of standards and best practices means. Feeding frenzy!!! Some improvements to improve ABC update process (time/event-driven ABC).

23 Strategic Cost Management: A Primer A Plethora of Possibilities.But standard costing still primary. Why?? o Standard Costing o ABC: Traditional; Time/Event-Driven o Target Costing o Theory of Constraints o Lean Accounting (Value Streams) o German Cost Accounting (GPK) o RCA (Resource Consumption Accounting)

24 German Cost Accounting (GPK) In Use By Nearly 3K companies with heavy emphasis on resource cost pools All companies are satisfied with their GPK system and none are planning on changing it. Apart from Germany, widespread adoption also throughout Sweden, Norway, Austria, France, The Netherlands

25 Foundational Principles of RCA: Integration of Resource View With Activity/Process View The View of Resources and Capacity A Quantity-based Model The Nature of Cost: Initial and Changing

26 Strategic Cost Management Tomorrow s Promise. Practice Guidance ABC, RCA or any other TLA (three letter acronym) should be part of an integrated, holistic performance management system starting with the strategy of the organization. Strategic Costing functionality should be part of an integrated technology solution, not a one-off. Should identify and highlight idle or excess capacity for strategic resource management..

27 Strategic Cost Management Tomorrow s Promise. More Practice Guidance Some level of resource level analysis is needed to identify true cost consumption patterns at the source. Model update process must be efficient, scalable and adaptive. Training and education are critical. Commitment and Continuity from the top required. Operations must lead, enabled by CFO.

28 Strategic Cost Management Final Words of Wisdom. Which method is right for you? In the end, each organization needs to assess their own business issues, levels of required accuracy and then begin. Learn from others And, remember, How you implement may be more important than What you implement.

29 3) Trends in Manufacturing and Auto Supply

30 5 Trends Shaping Manufacturing for 2015 SMAC Stack digitization of the supply chain (e.g., ekanban, RFID, gamification) Social Media to further customer-centricity IoT (internet of things) resulting in greater automation Greater capital investment The emergence of next shoring for faster inventory Source: IndustryWeek, 11/14/14

31 The Future of the North American Automotive Supplier Industry Primary Insight Unprecedented challenge: new costs due to tightened fuel economy standards confront long-established end customer expectations for increased vehicle content at constant prices. Suppliers under considerable pressure to absorb the potential 20% cost increase, unlikely to pass through to end customers. Suppliers thus facing a productivity imperative Source: McKinsey, 2012

32 Supply Chain Performance Study for North American Automotive Suppliers Companies performing well in five core disciplines do better financially. Renewed focus on cash, inventory still a challenge. 1. View your supply chain as a strategic asset 2. Develop end-end process architecture 3. Design your organization for performance 4. Build the right collaborative model 5. Use metrics to drive supply chain performance Source: PWC, annual study top 50 automotive suppliers to NA OEMs, 2013.

33 Supply Chain as a Strategic Asset

34 Developing an end-to-end process architecture

35 Designing the supply chain for performance

36 Building the right collaborative model

37 Using metrics to drive supply chain perfomance

38 3) Resources and Solutions

39 The need for a common costing framework. Introduction Why a Framework for Managerial Costing? The Conceptual Framework Objective of the Framework Principles for Managerial Costing Constraints for Managerial Costing Concepts for Managerial Costing Source: Managerial Accounting Costing Framework (MACF), both in form of an IMA webinar and an SMA (Statement of Management Accounting) 39

40 Why a Conceptual Framework for Managerial Costing? Who is the standard setter for internal cost information?

41 Statement of Objective Managerial Costing Conceptual Framework The objective of managerial costing is to: Provide a monetary reflection of the utilization of business resources and Provide cause and effect insights into past, present, or future enterprise economic activities Managerial costing aids managers: In their analysis and decision making and Supports optimizing the achievement of an enterprise s strategic objectives 41

42 Inputs: Resources, Operational Quantities, Costs CAUSALITY ANALOGY Output: Information For Decisions Concepts Resource Managerial Objective Cost Homogeneity Traceability Capacity Work Responsivenes s Attributability Integrated Data Orientation Constraints Modeling Concepts Operational Model Costed Information Use Concepts Baseline Optimization Information Concepts Avoidability Divisibility Interdependenc e Interchangeabili tyconstraints Impartiality Congruence Objectivity Accuracy Verifiability Measurability Materiality

43 Principles Causality (Cause & Effect) The relation between a managerial objective s quantitative output and the input quantities that must be, or must have been, consumed if the output is to be achieved Analogy: (Information Use) The use of causal insights to infer past or future outcomes 43

44 Modeling Constraints Modeling Constraints Objectivity Accuracy Verifiability Measurability Materiality A characteristic of a cost model that shows it to be free of any biases The degree to which managerial costing information reflects the concepts you intended to model A characteristic of modeling information that leads independent reviewers to arrive at similar conclusions A characteristic of a causal relationship enabling it to be quantified with a reasonable amount of effort A characteristic of cost modeling that would allow for simplification without compromising managers decision-making needs 44

45 Cost Cost A monetary measure of (1) consuming a resource or its output to achieve a specific managerial objective, or (2) making a resource or its output available and not using it In Use Idle 45

46 Traceability Traceability A characteristic of an input unit that permits it to be identified in its entirety with a specific managerial objective on the basis of verifiable transaction records Cause Effect 46

47 Executive Summary 1. CFOs are increasingly responsible for operations and supply chain success. 2. The state of costing analysis (e.g., product and supply chain) is still primarily reliant on standard costing, yet better methods exist to make more insightful decisions for top and bottom lines. 3. The auto supply industry is like most intense pressures from the C s (cost, customers, consolidation, competition, commoditization) and yet costing methods are outdated. 4. IMA has resources to help address the challenge ( including, ---

48 The CMA Credential Enhancing Competency in Enterprise Performance Management Your Career Financial Leadership Risk Management CMA Strategic Cost Management Internal Controls Budgeting & Planning

49 CMA Exam Content and Structure Part 1: Financial Reporting, Planning, Performance and Control Part 2: Financial Decision Making - External Financial Reporting Decisions - Planning, Budgeting, and Forecasting - Performance Management - Cost Management - Internal Controls - Financial Statement Analysis - Corporate Finance - Decision Analysis - Risk Management - Investment Decisions - Professional Ethics 49

50 Part 1 Financial Reporting, Planning, Performance, and Control External Financial Reporting Decisions Financial statements, recognition, measurement, and valuation Planning, Budgeting and Forecasting Strategic planning, budgeting, forecasting techniques, and annual profit plans Performance Management Cost and variance measures, responsibility centers and reporting segments, performance measures Cost Management Costing systems, overhead costs, supply chain management, business process improvement Internal Controls Governance, risk, and compliance, internal auditing, systems controls, and security measures 50

51 Part 2 Financial Decision Making Financial Statement Analysis Financial statement analysis, financial ratios, and profitability analysis Corporate Finance Long-term financial management, raising capital, working capital management, corporate restructuring, international finance Decision Analysis Cost/volume/profit analysis, marginal analysis, and pricing Risk Management Identifying and managing enterprise risk Investment Decisions Discounted cash flow analysis for capital investments Professional Ethics Ethical considerations for accounting and finance professionals in business

52 The CMA is for 52

53 Thank you! / Q&A

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