In an exclusive interaction with Adlin Pertishya Jebaraj, correspondent of Finance Outlook Magazine, Naveen Bhadada, CFO at SUGAR Cosmetics, offers meaningful insights into how finance transformation, data-driven decision making and digital innovation are shifting the landscape of FMCG and cosmetics deals. He further discusses the shifts to e-commerce, forecasting through AI capabilities, and sustainable growth. 

Naveen Bhadada's expertise includes financial strategy, commercial finance, budgeting & planning and trade spend management from FMCG and cosmetics contexts. He is skillful in driving operational performance, delivering actionable business insights. He has held financial leadership roles at SUGAR Cosmetics and leading brands, including L'Oréal, Nivea, Pepsi, and Colgate, focusing on business insights and process improvements and strategic financial leadership. 

How do you see the current trends in the FMCG and cosmetics industries, especially in emerging financial markets? 

Most of the category growth is being rooted through digital and direct expansion, especially in Asia and the Latin America region with the use of e-commerce, direct-to-consumer and social commerce emerging as a primary growth driver. Meanwhile, consumer behavior is performing in both directions, as the demand for premium products with beauty and wellness is increasing, but the value-based proposals remain to be vital, and companies require multi-level portfolios.  

Furthermore, sustainability and transparency are gaining more importance with consumers adopting clean, ethical, and environmentally friendly products, and authentic sustainability is a business factor that builds trust. Product innovation, targeted marketing and supply chain forecasting are also being transformed by artificial intelligence. But at the same time, there are rising cost pressures caused by input inflation, volatile foreign exchange, and logistics, driving producers to move operations locally, and have done away with complicated SKU strategies. The emerging market dynamics are fueling its demand as it is with increasing urban income and mass use of the digital platform.  

The availability of capital is on the rise although foreign exchange and regulatory risks are prevalent. It is the companies that do well through local products, pricing and distribution schemes. Among finance leaders, the main priorities should include the stress-testing of foreign exchange and liquidity positions, the optimization of working capital and pricing based on the channel mix, investments into data analytics, e-commerce, and reputable ESG monitoring, and the discussion of the merger and acquisition in local digital or niche brands. 

How can zero-based budgeting (ZBB) or cost-to-serve (CTS) analysis enhance operational efficiency in FMCG/cosmetics organizations? 

FMCG and cosmetics are trading on thin margins, high levels of SKU, and volatile input costs. Local incremental budgeting is known to mask inefficiencies and cross-subsidies. ZBB and Cost-to-Serve (CTS) are effective tools that are applied contrite in order to regain transparency and promote sustainable cost productivity. 

Zero-Based Budgeting (ZBB) repaint the idea of spend discipline moving the shift of entitlement to accountability and every cost must be justified to zero and there are no costs that are built up with time (say costs, car make-up). It gives functional visibility, which illustrates unnecessary trade spends, duplication of promotions and exaggerated overheads. Agility to reinvestment is also made possible by ZBB since the savings may be reinvested back in digital marketing, innovation and e-commerce capabilities which provide the highest ROI. As an example, numerous of the FMCG majors have eliminated the indirect costs by 10-20 percent but have enhanced marketing ROI due to reallocation based on ZBB. 

Additionally, cost-to-servers (CTS) offers accuracy in profitability by offering a very fine layer of understanding of the cost per item, channel or customer and includes logistics, terms of trade, warehousing as well as returns. It facilitates SKU rationalization where it can detect unprofitable SKUs or channels that dissipate margins and allows informed pricing, promotional design where it can be used to make data-driven trade terms and discount pyramids based on real profitability. One example is the case of cosmetic firms pricing underperforming SKUs or quitting unprofitable e-commerce distribution without foregoing volume, with the help of CTS. Together, ZBB regulates the amount of money to be spent, whereas CTS elucidates the location of value-generation.  

