Marico Aligns Expenses to Budget Allocation with Financial Planning Software

Which would gladden the hearts of the folk at Marico, unless you were part of a budgeting exercise.  Planning budget for production on that scale was a humungous task. At Marico, budgeting yearly expenses  - like how much to set aside for its trademark blue plastic bottles - was a three-month exercise - and  potentially a huge waste of time if the company couldn't stick to numbers it promised to spend. But how do  you ensure you stay within budget when the price of your raw materials fluctuates?

It's a question the Rs 2,660-crore company needed answers to fast.

Slippery Data

As a major FMCG player, Marico has seen growth rates of over 25 percent in the last year. Still, it wanted to do better and there was certainly room to grow. The Indian FMCG market is currently estimated at around Rs 192,600 crore  about $ 42.8 billion), according to the Associated Chambers of Commerce and Industry of India (ASSOCHAM). And it's poised to touch about Rs 333,000 crore (a growth of 1.7 times) by 2018, says a FICCITechnopak report.

To keep up with that growth, Marico needed to run a tight ship. Which meant that if it penciled in a number for its  expenses at the start of the year, it needed to stick to it. Key to doing that was watching its COGS: the cost of goods sold. Also referred to as cost of sales, COGS is what it costs a company to produce goods, including material and direct labor costs. But monitoring COGS for a month's worth of Parachute, for example, is hard because it depends on the cost of raw materials and packaging, which are volatile.

"The cost of packaging, for instance, is dependant on the cost of petrol, because Parachute is packaged in PET bottles," says Girish Rao, Head-IT, Marico Industries What made it harder was that the company used an Excelbased approach. Collating all the different costs that goes into a final product data - from the cost of oil to the cost of PET bottles - from multiple stakeholders was hard and inaccurate work. As a result, the company didn't have an expenses-vs-budget check as frequently as it wanted. "It was an ad hoc exercise - about once every quarter - and it only gave us a ballpark figure, which didn't help much in course correction," says Rao.

The company also wanted an easier way to manage detailed calculations and comparisons of the cost effectiveness of  individual plants  at the subcontractor level. "As we grew in scale, the number of subsidiaries increased and subsequently the data load became unmanageable," recalls Rao.

That's a feeling that Ravin Mody, headtreasury and direct taxes, International Business Group, Marico, echoes. "Trying to consolidate the financials of 11 companies across six countries in three different ERP systems is nothing short of a nightmare on spreadsheets."

Oiling the Wheels

This is when Rao and his IT team launched Project Edge, their bid to redefine Marico's financial performance management. If they could get a more frequent and more accurate picture of monthly production costs, it could course correct and stay within a yearly budget. They set off by trying to understand the company's budgeting and reporting process in a three-day, in-house workshop. That confirmed a hunch they had: Marico's budgeting process was structured, but it was largely manual.

That made no sense to them, especially because IT solutions for financial planning management (FPM) had evolved over the years and were well-tuned to fit the needs of most organizations. So they got a core user team to evaluate four leading products in the space and select one that best suited their needs and had a reasonable TCO.

Post-selection they implemented the solution in an incremental manner, which took about five months, says Rao. He says that they did not face any issues in integrating the tool with their ERP system. Between December 2008 to March 2009, Marico's yearly budgeting period, Rao ran the legacy budgeting process and the new reporting tool in parallel. By the start of the next financial year, in March 2010, budgeting was performed entirely on the new tool, Rao says. Quicker data turnaround time from using the tool meant that various departments spent less time on mundane tasks like data entry and ensured that information was more consistent.

The solution covers eight global subsidiaries and supports between 25 and 30 key number crunchers. "All decision-makers will not use it but they certainly depend on the analysis brought out by people who do," says Rao. The bill of materials was also configured into the planning system. This removed the need to move out of the reporting system for a COGS calculation.

Raw material and packing material costs were also integrated into the reporting system. These features ensured that they were running operations based on up-to-date monthly numbers. As a result, the company spent 8 percent less than it estimated it would in 2009-2010. In comparison, in the previous financial year, it overshot its budget by about three percent. "This would not have been possible without an efficient enabling tool like Cognos," says Rao.

Also, as an organization with global operations, currency exchange rates had a major impact not only on  planning numbers but also on the actual reported numbers. Earlier, these exchange rates were forecasted but now with the reporting tool, more up-to-date numbers are introduced in the planning and reporting system, creating a more accurate financial picture. This also gave global locations the flexibility to prepare their financials in their local currency and when the reports went to India, they would automatically be converted in INR.

The tool also helped automate the initial creation of templates. Users no longer have to waste time thinking what format to enter the data in. "Design level work is already taken care of by the tool. And report creation is also automated," says Rao. He adds that the tool was flexible enough to keep pace with changing consumer demands, was low-maintenance and enabled quality analysis. All of which went a long way in getting people to move to the new tool, a challenge Rao expected.

What also helped was generating different views of the same data in the tool itself so that people using it could see it in a way they wanted. It also gave them upload options so they could directly port data from spreadsheets. "Because the front-end  as very similar to the spreadsheets, users were not distracted by the fact that they are using something entirely different," says Rao.

Moreover, thanks to in-memory analysis options available at the back-end, what-if analysis and slicing and dicing of data can be done more easily. "We see significant reductions in the duplication of work as well as reconciliation efforts thereby enabling faster group level reporting," says Pawan Agarwal, head-corporate MIS and accounts, Marico. The lead time for releasing a budget has also been reduced from five days to four hours.

Slick Planning

Rao isn't resting on his laurels. "This year is the second phase of the implementation and we will include non-financial data in the planning and forecasting system," he says. They have already started tracking their budgeted expense versus their actual expenses where 'actuals' are drawn from the ERP. Getting this reality check on its planned vs. actual expenses is also helping monitor profitability.

Fluctuating raw ingredient prices is a challenge most FMCG companies face. Yet, at the consumer end, prices have to remain steady given the price-sensitive nature of their markets. Britannia, for example, has kept the price of its Tiger biscuits steady for years, despite the rising cost of raw ingredients like sugar. At Marico, refusing to change the price of its flagship product, Parachute, for instance, was important to the company, but it still needed to know how much it was absorbing.

"In today's environment of volatility, it is critical to have a robust planning and review system which improves the speed and quality of decision making. Project Edge enables us to do both", says Milind Sarwate, chief of finance, HR and strategy, Marico. It can also measure whether there is a disproportionate allocation of resources in any particular area and also whether these expenses can actually be reduced or adapted to the company's current condition.

Good news for a company that consumes one out of every 15 coconuts grown in India.

The Person Behind It

Girish Rao

Head IT, Marico Industries

Getting a reality check of our expenses was an ad hoc exercise — about once every quarter — and it only gave us a ballpark fi gure, which didn’t help in course correction