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How CFO Andrea Freedman helped overhaul the planning process at Method Products.
Kate O'Sullivan, CFO.com | US
November 17, 2010
Method Products, a San Francisco-based maker of environmentally friendly home and personal cleaning products, has enjoyed years of healthy growth, becoming a $100 million, 100-person company since its founding in 2000. But in the rush to success, some basic planning was overlooked.
"We have departments of people who are very capable and smart, but we never really stopped to define the linkages between departments," says finance chief Andrea Freedman. Faulty communication between departments sometimes resulted in salespeople left without the samples they needed to go on calls, for example, or missed target dates for product launches. "There was often a feeling of scrambling, without the kind of collaboration you needed to get things done," says Freedman.
Now, as the privately held company approaches its 10th birthday in a market that has become crowded with competitors and pressured by increasingly price-sensitive consumers, Freedman and her team are entering the planning season with a newly developed, more formal process. "The recession gave us the motivation," she says. "But the overall planning process is more of a life-stage issue. We just said, 'Isn't it about time that we have a better process?'"
Improving the process began in late 2008, when the company moved two staffers who focus on demand planning from the operations group into the finance department. "Because of the recession, we wanted to get greater visibility into the supply-chain forecast," says Freedman. "We saw huge benefits from that." By strengthening communication between the operational staff and the finance group, the company was able to reduce inventory costs by 36% from the prior year.
The finance staff also began performing its monthly sales review and forecast a week earlier than it had in the past. "Usually, we would wait for the month to close, report revenues, and start analyzing the hits and misses. But we realized we could give a revenue preview in the last week of the month and buy ourselves another seven days to react," says Freedman.
With these two small changes yielding big benefits, CEO Drew Fraser encouraged the finance chief to find other ways to improve planning throughout the company. "We believed that a little bit more planning and process would lead to better execution, a little more breathing room, and a lot less stress, as well as a better ability to hit our plan across the business," says Freedman.
A 10-person cross-functional team that included the Fraser and Freedman began to meet twice monthly to review the company's core processes. The team identified six key activities, including supply-chain planning and product development, and divided them into discrete steps. They also determined which staffers should be involved in each step and agreed on critical deadlines.
One activity the team scrutinized was the annual customer business planning process. Historically, the company had devised a business-development plan each year that outlined goals to reach with each of Method's customers. While the sales staff was involved, "there were always a lot of top-down, last-minute changes that were made," says Freedman. To smooth the process, the team began by defining the key elements of a customer business plan, agreeing that it had to include a set of strategic goals, a marketing plan, and a financial plan. Then they turned to the sales department and asked what was missing.
"Sales said, 'We need all of this stuff by a certain date, and we need samples,'" says Freedman. The planning team made note of the deadlines and shared the new dates with those responsible for providing samples. "If our first-half business plan is to get into x number of new doors, we need to give sales enough lead time with the information and materials they need to do that," says Freedman.
While those directly involved in the planning overhaul have been energized by the project, instituting more structure in a company that takes great pride in its entrepreneurial culture has proved something of a challenge. "There are a lot of creative types in every department, and we all bristle at the idea of more process and policy," says Freedman. To boost acceptance of the new approach, all of the details about each newly defined process must fit on a single sheet of paper, including the personnel involved and the critical deadlines.
The project is already showing results as Method begins its 2011 planning. Now, staffers throughout the company share an understanding of its key processes and a language to describe them. "Planning this year has been amazing," says Freedman. "Instead of finance trying to chase people down at the last minute to build in assumptions about things, there has been an impressive amount of information shared."