Know the Risks: Unlocking Efficiency and Agility in CPG Finance Transformation

In this edition of Know the Risks, my conversation with Mariah Romão explored the evolving landscape of finance transformation in the Consumer Packaged Goods (CPG) sector. As companies strive for cost reductions, accuracy, and agility in financial reporting, the maturity of finance functions in CPG organizations is often lagging compared to other industries. Mariah pointed out that traditionally, there has been limited investment in proactive finance transformation efforts, with companies focused on maintaining efficiency rather than embracing transformative change.

The key risk for companies delaying finance transformation is the missed opportunity to integrate functions and optimize costs. Failing to embrace emerging technologies could lead to market disruptions by more proactive competitors. To mitigate these risks, Mariah advocates for a strong focus on ERP upgrades, data standardization, and incorporating AI-driven tools in finance.

Read the full conversation about how CPG companies are gradually advancing in their finance transformation journey. Engaging the controls function from the beginning, standardizing technologies through GBS, and leveraging real-time data analytics are crucial steps for driving efficiency and staying competitive in a rapidly evolving business landscape.

Companies are always looking for efficiencies, cost reduction, accuracy and agility in producing their financial information for better decision-making. How mature are CPG companies on their finance transformation journey?

Mariah: In recent years, there has been a lack of investment in the finance function in consumer product and retail companies. Traditionally, finance has relied on augmenting resources or roles to maintain efficiency levels, rather than proactively staying ahead of the curve, embracing a meaningful finance transformation.

The finance transformation journey can be divided into three stages:

a.    Transitioning to next-gen enterprise resource planning (ERP) systems, such as S/4HANA. Maturity in such transition varies in the sector. ERP systems are pivotal in addressing data challenges, particularly in CPG organizations, where client surveys often reveal high levels of autonomy. Moving forward, establishing a single source of truth and standardizing technologies, facilitated by Global Business Services (GBS), will be instrumental in empowering the finance function to access and leverage data insights effectively.

b.    Implementing off-the-shelf solutions and technologies for finance reconciliation and optimizing order-to-cash processes. Notably, these tools are predominantly adopted by CPG companies.

c.     Advancing toward Last Mile digitization, incorporating artificial intelligence (AI) and next-gen tools for data analysis and visualization. Companies are progressively embracing this stage, collaborating with data-centric teams to deliver actionable insights to the business.

Overall, CPG companies are playing catch-up in the transformation journey but are gradually progressing toward Last Mile digitization.

Companies often grow by acquisition, adding to the complexity of the IT environment. How do companies generate meaningful data insights with stand-alone systems?

Mariah: Standardizing processes during acquisitions presents a significant opportunity. When undergoing a major merger or acquisition, companies can reassess the entire portfolio of processes across the organization and opt for comprehensive business transformation instead of simply relocating operations.

However, if significant resources are required, companies often leverage their Global Delivery Services (GDS) or GBS organizations as transformational engines. These entities facilitate a thorough assessment of the transition from current to desired states, enabling standardization of analyses, reports and data. GBS, being the transactional hub, not only drives operational efficiency but also plays a crucial role in managing and leveraging data effectively. In numerous instances, organizations grappling with large volumes of data find GBS to be instrumental in driving transformative change.

In finance transformation journeys, do you see companies engaging the controls function from the start to build the right control environment?

Mariah: Companies can implement numerous measures from a control perspective to enhance organizational efficiency and deliver short-term cost savings.

In finance transformation, initiatives aim to standardize processes. Therefore, there's typically close collaboration with controllers to review and strengthen controls, ensuring a well-defined plan is in place.

It's imperative for these efforts to align seamlessly to maximize cost savings across various functions.            

Companies are moving to GBS and Managed Services models for some functions. What are the benefits of these models? And where are the CPG companies in the spectrum?

Mariah: From a GBS perspective, the CPG sector demonstrates a high level of maturity. CPG companies were pioneers into GBS practices, aiming to harness efficiencies and leverage labor arbitrage. They initially established functional towers such as Finance, HR and IT, then transitioned to multifunctional shared services like Financial Planning & Analysis (FP&A). This evolution sought regional models to further optimize operations.

Subsequently, they pursued a global approach, consolidating operations into one global center servicing the entire company. The next phase involves incorporating value-added functions atop transactional ones, fostering centers of excellence within the GBS framework dedicated to automation, often referred to as automation hubs.

On the other hand, the retail sector is still in the early stages of this journey, with a primary focus on customer-facing initiatives rather than back-office optimization. As a result, there are ample opportunities from a retail standpoint. Retail companies face challenges in fully embracing the GBS segment due to less-favorable ROI prospects and significant margin pressures.

Real-time data and analytics are vital for Finance functions. GPT has taken the business community by storm. How are finance functions leveraging the new technology?

Mariah: The primary objectives when deploying technologies are to enhance decision support, mitigate risks, improve customer experience, generate revenue and reduce cost — a longstanding goal.

Generative AI (#GenAI) can be effectively applied to transactional processes such as record to report, leading to cost reduction and faster processing times. However, the current trend indicates that companies are more focused on tackling complex problems rather than optimizing transactional processes. For example, advanced use cases of GenAI are predominantly observed in FP&A.

Companies employ GenAI based on their specific process value chains, tailoring its applications accordingly. For instance, in the Order to Cash Process, GenAI is utilized to drive revenue generation and manage deductions.

The utilization of process-based data analytics is widespread among CPG companies, with a variety of tools available in the market. These tools are seamlessly integrated into problem-solving frameworks, leveraging intelligent automation and machine learning, particularly in areas like forecasting.

In my experience working with various vendors during my tenure at #EY, it's evident that companies prioritize developing robust infrastructure and technology stacks regardless of the specific tools they employ. However, the ROI for implementing GenAI in finance functions is unknown resulting in limited adoption. Conversely, in functions like customer engagement and branding, there remains a strong incentive to leverage GenAI to drive revenue growth.

Looking ahead, as the ROI for using GenAI becomes more pronounced, we can anticipate a broader adoption across industries to address complex challenges effectively.

My take:

In my perspective, the controls team often finds itself disengaged during business transformations, often being considered as an afterthought. This could be attributed to companies prioritizing larger-scale initiatives and perceiving controls as potential impediments to progress. Consequently, controls are often integrated into processes at a later stage.

Currently, the adoption of GenAI within the finance function is limited among companies. However, the time to market for GenAI solutions is notably faster compared with earlier technologies like robotic process automation and machine learning. Despite this, many companies opt for the implementation of data analytics due to its relative ease of integration and promising ROI.

What are the risks?

The risk of forgoing ERP upgrades and data standardization is the missed opportunity to integrate functions and optimize costs.

Similarly, not embracing disruptive technologies and initiating bold operational disruptions poses the risk of other companies seizing the initiative and disrupting the market, potentially leaving companies at a disadvantage.

What’s the action?

CPG companies are progressively advancing in their finance transformation journey, with a focus on transitioning to next-gen ERP systems, implementing off-the-shelf solutions for finance functions, and embracing Last Mile digitization. Standardizing technologies and establishing a single source of truth facilitated by GBS are crucial steps to effectively leverage data insights.

Engaging the controls function from the beginning of finance transformation initiatives ensures well-defined plans are in place to review and strengthen controls, maximizing cost savings across various functions.

Real-time data and analytics are vital for finance functions, and the adoption of GenAI is currently limited. Not embracing emerging technologies could lead to missed opportunities and potential disruptions from competitors.

The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.