Senior finance executives at discrete manufacturing firms around the world are experiencing greater price volatility to the detriment of their business performance, according to the new study An Uncertain Forecast: Managing the Cost of Goods Sold (COGS) amid Volatile Commodity and Energy Markets by CFO Research Services (underwritten by Genpact). The full report on this study is available for download on the CFO Research site.
The vast majority of respondents to the CFO Research survey (81%) say their companies are experiencing more commodity-price volatility now than they have in the past. That volatility is having a substantial effect on earnings at many companies: nearly one-quarter of respondents (24%) say that commodity-price volatility has eroded their companies' earnings before interest and taxes (EBIT) by more than 50 basis points over the past 12 months. Furthermore, a majority of respondents report that commodity-price volatility has had a negative effect on their companies' share price during the past year.
Most finance executives seem to hold out little hope for change in the foreseeable future. A majority of survey respondents (53%) say they expect commodity-price volatility will negatively impact their companies' performance over the next year; 44% of respondents expect that price volatility will have a negative effect on their companies' share price over the next 12 months.
"Clearly, finance executives are now thinking about ways they can better manage the impact of volatile commodity markets on their companies' performance," notes David Owens, Director of Research at CFO Research Services. "In this kind of uncertain economy, it's not enough to be 'good enough' anymore."
Key findings from the study
Few finance executives are completely confident in their processes and systems for forecasting input-cost variability and its impact on the cost of goods sold (COGS). Overall, 90% of survey respondents say they are looking to improve their companies' ability to manage the effects of price volatility on COGS.
Finance executives are less confident in their ability to forecast COGS for small product lines and market segments (compared to large product lines and segments). Less than half of the respondents (47%) say their companies are able to calculate the effects of volatility on COGS for their smaller product lines as quickly, accurately, or efficiently as they should. Even fewer (42%) say their companies' processes and systems for forecasting COGS for smaller markets are better than simply adequate.
Finance executives identify forecasting as a key area for improvement. Presented with a wide range of possible improvements, survey respondents most often say that improving their ability to estimate future commodity-price fluctuations would be helpful (54%).
About the survey
CFO Research Services received responses from 180 senior finance executives at discrete manufacturing companies around the world. Company revenues ranged from US$100 million to more than US$5 billion. The online survey was completed in December 2011. The full report on this study is available for download at www.cfo.com/research.
About CFO Research Services: CFO Publishing LLC, a portfolio company of Seguin Partners, is the leading business-to-business media brand focused on the information needs of senior finance executives. The business consists of CFO magazine, CFO.com, CFO Research Services, and CFO Conferences. CFO Publishingıs award-winning editorial content and loyal, influential audience make it a valued resource for its readers as well as an effective marketing partner for a wide range of blue-chip companies. CFO Publishing has long-standing relationships with more than 500,000 finance executives. For more information, please visit www.cfo.com.
About Genpact:Genpact Limited (NYSE: G), a global leader in business process and technology management services, leverages the power of smarter processes, smarter analytics and smarter technology to help its clients drive intelligence across the enterprise. Genpactıs Smart Enterprise Processes (SEPSM) framework, its unique science of process combined with deep domain expertise in multiple industry verticals, leads to superior business outcomes. Genpactıs Smart Decision Services deliver valuable business insights to its clients through targeted analytics, reengineering expertise, and advanced risk management. Making technology more intelligent by embedding it with process and data insights, Genpact also offers a wide range of technology services. Driven by a passion for process innovation and operational excellence built on its Lean and Six Sigma DNA and the legacy of serving GE for more than 14 years, the companyıs 55,000+ professionals around the globe deliver services to its more than 600 clients from a network of 57 delivery centers across 16 countries supporting more than 25 languages. For more information, visit www.genpact.com. Follow Genpact on Twitter, Facebook, and LinkedIn.
CFO Publishing LLC
Gail Ferrari Marold
Asst. VP, Public Relations