Just how important is budgeting in any given business? The instinctive answer is ‘very’ – especially when that business is characterised by low margins and high volumes in a competitive marketplace, budgeting becomes an essential discipline to ensure profitability and long-term sustainability. That’s according to Urekha Venketas, Associate Manager: Business Analysis at Sumitomo Rubber South Africa (Pty) Ltd, who explains why the company sought a specialist budgeting solution from Synergy Business Intelligence.

“In a global business, of which the South African operations are a part, achieving a $25-billion turnover means being able to very closely track performance in a highly unpredictable market” says Venketas.

Formerly Apollo Tyres South Africa, Sumitomo Rubber South Africa (Pty) Ltd, is headquartered in Japan, and has operations across the globe. Sumitomo Rubber South Africa (Pty) Ltd is the 5th largest tyre manufacturing company in the world and is responsible for producing and distributing, amongst other high quality products, the iconic Dunlop brand.

“…we perform ‘what if ’ scenarios to plot where increases in price could and should be…”

Achieving that goal is far from simple, continues Venketas. “The tyre business is highly competitive, with low-cost imports driving down margins. In order to achieve profitability, it becomes a volume driven game; volumes have to be moved in order to keep the factories working, and ensure that profit targets are met.”

“Budgeting,” she explains, “plays a crucial role in working towards this ambitious goal, and provides the yardstick against which we plan and track progress towards that goal.”

More than that, she says it is very important to track profitability. “The tyre business is perhaps unique in that we sell ‘baskets’, comprised of various tyre sizes, to our customers. A focussed approach to product specific mixes is required to optimise profitability and ensure output is maximised.”

Budgeting allows for visibility of the price and profit points. “We analyse past trends to track price movements specific to customers and products. This enables the company to plan strategies relative to both customers and products to enhance profitability,” Venketas continues.

“In a commoditised business the ability to assess prices and strategies relative to pricing, needs to be analysed to the fifth decimal point, enabling us to maximise returns throughout all product categories.”

Spreadsheets: Time-consuming and inaccurate

All these criteria have to be met within the budgeting process, Venketas says. “Prior to the engagement of Synergy BI and its introduction of IBM Cognos Xcelerator (TM1), we did all the preparation in spreadsheets.”

“Financial people like spreadsheets,” she adds, “But given the enormous complexity of our budgeting process, it was a very time consuming, inflexible and problematic process. For example, there were substantial rounding differences when top down unit budgets were broken down to a SKU (stock-keeping unit) and customer level, and then rounded. Sequencing was also a problem as one phase would have to be completed before another began.

“In addition to being very onerous”, says Venketas, “a protracted budgeting cycle led to many other problems associated with deadlines, accuracy and a highly dynamic business environment”.

A purpose-designed solution

Synergy BI’s solution to what was clearly an ineffective system, was to introduce IBM Cognos Xcelerator (TM1). Chris Hewitt, Durban branch manager at Synergy BI, explains that this solution is designed to handle complex environments while delivering the dynamism which was required by Sumitomo Rubber South Africa (Pty) Ltd. “Business is never entirely predictable. Scenarios change, performance is affected one way or the other on a weekly, if not daily basis. There are always new challenges and new challengers. These are realities which SRSA experiences in its operations, and they need to be reflected in its budgets and strategic objectives.”

“..Xcelerator is also an exceptionally powerful modelling tool, allowing users to create detailed and sophisticated budgets..”

Xcelerator, continues Hewitt, provides the capability to rapidly analyse data and model business requirements across the entire organisation. “Dynamism means the ability to create budgets and then rapidly revise them as new information comes in. In addition, Xcelerator is also an exceptionally powerful modelling tool, allowing users to create detailed and sophisticated budgets for areas such as sales and payroll, and then link the aggregated values to General Ledger accounts and cost centres.”

As is the case with most software solutions, the success of the project is strongly dependant on the skills of those tasked with its implementation. “That’s where the skills of Synergy BI were invaluable. We needed to develop, implement, and go live immediately. Thanks to Synergy’s help, we were able to pull it off, and the project was a huge success.”

The future holds much more, she adds. “The power of Xcelerator goes well beyond budgeting. Already we are seeing how accurate information can make a substantial difference in managing the company for optimal performance, pulling the entire value chain closer. But we see considerably more potential which has yet to be explored.”

Dramatic results

Since implementing Xcelerator, Venketas says things couldn’t be any more different than they were before. “We’ve just completed year-end financials. Ordinarily, there would be no way I could speak to anyone at this time. Now, on the first day of the new financial year, we have complete and accurate budgets which go all the way down to the customer level. Sales representatives have their targets; more than that, these targets are accurate and realistic, providing a real boost to staff morale,” she says.

“The budget process has improved dramatically and our time has been reduced by almost 50%. “That’s not all, when we commence with the first phase of the budget, Xcelerator cascades that data immediately into all the following phases. A picture begins to emerge as soon as any information is introduced. That picture changes as the process is executed, to the point that upon completion, accurate budgets are produced for every link in the value chain.

Those links are not only downstream, she points out, but also up. “On the one hand, accurate budgeting means every sales representative knows what he or she needs to do. Every dealer knows how much they are expected to move into the market in order to qualify for discounts. On the other hand, it feeds back upstream, so the factories have input into their production planning.”

Venketas draws attention to the ‘what-if’ scenario planning offered by the solution. “This is very powerful. We can instantly assess what impact a change in margin or volume will have on performance. Previously, doing this would take hours or even days, involving a manual process; now it is done in seconds. That’s invaluable, especially if we need to adjust margins to drive sales volumes.”

Go back to spreadsheets? “It’s not even comparable. There is so much more in terms of flexibility, insights and features, that it is definitely not an option. We have also learned that Xcelerator can do a lot more than we realised. There is no way you can appreciate this at the start of the project – but once you have seen it in action, the possibilities become clear. What we are achieving with budgeting now, we would never have managed before,” she concludes.