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The Power of Information.

Today's competitive automotive manufacturing market offers little or no price leverage, making cost reduction an instrumental profit-improvement lever. Employing the lever so it improves effectiveness and efficiency, however, demands that companies do things faster and with fewer resources. To improve task cycle time, managers need timely and reliable information to respond confidently to cost-cutting efforts. Management's collective success hinges, therefore, on better decision support, a product of rethinking and re-engineering processes that direct managers on how to best cut costs. General Motors recently focused re-engineering efforts on its business planning process, so the company could improve profitability corporatewide.

In 1998, a GM executive team adopted a strategy of integrated business planning (IBP). The strategy is a common, global process that integrates best practices to produce a more effective and efficient business planning approach corporatewide. To capitalize on the strategy, IBP vision requires: firm targets or commitments; a planning process that is directly linked to business goals and strategies; and a compressed cycle time of only 90 days, from target setting through plan approval.

The GM executive team identified that timely, accurate and focused information was critical to the success of its managers, the implementers of the IBP strategy. The team also recognized that there was no magic bullet for placing critical data in the minds of managers, requiring that they re-engineer how improved decision support communicates the company's strategic vision.

The budget is a manager's best tool. When tailored and focused, it offers managers the direction they need to make the best decisions affecting their area of responsibility. The GM executive team recognized this, too. The team understood change wasn't easy and the wrong change to forecasting and budgeting could be costly. Wisely, its members decided to implement a pilot forecasting and budgeting program in one of the company's manufacturing divisions. Its pragmatism will permit team members to study the effects of change, so derived lessons can one clay help minimize or eliminate any associated risks to integrating changes throughout the global corporation.

In the fall of 1998, GM's Powertrain division began as the pilot program by adopting driver-based forecasting. The executive team and Powertrain designed the program to leverage the IBP process through a driver database that relies on self-correcting statistical equations when forecasting costs. Now, instead of each plant site forecasting hundreds of financial line items, Powertrain focuses on a few critical drivers that impact costs. The resulting mindset allows the manufacturer to centralize its finance function and create value by shifting its focus from consolidating and report generation to effective, timely business analysis. Forecasts can be generated at the division's central office, capturing many of the non-value-added hours once spent on generating hundreds of similar reports at individual sites.

Driver-based forecasting and IBP help Powertrain's finance department focus on what's important, so reliable forecasts can be delivered quickly to those who need the information most. Forecasting similar drivers across homogeneously grouped sites accelerates the generation of statistically accurate, individual plant financial forecasts, giving site managers the reliable information and confidence they need to make better decisions faster. The ripple effect on savings is being realized from cost reductions in the division's finance function, giving Powertrain's finance department the distinction of being efficient, effective and a value-added contributor to the division's operation.

Loren Lang is a manager in the finance department at Powertrain, a $14-billion division of General Motors. Powertrain manufactures all the engines, transmissions and major components for GM cars worldwide.
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Article Details
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Author:Lang, Loren
Publication:Financial Executive
Geographic Code:1USA
Date:Sep 1, 1999
Words:574
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