These frameworks combine the pumps of reducing cost to strategic cost management, investing to grow organizations, and assuring profit margins. Boards are advised to institutionalize ZBB cycles in SG&A and in marketing, they are also expected to incorporate CTS in commercial dashboards of products and channels P&L views and tie both frameworks to incentive mechanisms and budget control. 

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How do you ensure financial systems are effectively integrated across an omnichannel operation, including an online or physical retail platform? 

Financial visibility is likely to become fractured as FMCG and cosmetics firms expand in pure online, offline, and D2C strategies. Real-time profitability insight, working capital control and the seamless customer experience are critical and must be built on integrated systems. 

Unifying the data and processes infrastructure, bringing the sales, inventory, and financial information together to a single ERP or data lake environment is extremely important to establish a single source of truth. The systems should have standardized charts of accounts and master data to make sure that SKUs, customers, and channels are aligned between systems so that it can be reliable and feature accurate consolidation and analytics. Real-time Data flow on APIs or middleware between POS, e-commerce, distributor and ERP platform would enable POS to send and get data without manually facilitating the transactions. 

Operations in an omnichannel should become a part of the basic financial procedures. Digital payment gateways, returns and redemptions of loyalty should be mapped into accounting systems with order-to-cash processes. The systems of inventory and costing need to support cross channel visibility and dynamic allocation of costs in order to carry the real cost-to-serve. To stay on the right track, policies regarding the recognition of revenues, including online, or offline transactions such as discounts, or bundles as well as the commission, must be automated. 

It is essential to have a tight control and governance system with unified dashboards displaying margin by channel, product, and customer, automatic audit trails, system logs which could be used to oversee internal control over financial reporting. The management of change must coordinate the commercial, supply chain, and finance departments in terms of data ownership and accountability. 

Integration tools like Mule Soft, Boomi, or Azure Data factory enable multi-channel integration and automation to be supported by technology enablers, such as cloud ERPs (SAP S/4 HANA, Oracle Fusion), and integration tools, e.g., Mule Soft. State-of-the-art analytics systems, such as Power casualties or Tableau are used to give forecasted information in the field of customer and product success. Some of the success factors include executive sponsorship by the CFO and CIO, establishment of a clear set of data governance, standardization of processes prior to eliminating them through automation, and constant monitoring of the system. 

What are the most significant challenges cosmetics firms faces in managing global supply chains? 

 Cosmetics supply chains are very complex as they involve a number of raw materials, a variety of products, strict regulatory regulations and rapid consumer demands. Raw material and input prices are volatile, particularly of specialty items such as fragrances, natural extracts and packaging resins, and this results in firms being extremely sensitive to commodity and foreign exchange volatility, undermining the predictability of margins and requiring hedging or multi-year sourcing agreements. Regulatory and compliance is different by budding and often changing different geographies and increasing the cost and documentation load on clean beauty and sustainability requirements. 

The necessity to forecast the demand is also difficult due to the volatility in consumer preferences and the launch of seasonally related products that may result in excess products or stock outs, thereby destroying the working capital efficiency. Multi-level supplier and contract manufacturer dependencies make quality and time schedules hard to see and manage, as seen during geopolitical and pandemic crises.  

The global operations are further complicated by logistics and distribution bottlenecks such as increasing freight costs, delays in the customs, and transport needs that are specialized. Sustainability and traceability risks and pressures will demand end-to-end digital systems in the form of transparency around ingredient sourcing, carbon footprint, and the use of recyclable packaging. Also, the used ERPs and isolated planning tools negatively impact the ability to gain real-time visibility, and the integration of the demand and inventory planning data alongside the financial data is extremely essential to agile decision-making. 

Diversification of sources and sourcing Near-sourcing important suppliers, as well as investing in holistic digital supply-chain visibility investments, incorporating metrics of sustainability into procurement and logistics key performance indicators, investing in stronger scenario planning and S&OP controls, and leveraging financial hedges and dynamic pricing to safeguard margins. 

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What will be the future of financial functions in FMCG and cosmetics in the next ten years? 

