Manufacturing Perspective on Asset Management with Catherine Dacules

Catherine Dacules is an experienced CFO  Because of her experience in different vertical markets, I sought out her perspective on Asset Management in the areas of manufacturing.      

Part 1 of 2

Can you tell us something about your path to becoming a CFO?

I have simply assumed that I was a CFO in training since I was 19.  It all started with an assumption that if I evaluate each case study from an owner’s perspective, then I will see the whole picture and better learn everything there is to learn in a short time.  It was my dedication to the management accounting practice that primed me to the CFO path. Coincidentally, that’s the branch of accounting that really kept my interest going for years on end. I have had my share of interesting and risky assignments. Fraud detection, management, and prevention were common to all of them.  

Catherine Dacules, CPA, CFO 

I would say, having a good pulse and intuition about which part of the operations went awry jumpstarts my assignment in a very positive way. It shortens turnaround time.

Was it something that you have always aspired to become? Not really. The dream that I had nurtured up to the point, where I decided to take up accountancy instead, was to become a child psychiatrist.  Because of this previous path, I approached the accountancy degree with a high level of objectivity, looking at it as more of a technical undertaking than anything else. In so doing, I kept my focus.

In what industries have you worked? The bulk of my experience is credited to my exposure in manufacturing companies with various industries, from garments to cosmetics, oil & gas, shipbuilding, logistics, and construction.  My loyalty lies with my company’s growth and not to any single industry.

Have you worked with life-cycle asset managers?  Typically this function is assumed by project managers. In that respect I have worked with a lot of them in various projects in various industries.

Can you share any of your experiences? During pricing decision-making or review, lifecycle cost considerations are hugely discussed and deliberated typically during brainstorming sessions. It was more of a creative process than a structured, scientifically proven method. Before the advent of ERP systems, getting anywhere near a proper lifecycle product cost review would have been next to impossible. And while a sophisticated way of monitoring costs throughout the manufacturing process is offered by major ERP systems, it’s a different scenario once the product is out in the market especially in the FMCG industry like food and beverage.  In contrast, lifecycle product monitoring is almost mandatory if not the norm for most big ticket project executions in the construction and oil and gas industries. On hindsight, it’s no accident that SAP was first created to serve the energy industry.  

Ideas on how our work affects the balance sheet. The balance sheet just like any other financial statement is only a snapshot, a glimpse in time, an image that reflects a single day out of 365 days of collective management success and failures. And while the age-old belief of keeping costs to a minimum gives most top management a certain level of control and assurance, the same belief will hinder the organic growth of the enterprise. Fear of costs is tantamount to fearing growth. Cost and growth are inseparable in a healthy and growing business. Since lifecycle asset management is more of a risk management approach, a large part of that activity – specifically R&D and aftermarket service or maintenance, is not capitalized and thus charged to period costs.

In manufacturing, both research and development and aftermarket costs fail to satisfy the criteria of specific product assignability within the period being referred to and reported on in the balance sheet. These costs are not inventoriable because they carry no identified real benefits beyond the current reporting period and they are not intrinsic to the product during the manufacturing process (the actual physical transformation and realization of the finished product) like materials, overhead and labor costs.

No specific balance sheet account will indicate with close accuracy whether an instituted lifecycle asset management approach has been working effectively or not.  For example, a dramatic increase in post-sales service and maintenance does not necessarily mean that the product is faulty (translated to poor R&D).  It may only be an effect of a seasonal increase in demand for the functions of that product, thus its breakdown may have resulted to overutilization of performance capacity.  Sometimes an increase in maintenance was a result of a fortuitous event. 

It’s only during massive recalls (in the automotive and pharmaceuticals industry, respectively) where significant losses will be booked and reflected in the balance sheet.  While the common perception in this instance puts the blame on faulty R&D,  poor procurement and supply chain management could equally be as guilty if not more. 

Ideally, an effective product lifecycle management is best measured by market surveys in the short term and translated to actual dollar terms through the increase or decrease of the enterprise’ share market prices over a considerable period of time. Or it could all happen overnight. And that’s the tricky part.

Read Part 2 or click here, http://assetmanagementhc.blogspot.com/2014/11/part-2-manufacturing-perspective-on_28.html