Features, Insight, Opinion

“Digital FP&A systems are essential for manufacturers across the Middle East” – Vibhu Kapoor, Epicor

Vibhu Kapoor, Regional Vice President – Middle East, Africa & India at Epicor, believes that Digital FP&A systems are essential for keeping the region’s manufacturers on the optimum course for long-term financial health.

Manufacturing in Saudi Arabia is expected to be a US$160-billion industry this year, with a CAGR of 2.88% between now and 2028.

Egypt, meanwhile, is set for a value add of US$44 billion by manufacturing in 2024 and a CAGR of 9.29% to 2028. The list goes on of regional manufacturing sectors enjoying sustained periods of growth.

While the economic impetuses for these surges vary, each national industry holds one thing in common: in manufacturing, data is everything. Key performance indicators (KPIs) are integral to every improvement.

The problem lies in the integration of disparate KPIs — production, inventory, finance, and so on — so manufacturers can get a unified view of operations.

These business intelligence (BI) capabilities are commonly found in modern FP&A systems and their insights can greatly enrich decision-making and target-setting across the enterprise. Here, we explore the nine KPIs that are most important to the modern manufacturer.

Unit contribution and profitability

The net revenue attributed to each product or service unit is an important stepping-stone to understanding profitability. Profitability itself can tell the story of the ease with which earnings were accrued over a specific period. Both metrics should be supported by the ideal FP&A solution.

Cost of goods sold (COGS)

COGS is crucial to FP&A because it captures every direct cost — materials, labour, and overheads — in the production process. Tracking and analysis of COGS in real time should be a standard feature in financial software tools like FP&A.

Maintenance costs or manufacturing costs to total expenses

Both of these KPIs assess cost efficiency and allow rapid identification of operational bottlenecks. Tracked over time and compared against past performance or industry standards, they can help decision-makers spot trends, set realistic targets, and craft sensible strategies for cost-effectiveness.

Revenue and profitability growth rate

To allow for a robust financial strategy, Middle East manufacturers should ensure that their FP&A solution can forecast and manage the percentage increase in revenue over a specific period.

Inventory holding and turnover

These KPIs measure sales velocity and their optimisation helps improve cash flow and enhance profitability through effective inventory management — timely production, minimisation of excess stock, and so on.

Liquidity and leverage

These KPIs enable insight into financial health and risk exposure. Liquidity addresses short-term obligations and day-to-day operations.

Leverage monitors reliance on long-term debts. Together they give a view of the business’s ability to manage debt and risk. These are crucial insights in a region that now prioritises sustainability.

Operating cycle and cash-to-cash cycle

The operating cycle is the time between raw-material inputs and the receipt of revenues. The cash-to-cash cycle is the time between paying for raw materials and receiving cash from customers for finished products.

Both KPIs reflect levels of operational effectiveness and liquidity, so manufacturers will endeavour to shorten the cycles because this will mean more efficiency in converting purchased materials into cash.

Operating cash flow and cash flow productivity

Operating cash flow (OCF) is the net generation of cash by core business activities within a specific period, while cash flow productivity measures how efficiently an organisation uses cash to generate value and is often expressed as the ratio of revenue to operating cash flow. Both metrics are extremely useful in assessing financial health and efficiency.

OCF reflects the ability to generate cash from core operations while cash flow productivity provides a comparative measure that monitors how readily revenue can be transformed into OCF. Since shorter cycles are indicative of more efficient cash conversion and working capital management, the streamlining of both is desirable since this will enhance cash flow and lower financing requirements.

The tech behind it all

FP&A platforms are the modern way to establish, monitor, and assess KPIs. Considering the complexity of today’s manufacturing operations, technology solutions offer a way of uniting disparate data sources in a single pane and providing leaders with visually rich, real-time presentations of the business. Data silos are consistently blamed for stagnation in business environments.

The right technology can break down departmental barriers and deliver consistency and accuracy in critical financial information. KPIs are just the beginning. Visualise a heart monitor for the entire value chain sitting on the desks or in the palms of key stakeholders.

Although not strictly BI, FP&A tools’ dashboards help significantly with reporting by offering visual representations of all the key metrics mentioned here. This allows teams to understand complex interconnected data points and trends and make more informed decisions.

Digital FP&A allows companies to handle a range of tasks with greater ease, including budgeting, planning, and forecasting. This leads to more realistic financial goals and more accurate tracking of progress towards their attainment.

Middle East manufacturing is a growth industry, and that means competition. Lots of it. To ensure your company is up to the challenge, digital FP&A is a must. It allows decision makers to see around corners, provided they employ the right KPIs.

To be clear, the KPIs listed here have been around for some time. But digitalisation brings greater accuracy and simplicity in gathering and analysis.

Digital FP&A empowers the finance team to plot the optimum course for long-term financial health.

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