Finance and Accounting

Manufacturing and finance integration: Trends and innovations

Manufacturers are under continuous pressure to improve profits through cost and process optimisation. However, they struggle to get financial information and the impact of processes and resources, especially for day-to-day decisions. It is these small decisions that impact process improvements.

While the manufacturing data is comprehensive and granular, the financial data is far from it. The manufacturers require real-time financial data to make effective operational and process decisions. This article explains the role of finance in manufacturing with a real-world example and trends and benefits of real-time financial data in manufacturing.

Finance and manufacturing integration – A practical example.

An Internet of Things (IoT) sensor detects a performance anomaly and transmits it to the manufacturing operations management (MOM) system. The MOM inspects the other IoT sensors and evaluates that the probability of failure is significant. The team has the following options to choose from –

1. Stop the manufacturing unit for repairs.
2. See if the performance anomaly is due to other reasons.
3. Wait until the last moment before failure to fix the problem.

Each of these decisions comes with a cost of lost production, spare parts, repairs, late deliveries, product quality impact, etc. Decision makers need an efficient financial system to quickly calculate the cost of each option, provide risk assessment, and support the managers in decision-making.

How can real-time financial data support manufacturing?

How can there be a coordination between manufacturing and finance? The following steps would help both parties reach a consensus –

Agreement between both parties

The financial data should come from a system that both manufacturing and finance departments agree on. The finance department must understand that there is no one financial truth. The managerial cost model defines regulatory accounting standards and causality for external and internal finance reporting, respectively.

The cost model must reflect the operational model

The cost model and operational model must not be affected by external financial reporting standards. They must reflect the use of resources and the relationship of consumption with cost.

Information integrity and availability

The managerial cost data should be in integrity, accepted throughout the organisation, and available when needed. This gives the decision-maker confidence in data integrity and lowers the risk of wrong judgements.

A finance model that aligns with manufacturing in real-time is currently not the expertise of many businesses and their teams. This is where Industry 4.0 needs a digital transformation and integration with finance.

Financial management trends and benefits for manufacturing

Manufacturing industries can control costs, achieve sustainable growth, improve profits, and gain a competitive advantage with strategic financial management. Industry 4.0 with cutting-edge technologies stands to benefit immensely through –

1. Automation – Automating routine tasks saves time, reduces errors, and leads to an efficient financial system.
2. Analytics – Advanced data analytics provide insights into the financial health of the business, which helps in better decision-making.
3. Artificial intelligence (AI) – Predict market trends and consumer demand with the help of AI and strategic planning. This helps manage finances better.
4. Cloud computing – Seamlessly store, collaborate and update financial data in real-time with cloud computing.

By aligning the financial management with strategic planning, manufacturing businesses can benefit in the following ways –

1. Accurate resource allocation – Allocate resources to areas that give the highest returns using strategic financial management.
2. Risk mitigation – Protect the manufacturing operations and supply chains from market fluctuations by identifying and handling financial risks, and having mitigation plans in place.
3. Competitive advantage – Quickly respond to market changes and grab new opportunities with financial management and strategic planning to gain a competitive advantage.
4. Align the operations with business goals – Improve the efficiency and effectiveness of the manufacturing process by aligning the financial and operational aspects with long-term goals.
5. Seamless production schedules – Align the production schedule with financial budgets to reduce wastage. This ensures that the funds are available when needed.
6. Sustainable manufacturing operations – Achieve cost savings in the long run, ensure compliance with environmental regulations, and build the brand by incorporating sustainable production. Achieving this is seamless when your operations align with financial data.

How can Infosys BPM help?

Reduce the cost of manufacturing and handle volume spikes using the F&A BPM services by Infosys BPM. Specialised F&A processes for manufacturing include divestiture accounting, deductions management, and channel incentives accounting.

Read more about specialized accounting services at Infosys BPM.