The Right Blend of EVA: Consultant Editor's View

The Fruttagel case reiterates the importance of having a common language that bridges the relatively distant worlds of finance and supply chain. Indeed, the ability of corporate managers to build metrics that reflect the impact of operational decisions on financial performance is the starting point. This case tells us it is not the only one, though.

To accomplish a successful initiative, true value resides almost entirely in corporate managers’ ability to build the sub-metrics representing the ramifications of the initial top KPIs, and have them ripple down throughout the entire organisation. This truly provides an ‘operations vs. finance’ gauge reference for those more involved in daily operative tasks (e.g. warehousing, production, shipping, material handling, planning).

Indeed, market research, and this particular case confirms that the higher-level and more synthetic metrics used by senior management must be broken down into detailed and operational KPIs that set the pace of daily company supply chain business processes.

One lesson learned from the Fruttagel case is that the bridge constructed between operations and finance to close the language gap moved from the operational side. This has given confidence to non-financial people to ‘play’ and test the model in all its aspects. Perhaps this has taken a longer journey to fully launch the project, but it has certainly proven successful and could be a good practice for those companies planning to deploy similar initiatives.

Another key takeaway is Fruttagel’s decision to move its first steps using a consolidated and de facto standard reference model: the EVA. This goes to the merit especially of the consulting body Aprile, who refrained from proposing a proprietary model in favour of a tool that can be scalable and replicable in other areas of its client’s supply chain (e.g. suppliers).

As we read from the article, EVA’s role was to create awareness and common knowledge sharing within the project and with the other company users at large. One of the most significant lessons from this phase comes from observing that the project members worked intensively to identify and select data that was well understood by the company users. The EVA model guidelines have therefore been deployed according to the company’s specifics within a very familiar context to Fruttagel people. Once again, although this selection process must have certainly prolonged the schedule of the implementation plan, it is now possible to develop the project change in a transformational and evolutionary, rather than revolutionary, approach. No one company under the current economic distress can afford a big-bang change.

It becomes evident, by reading how the lifecycle of a project was developed, that the acquaintance with the EVA principles and the initial successes lead Fruttagel to decide on a subsequent, and strategically very relevant, step. Not only did it assess and measure the impact of current operations on its financial results with an EVAbased model, but proactively decided to move further in the construction of the CVA model so that, using the same logic, the CVA has proven instrumental to map the impact of operational investments on the financial “to-be” results.

In a dynamically changing market sector with such tight margins and scarce credit lending by financial institutions, the ability to prioritise capital investments by correlating the expected performing operations with the requested financial coverage gives a significant competitive edge.

The relatively short time in which Fruttagel acquired the necessary confidence not only to handle an EVA-based model but, moreover, to create a brand new CVA-based tool, represents the most significant aspect of this evolutionary process.

Enrico Camerinelli is a senior banking analyst at Celent.