Development of an opex benchmark and monthly business reporting at a major FMCG company

Abstract

Currently, Coca-Cola European Partners (CCEP) focuses on its operating expenses as each expenditure should be carried on to sustain/generate revenue. One of CCEP's five business units, the Northern Europe Business Unit (NEBU), consists of five different markets (i.e. BeLux, the Netherlands, Norway, Sweden and Iceland) with different cost structures. OBJECTIVES: The objective of the project is twofold. The first part is the performance of a NEBU opex benchmark to create awareness on the shape of the overall P&L and opex drivers across NEBU. In addition, the project will enable CCEP to compare cost structures among NEBU and provide insights to unlock saving opportunities in the Annual Business Plan (ABP) of 2018 and onwards by leveraging best-in-class approaches, using CCEP its multi-territory Business Unit (BU) set-up. Recommendations will be made and next steps identified. The second part of the exercise is the development and validation of an opex standardized monthly reporting in a slide deck to support the local business and finance team by providing actionable insights to optimize opex. This will enable the company to have a standardized way of reporting on opex across the five NEBU markets. The report should be based on the earlier performed benchmark exercise and stakeholder discussions with the NEBU Finance Leadership. Finally, the opex benchmark and new reporting structure will be presented to the NEBU Finance Leadership team. BENCHMARK CONCLUSION: Our approach is to benchmark opex of the five NEBU markets (BeLux, the Netherlands, Norway, Sweden and Iceland) over three years against each other and the market. Therefore, we familiarised ourselves with software used at CCEP such as BPC and Think Cell. We interviewed key stakeholders, identified focus points, researched academic approaches to manage opex and gained FMCG benchmarking insights for opex through a survey. In 2017, a similar opex benchmark is performed for NEBU, under guidance of Willem Hendrix, which we used as base. Data is gathered, consolidated and analysed. We made recommendations through key takeaways, identified next steps and provided an executive summary for NEBU and its individual markets. We installed a progress tracker to list all our actions and track their progress. This allowed us to report on common basis to the ICP supervisors on our actions and progress. We benchmarked the five NEBU markets against each other. All figures are based on the Annual Business Plan of 2018 and compared to the Pro Forma of 2017. All figures mentioned are P/L totals such as revenue, gross margin and operating profit. Net sales revenue excluding tax is the base of comparison. Specific financial key metrics are targeted such as revenue, full delivered margin and opex relative to business drivers such as unit cases, net sales revenue, full time equivalents and trade marketing expenses. Our biggest contribution to the benchmark study is the increased transparency in opex costs of the Cold Drink Operations department and Global Support Functions to align with and reflect organisational changes. The key takeaways from our benchmark exercise are eightfold. Firstly, NEBU realises moderate operating profit compared to CCEP. Secondly, significant differences exist in the operating profit margins across NEBU so we recommend to leverage the best-in-class performances of BeLux and the Netherlands. Thirdly, the focus should be on revenue excluding Eco & Excise taxes instead of volume as main opex matric to increase comparability. Fourthly, our benchmark demonstrates that opex can make the difference in profitability as NEBU markets have similar FDM (Full Delivered Margin) margins excluding taxes. As Norway and Iceland have the highest opex spend on revenue excluding taxes, both have big opportunities. Nevertheless Iceland should prioritise a COGS and FX focus before focusing too much on opex. Fifthly, BeLux realised the highest net sales revenue excluding taxes per euro invested in working opex for two consecutive years although the trend is decreasing. The same downward trend is visible for Norway and Sweden, and should be closely monitored it is key for investments in working opex to generate additional revenue. Sixthly, Sweden has the lowest Cold Drink Operations opex because of a different equipment strategy. It has a bigger proportion of coolers that have a lower cost of ownership than vendors and coffee. Seventhly, it is remarkable that the local controllable Global Support Function opex per FTE in BeLux is the most expensive for every GSF subdepartment. In addition, we recommend to introduce an allocation key for senior management independent of their home country. Also, the allocation key for central GSF should be reviewed. Finally, it is remarkable that the Netherlands need significantly more FTEs in Sales & Marketing Home and Cold to support Field Sales FTEs. As next steps, we recommend NEBU to implement Iceland in BPC to measure performance and leverage best-in-class approaches of other markets. Opex awareness should be increased through monthly opex reporting. CCEP needs a mentality switch in terms of budgeting by the introduction of zero-based budgeting to build the budget from scratch each year, instead of the current rule of thumb to add or subtract a percentage to the expenses from previous year. We also recommend to evolve to a cash view and introduce Earnings Before Interests, Taxes (and Depreciation & Amortisation) metrics. Finally, as a follow-up project, we suggest to look to the FTE structure in each country and compare which roles are not existing. This might reveal considerable saving opportunities. REPORTING CONCLUSION: Our approach is to hold stakeholder discussions and organise brainstorm sessions to agree on the reporting structure and which information to include. Data is gathered, variance waterfalls are created, metrics and FTEs calculated. The look-and-feel of the slide deck is extensively discussed to lower the threshold for key stakeholders without a finance background. As a result, our standardised reporting will enable opex controllers to quantify and qualify opex results, make the reader aware of what is going on, and allow a standardised way to talk to stakeholders. We developed an opex report for BeLux, as proof-of-concept, before rolling it out to the other NEBU markets. The result is presented to the Finance Leadership team, including all NEBU key stakeholders to discuss its potential roll-out. The slide deck consists of three sections. Firstly, we discuss the monthly opex evolution on NEBU level to indicate where BeLux is situated in terms of variances between the budget and the outlook. Secondly, we zoom in on BeLux opex and subsequently take a department view. A heatmap is created to give immediately point out overspend per department and cost category. The set-up of a responsibility matrix assures that VPs are held responsible for their opex category and informs stakeholders whom they need to address if more information is required. To simplify the monthly reporting, we spent effort to consolidate excel tabs and minimised the amount of cells to update. A handover manual is provided to the client. In addition, we built the bridge to CCEP's online reporting tool Tableau, through hyperlinks with pre-set department views, to educate stakeholders how to use the tool. As next steps, the BeLux opex reporting deck will be replicated for the next period (i.e. 5+7) and rolled out to the other NEBU markets. The opex controllers will get training how to update the monthly report. We recommend the creation of a monthly NEBU report that consolidates the opex reports of the five NEBU markets. Finally, pre-set links to the FTEs on Tableau per department can be still added.