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How effective are Businesses at Determining Profitability?

Profitability is the name of the game for every business – but interestingly enough, many admitted in our 2014 GMO report that they could not confidently claim to be very effective at determining their profitability at the end of the day. Only 12 percent of respondents happily sited that they were very good at determining their company’s profitability – a dismal number far below what it should be for any of the manufacturing sectors.

The Stats

The percentage of respondents who felt confident that they could very effectively assess profitability:

  • All respondents – 12 percent
  • Aerospace and defense – 12 percent
  • Automotive – 11 percent
  • Conglomerates – 9 percent
  • Consumer products – 14 percent
  • Engineering and industrial products – 12 percent
  • Metals – 14 percent

These figures are very low, with only Consumer Products and Metals respondents exhibiting slightly higher levels of self-assurance. In reality, most sectors instead answered that they only felt that they were somewhat effective over being effective or even very effective at determining their profitability.

Manufacturers who have exposure to the retail side are getting pretty close to real-time pricing and consumer insights, but for those with longer cycle-times – defense, energy and automotive, for example – progress has been much slower,” noted Bruce Rogers, Chief Insight Officer at Forbes Insights. “Even with all the best data in the world, those sectors are going to find it tricky to forecast where the market will be ten years from now.”

The profit and cost analytic practices that respondents deemed their top priorities in the next 12 to 24 months:

  • Dashboard and drill down capability – 34 percent
  • Integrated planning and forecasting applications – 34 percent
  • Statistical and driver-based analysis – 32 percent
  • Scenario and predictive modeling – 31 percent
Many of the strategies that we are seeing being deployed in the market today are focused on breaking down the data and systems barriers within highly siloed matrix organizations to deliver a clearer view of the business,” noted Bruce Rogers, from Forbes Insights. “Technology is really forcing organizations to identify and break down the artificial barriers between their organizational structures.”

Insufficient Data a problem for most businesses to determine profitability

An underlying factor for most businesses’ lack of confidence in their ability to accurately assess profitability is the fact that they are not at the place yet where they can trust the data they are receiving. Data is the foundation off which all analysis can be built, and so it’s not surprising that businesses are hesitant to trust the results if they don’t trust the source.

More than half of our respondents admitted having no data that they would deem ‘highly reliant’; while almost a third reported that they can’t rely on their pricing data and around a quarter say they can’t rely on their profitability data.

KPMG Insight

Jim Scalise, Partner in Management Consulting KPMG in the US and Ralph Canter, Advisory Managing Director KPMG in the US give their insights into the findings from the 2014 GMO report on how effective businesses seem in determining profitability:

What this year’s GMO clearly shows is that manufacturers are investing in new products and new markets. Innovation and collaboration are clear bywords of a trend that – once the impact of new technologies such as 3D printing are overlaid – is adding new complexity to the measurement and understanding of profitability.

Not surprising, then, that respondents say they are trying to use every possible combination of analytics to achieve greater insight and granularity into their profits and costs and, in doing so, create a more reliable version of the truth. Indeed, as manufacturers move into new markets, partner with new suppliers and customers and focus on accelerating their development and R&D life-cycles, sharing data between partners and collaborative networks will be a critical capability.

Information taken from the KPMG 2014 Global Manufacturing Outlook: Performance in the crosshairs report. 

David Okwara

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