New Forecast Engine Saves Millions with Improved Business Outcomes at Abbott.
Abbott’s Established Pharmaceuticals Division (Abbott EPD) is dedicated to making the world a healthier place by bringing its branded generic pharmaceuticals to broader, emerging markets such as Latin America, the Middle East, Africa, and others. This division focuses on innovation to provide the best products, formulations, and packaging that benefit these growing markets. They have hundreds of Finance planners interspersed throughout their local business units handling 130 different currencies in 65 countries across the globe.
Abbott EPD needed a system enabling collaboration across their process – from quota setting for sales team members to revenue forecast to margin analysis. They needed to understand business performance from every angle – revenue, margins, currency impacts, and VMA (volume, mix, assortment).
It was important they be able to generate a forecast and monitor performance against this forecast. A more critical business issue was understanding the effects of currency fluctuations on their business performance in various markets. With planning in 130 of the world’s 180 currencies, they needed all business units to plan in their local currency, and then roll up to one group currency (USD) in near real-time. The real-time roll-up was desired to manage currency escalation and avoid havoc on their forecast from markets where there is high inflation.
There were 3 core focus areas in the Abbott EPD SAC for Planning implementation. The first was a detailed sales, revenue, and direct expenses planning model. This would allow them to have greater insight into what product mixes would provide the greatest value. The second was a detailed headcount planning model that would drive the detailed expenses of specific cost centers. Lastly, there was an aggregated financial planning model that included P&L and balance sheet, as well as individual P&Ls that looked at different categories and groupings. All these areas played a key role in improving the business decision-making process.
Macrospect had the skills and business expertise to understand the complexities of Abbott’s global planning challenges. The Macrospect team was able to demonstrate and model solutions to all of these key issues.
- Planning in 130 different currencies
- Connecting SAC with S4/HANA data for deeper visibility
- FX noise reduction
- Effective and methodical transition processes from spreadsheets and a mid-market tool to a robust solution
- The ability to match constrained and unconstrained demand to pivot the business on revenue/margin
- Improve business performance of salespeople with better allocation of revenue targets
Global Process Improvement
Our client was able to significantly change the way they forecast globally. Instead of working on disparate systems and spreadsheets, their planners are now all working in one common system and process. Everyone works from the same set of actuals, assumptions, currency rates, and the same set of planning hierarchies. Creating a strategy data architecture to support Finance and a common set of business rules, planning assumptions, and security profiles provided the ability to extend their forecast quickly and easily to other areas like sales/quota planning, account planning, and capex planning.
Sales, Revenue, and Direct Expenses
Abbott EPD manages an extensive number of products and product mixes with many variations such as number of units, price, packaging, volume, currency, etc. The new ability to factor in all the variations allows them to understand the true profitability of a product mix. In multiple markets across the globe, many of which are highly volatile and hyperinflationary, they now have a smooth and accurate currency conversion.
Prior to their solution transformation, they didn’t have an easy and accurate way of looking at the effects of foreign currency translation or the ability to separate true business and product revenue from currency translation revenue. They were also missing an easy and automated way of seeing the finer details of a product mix’s performance after currency translation. For example, prior to SAC, they couldn’t tell whether their increases were driven by a higher volume of sales (more units), mix (a different mix of products than they forecast), or currency fluctuations (selling the same products at higher prices due to inflation). Abbott EPD’s new solution separates volume, mix, packaging, and currency to help them determine what changed in the business. Now, they can clearly see the effect translation has on all foreign products and understand the business value certain product mixes and SKUs provide and what factors drive business performance.
The capability to create fluid “what if” scenario planning gives Abbott EPD quick insight into what effect price change or product mix has on revenue and direct expenses or what resiliency products have to inflationary currencies from a performance standpoint. This determines a different market penetration strategy based on currency and market behavior. The insight into the profitability of certain markets helps them decide which markets to stay in, leave, or enter. This new way of evaluating and understanding currency and market conditions provides a greater understanding of where certain product mixes will perform best, where to eliminate underperforming products, and helps determine dynamics for new market entry. This includes understanding how products sold in certain markets relate to the currency and inflationary behavior, along with sales trends optimizing expansion and growth.