The role of finance is moving towards being a strategic facilitator to growth rather than being a position of reporting and control. In FMCG and cosmetics, where competitiveness is characterized by speed, innovation, consumer insight, the core purpose of the finance function will be to become data-driven, predictive and value-creating. The new operating model will revolve around digital finance, whereby AI and automation perform more than 70 percent of transaction flows, such as forecasting, reconciliations, and reporting. The finance departments will be working with real-time data platforms, where sales, marketing, and supply chain measurements will be overcome to take critical decisions in real-time.  

Finance will develop into more of a value office, and the CFOs will become Chief Value Officers connecting capital allocation directly to brand, channel, and sustainability performance. Growth analytics will fall in the ownership of finance, which would correlate media ROI and trade spend efficiency and cost-to-serve by omnichannel ecosystems. The distribution of capital will be enhanced with innovation pods, online trading and projects related to the sphere of ESG. The insights (predicted and prescriptive) will be in the form of machine learning that is capable of forecasting the P&L functions, cash flow based on SKUs or market-levels and scenario modelling that informs pricing and promotional investments and supply chain resilience.  

ESG and impact finance will become a part of the financial structure, and the Finance teams will be mixed with analysts, technologists, and business partners with new positions such as Data Translator, Finance Automation Lead, and Sustainability Controller. The increase in ecosystem collaboration through finance will organize end to end value networks and work with fintechs and AI to recreate speed, precision, and insight creation. 

How is finance transformation connecting with wider business strategies like market growth, sustainability, and profit? 

The transformation of the finance part has become one of facilitating profitable growth, strategically rapidity, and sustainable value creation, not only by digitalizing the reports. To grow markets, sales, marketing and supply chain measures are combined on integrated data platforms to provide the finance with real time understanding of category and channel performance.  

Predictive analytics help to find new excelling markets, profitable product categories, and effective promotional levers, making them invest more wisely, have expedited go-to-market, and increased ROI on their trade and marketing investments. 

Finance incorporates ESG performance indicators into the performance dashboards and investment decision-making, and using the long-term costs and regulatory risks reduction as a profit hamstring, makes sustainability a profit-generating concept. To be profitable, automobiles and AI simplify planning, forecasts, and reporting as well as leave the finance to contemplate scenario planning, as well as, hedges the margins.  

The sophisticated mechanisms such as ZBB and CTS connect the business and operational choices to actual profitability and provide an augmented operating leverage and prolonged rise in profitability. Strategic alignment provides transparency in terms of generating financial and non-financial results to support business decisions, with reports approaching CFOs as co-pilots to guide investments, sustainability trade-offs, and accelerating digital effort. 

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How has finance transformation changed the focus of finance from transaction-based efficiency to business activation? 

Traditional finance was all about control, compliance, and cost efficiency where KPIs revolved around productivity ratios such as cost per transaction, close cycle time and headcount efficiency. Manual and retrospective operations were the order of the day whereby book close, account reconciliation was carried out and past occurrences were reported.  

Financial transformation enabled by automation using RPA, AI, and standard ERP integration is undergoing transactional work; this results in liberation of capacity of high-value activity. The concept of finance has been integrated into the business units, it dictates pricing, channel mix and the investment in innovation. 

Within the critical changes, there is a shift to a mode of influencing performance, as opposed to recording performance, a mode of value catalyst, as opposed to cost center, and a mode of real-time intervention, as opposed to monthly reporting. Online also emerges goals of end to end Data movement through ERP, CRM, and supply chain systems. Strategic recommendations are directed through advanced analytics, predictive models and scenario tools, and finance is a co-pilot to commercial, supply chain, and marketing teams. Performance governance directly associates (performance) KPIs with financial performance.  

The impact on the business will include smarter capital deployment, a quicker decision-making process, enhanced monetary effectiveness by means of ongoing observation, and cultural change in which finance is regarded as an advisor of a strategy as opposed to a conservative of compliance.