A new CSM Worldwide and Original Equipment Suppliers Association
(OESA) survey finds that only three out of 48 suppliers are employing
best-in-class lean commercial management practices. What are the
transformational capabilities and behaviors of this high-performing minority?
Are you "closed looped"? As more and more automotive suppliers partner
globally with CSM to provide their primary automotive industry forecast input
and advisory services, CSM is increasingly aware of best-practice methods
employed by customers to apply our forecasts for strategic-decision support. As
a business, CSM is growing its advocacy in new and unique ways for each
customer to derive maximum value from the industry forecasts to which it
subscribes.
Furthering that purpose, CSM and OESA recently set out to research best practices associated with two supplier commercial processes that commonly involve our forecasts - opportunity costing and quoting, and the formulation of the enterprise business forecast. CSM and OESA also sought to identify any resulting transformational capabilities and behaviors among suppliers with cutting-edge commercial-management processes.
What we found is that a high-performing minority of suppliers are employing a best practice commercial-management system that CSM has coined "closed loop" - one that manages quoting/costing and business forecasting from a single architecture/platform. Even more important, the "closed loopers" maintain rolling, up-to-date forecasts over a three- to five-year horizon for valuable financial and operational KPPIs (key predictive performance indicators) such as contribution margin, earnings before interest and taxes (EBIT), bill of materials (BOM) demand, capacity consumption and return on sales - across their business units, customers and products.
Why such a minority? Many functional roles at automotive suppliers have leveraged packaged vendor software to realize business efficiency gains - most notably product development through computer aided design (CAD) and product lifecycle management (PLM), and manufacturing/plant accounting through enterprise resource planning (ERP). Supplier commercial processes have largely been relegated to spreadsheets or "creative" internal custom IT development to manage opportunity costing/quoting and business forecast formulation.
Per the study results, the arduous tandem process of enterprise business
forecasting requires an elapsed time of four to six months if performed in
spreadsheets, or two to four months if performed in internal custom- designed
databases. Upon doing the math on the length of time it takes to formulate the
enterprise forecast, it quickly becomes apparent why suppliers only build the
enterprise forecast once or twice per
year. 
Even worse, when the enterprise forecast is delivered to executive management,
it lacks their confidence to support vital strategic decisions on how and where
to employ capital for optimal returns because it is three months old when it
arrives. In this study, we identified a few rare suppliers that CSM has deemed
"closed loopers." This high-performing minority of suppliers each employs a
lean, closed-loop commercial-management system constructed with an "enter once,
use many times" process versus the tandem fire drill which is found with the
other 95 percent of suppliers.
What is the commercial process that makes them different? The commercial systems - opportunity costing/quoting and enterprise forecasting - at these three organizations are "looped." Each time a commercial team builds the quote and supplies it to the customer, it also pushes the quote's valuable price, costs, capacity and margin information into the rolling enterprise forecasting system at that same time - enter once, use many times. As a result, the rolling enterprise forecasting system accommodates and reports much more than revenue/volume. "Closed loopers" draw reports in real-time for forecasted capacity utilization, anticipated BOM spend, contribution margin, lifecycle part margin analysis and other valuable KPPIs across their strategic business units (SBUs), plants, products and customers. Up-to-date forecast information is available on-demand and KPPI reports are also pushed monthly/quarterly to decision makers. The annual budget process is no longer a threemonth tandem fire drill, but a decision of when to "freeze" the rolling enterprise forecast in order to establish targeted KPPI goals and decide upon investments.
CSM also uncovered unique transformational capabilities and behaviors practiced by "closed loopers" to increase return on capital employed (ROCE). They include:
Logical evolution will lead every supplier to employ the processes and behaviors practiced by early-adopting "closed loopers." These companies enjoy marked strategic competitive advantages over their business rivals. The question isn't if you will employ closed loop commercial management... but when? CSM and its partner Saphran Solutions have productized the closed-loop commercial- management process for automotive suppliers. The efforts of the three "closed loopers" - who each internally discovered this process and painfully custom-designed systems to enable it - are resident in CSM and Saphran's solutions for suppliers to leverage now.
If you would like to understand/assess your commercial processes and your ability to forecast financial/operational KPPIs versus best-practice suppliers, feel free to contact me directly. CSM can assess the gaps and recommend a path and tools to help you become "closed loop."
John Brennan may be reached via Email at JohnBrennan@csmauto.com.
