Dose-Consult

FiC - Figures in Context

With FiC you can identify and realise value creation potentials within your company

With FiC you can improve profitability and efficiency significantly

With FiC you will improve the success of your company

"Figures in Context" is a holistic approach. Finance and Controlling is covering the whole value chain of the company, takes all relationships and dependencies into account when analysing figures and proposing solutions for further optimisation. It is just the opposite of silo thinking!

practical examples:

Managing FX-Risks properly

The Company is operating on an international basis. The headquarter is based in Germany (Euro-country). To protect itself against currency risks it is a tradition to issue all invoices in Euro.

About 30% of revenues were done with customers who were US-$ based, directly or indirectly.

About 35% of cost of sales were US-$-based, directly or indirectly.

comment:

They were not avoiding the existing currency risk; they were just shifting it to their customers. By this they created an even higher currency risk exposure as they had no control hoiw their customers were dealing the currency risk.

In this case the real cheallenge was to determine the indirect US-$ dependency, as this can either be related to the country of the customer itself or the customer as being part of a bigger group.

Criterias to determine the risk exposure are (i) currency of invoice, (ii) country of vendor, (iii) affiliation to any international group.

In addition there are specifiv raw materials, where price quotation is predominantely done in US-$, e.g. oil, specific metals or agricultural commodities. This has als to be considered.

How tp proceed? Step by Step:

Collecting data on the procurement side and on the sales side. A very sensitive communication is crucial for success as our experience shows that a lot of employees are not aware of indirect dependencies to foreign currencies. Either they are not recognizing them or they see them as inevitable. "That's the way how it is!"
Data analysis, in particular cyclicality, volatility, cluster risks or other obvious patterns.
Development of recommendations, which are situational driven. Here we have to consider the size of the company and any special situation the company might face. An actionable plan with a portion of hands on-mentality is more worth than any unrealistic super-plan.
Implemetation by involving all participants who are effected. In a joint effort we were identifying the customers and/or vendors where we wanted to switch the currency from Euro to US-$. In addition we deliver a guidebook for communication and may also offer dircet support for any communication to customers and vendors.
Securing the results by implemting a simple analytical tool, where we can asses the currency risk position of the company on a semi-annual basis.

In the present case we were able to reduce the inherent currency risk by 50%. We implemented a natural hedge, which does not create any additional cost. - Our hands on-approach was crucial for realising this success.

Establishing a New Incentive System for all Sales Teams

The relationship to customers and vendors is based on master agreements. Besides others they define the prices; it is common in this industry that there are no volume commitments. Customers can use the service at any time without any pre-notification.

Sales teams are getting money incentives. By signing the contract their bonus becomes due. The bonus is staggered (small, medium, high). It is sales, who classify the potential customers at a very early stage.

The amount of large new customers was very much behind the expectation of management. Main root cause, which was commonly accepted, was that the service provided was not exactly matching the expectations of large customers.

While onboarding new customers a lot of issues popped up. The complain rate was not acceptable.

And in addition the expected ramp up of new customers did not always happen. An significant portion of new customers never ramped up.

comment:

An existing contract is fundamantal for delivering services to the customer. A real challenge is to forecast expected revenues as within this industry volume commitments are not common. It is the customer who is the only one to determine whether he wants to get the service from the company or from any competitor.

The bonus becomes due by signing the contract. At this point in time nobody can seriously predict timing and volume of future revenues with this customer.

Problem 1: Contract negotiations with large new customers take much longer and are more complex compared to negotiations with smaller customers. Thus, sales people avoid a personal cluster risk and go for smaller customers: faster, easier and lower risks. - This was not in line with the intention of the company..

Problem 2: The bonus mechanism is an incentive for negotiating on the surface. The signature was the important trigger. So technical details were neglected and critical aspects were avoided. This was the root cause for a lot of complains during the onboarding phase.

Problem 3: The bonus amount was completely decoupled from the benefit the company was able to realize with this new customer. There was no link between bonus and contribution margin, generated from the new customer.

How tp proceed? Step by Step:

Adjusting the incentive system. Signing of a contract still remains as trigger for a bonus. The way how a bonus will be calculated shifted significantly. It was no longer a classification of the customer at a very early stage (unpredictable); it was now based on the contribution magin which will be realized with this customer within the first 6 months. To create an acceptance for this programm on the sales side we added a partial upfront bonus at the time of signing the contract.
6 months after go-live Finance was calculating the contribution margin, which was realized with this new customer. The bonus for sales people was a fixed percentage of this 6-month contribution margin.
Finance was delivering the data on a monthly basis. The upfront bonus, which was paid at signing, was already deducted.
Transparancy on the calculation was the basis for trust. .

In this case we were able to reduce the number of new customers without any or without any significant contribution margin within the first 6 months by 80%.

Now onboarding of new customers was happening 30% faster than before and with less complains.

In addiiton the number of large new customers, who are of strategic importance, increased to a share of 35% of all. Sales people perceived the new system as more fair.

Crucial for the success was (i) the simplicity of the process, (ii) transparency of data and (iii) delivering the calculation by Finance as a third neutral party without any own interest.

These are just two examples, which make very clear that the concept of FiC is able to increase efficiency and profitability. It is covering all aspects of the value chain. It is a shift in mindset.