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What's the value of enterprise performance management (EPM) applications in manufacturing and supply chain organizations (MSCOs)? It's a question that forward- thinking finance professionals are asking as they consider EPM software investments that automate financial planning, budgeting, forecasting, reporting, consolidation, performance management, and balanced scorecard processes. The answer to this question is changing. Why? Because a next generation of EPM applications, which I'll call EPM2, has emerged that extends beyond traditional EPM approaches to enable step-change improvements in planning and forecasting processes.
Four fundamental realities are driving the EPM2evolution:
* The needs of MSCOs are fundamentally different from those of other sectors.
* As complexity grows, financial and operational inte- gration becomes essential to meeting these needs.
* Superior business modeling capabilities are required to support such integration.
* These modeling capabilities are the key drivers of EPM value in MSCOs.
For smaller and less complex MSCOs, the value of EPM2 applications is more tactical because it provides the means to eliminate nonvalue-added activities resulting from fragmented financial and operational planning, budgeting, and forecasting (PBF) processes. As complex- ity grows, however, EPM2applications provide opportu- nities to drive top- and bottom-line performance. In so doing, they provide the foundation for more effective finance functions-ones that play a central role in driving greater agility, profitable growth, and sustainable cost reduction.
These opportunities stem from coordinating and opti- mizing resource allocation across functions and entities. A key enabler of such coordination is the integration of financial PBF processes with sales and operations plan- ning (S&OP)-a continuous process for balancing supply and demand and, from a financial perspective, a more mature form of driver-based planning. While some com- panies have tried to integrate PBF and S&OP, this hasn't been a traditional area of strength for EPM or S&OP applications.
EPM2 applications are poised to address this integra- tion challenge, especially for small and mid-sized MSCOs with revenue less than $2 billion to $3 billion. Unlike global MSCOs, they don't always need all the operational planning capabilities of traditional S&OP applications. Here's what you need to know about EPM2 applications:
* They provide key capabilities that traditional EPM applications don't.
* The value of these capabilities can approach 5% of sales.
* Tactical savings can often self-fund EPM2 investments.