Headcount and Cost Center
Abbott EPD had a very disparate and unorganized way of planning for cost centers beforehand. They had data from several ERP systems sitting in different data warehouses, which weren’t harmonized into consistent structures. This made planning accuracy difficult as there was no central repository to see all the data. Now, they have a harmonized process for cost center planning and can clearly see the effects that existing employees vs. potential new hires, salary, benefits, and wages all have on individual cost centers in the same planning model.
Prior to SAC, there was no visibility into the exact headcount or the cost of each employee. This meant they were guessing and had to hold additional cash on hand. Now they have a clear picture of the true cost eliminating the need to hold excess cash. Since most of the company’s expenses are labor related, a more accurate cost for headcount and labor means a more accurate P&L statement.
A harmonized SAC for Planning solution also helped allocate headcount-driven operating expenses into Abbott’s direct expenses of product profit centers further improving their profitability. This additional level of visibility and profitability will play a large role not only when considering the addition of cost centers or plants, but also when identifying opportunities in the market and investing in new profit centers across the globe. R&D dollars specifically, are getting a better return on investment with the ability to do more research for the same budget. The newfound, freed-up capital will provide a bottom-line benefit to the company.
Aggregated Financial Plan
Within the overall financial plan, Abbott EPD now clearly sees its full balance sheet, and P&L statement for the division, looking specifically at performance units, profit centers, and individual products. They can see the profitability of these different categories all the way down to the EBITDA level, further supporting the product and market decision process. Informed decisions can be made on continuations or expansions of individual products and profit centers or spinning off/discontinuing less profitable ones. Prior to their SAC implementation, Abbott EPD had no meaningful way to make these business decisions on individual products, mixes, or profit centers. They now reallocate funds from less profitable products or markets to other areas providing greater margins.
Abbott needed a robust planning system that harmonized financial planning across multiple affiliates onto one platform for the entire division. Before, their disparate and unorganized planning methods made it difficult to understand the big picture or details. Now they have an organized way of planning across numerous segments and can handle projected growth, better leveraging their cash and capital budgets. Having clarity within their financial forecast allows for accurate numbers and confidence when making decisions on the direction of future opportunities.
Local currencies can now convert to a common currency, which allows them to evaluate products, profit centers, and markets in a consistent way. Accurate performance exchange reporting and eliminating FX noise provide clarity into true business driver performance. They can instantly separate the business impact driven by changes in currency exchange rates vs. true business performance. Complex planning environments can quickly be sorted through to determine which areas of the business are driving success or underperforming relative to Abbott’s business strategy. They can confidently divest less profitable business segments and invest in new segments providing higher margins. Clarity into new profitable markets helps drive a better use of cash which in turn will provide a greater return on investment. Abbott EPD also has a deeper understanding of product performance and margin related to inflationary behavior, which ensures cash won’t be wasted on suboptimal product lines and markets. Better business decisions about which markets to serve, where to spend R&D dollars, and what product mix to use exist due to an accurate picture of profit at a detailed level. This can serve as a roadmap to improved sales and margin growth to achieve greater overall targets for the company.
- Global process improvement quickly and easily extends forecast to other areas like sales/quota planning, account planning and capex planning.
- Can convert all local currencies to a common currency, allowing them to better evaluate products, profit centers, and markets in a consistent way.
- Can instantly separate business impacts driven by changes in currency exchange rates vs. true business performance.
- The ability to quickly sort through large, complex planning environments determines which areas of their business are driving success or underperforming relative to their business strategy.
- Can confidently divest business segments that are less profitable and invest in segments providing higher margins.
- Have a new way of evaluating entry into new markets, with a deeper understanding of product performance and how margin relates to inflationary behavior. This ensures cash won’t be wasted on suboptimal product lines and markets.
- An accurate, detailed view of profit helps them make better business decisions— which markets to serve, where to spend R&D dollars, what product mixes to produce.