Editor’s note: This article is part of “A Year of Evolution: CFOs on 2021” series featuring insights from finance leaders across industries, and their COVID-19 lessons and 2021 plans. To receive weekly updates on this series, sign up for our CGMA Advantage newsletter.
Indonesia was the second-largest maker of motor vehicles within the Association of Southeast Asian Nations (ASEAN) region last year, producing a total of 1.28 million units. But the coronavirus pandemic has resulted in an acute contraction of the industry in the country. Car sales dived 90% year-on-year in April 2020, the worst decline in decades, according to the Association of Indonesian Automakers in a media report.
Indoprima Group, a leading independent automotive parts manufacturer and distributor in Indonesia for motor vehicle makers such as Mitsubishi and Toyota, feels the impact of weakened demand for auto vehicles. Unlike food, household consumer goods, and medicine, auto vehicles are considered nonessential, and consumers may delay or forgo such big-ticket purchases in the current economic downturn in the country.
FM magazine spoke to Lioe Cu Ling, ACMA, CGMA, CPA (Australia), finance director at Indoprima Group, to find out actions that the company and its finance function have taken towards recovery.
Was there anything that you did after the first wave of the pandemic that you consider a successful response to a crisis? What was that?
Lioe: The unity experienced when dealing with this crisis was a success. Department leaders had daily meetings while executives at the director level met weekly to ensure timely responses to the changing situation. The board of directors also had monthly meetings to ensure effective corporate planning.
The senior management created many scenarios for the more than 16 operating companies in our group, and stress tests of financial conditions were conducted. Through these exercises, we raised the sense of urgency so that we could act together to tackle the situation, think about what each company, department, and stakeholder could contribute, and how we could effectively manage different issues related to cash flow, assets, and P&L together. This unity helped the group achieve slightly better results compared to forecasted numbers as of 30 September 2020.
What is your most important priority now?
Lioe: There are several priorities we have now. First, the company’s sales need to get back at least to the pre-pandemic level in 2019. Senior management, including myself, and different teams are working on that budget. Another important priority is the monitoring of the supply chain, manpower, inventory, and cash flow when we work towards recovery. The third important priority is to motivate and energise people so that they would work together to recover the loss we suffered.
In addition, it’s also time to invest again in areas such as machinery and utility improvement, adding production capacity, and infrastructure such as warehouse, information technology, and digitalisation to support the recovery of the losses incurred during the previous waves of the pandemic and prepare for 2021 and beyond.
In terms of recovery, we have seen a good sign. The third-quarter sales numbers in some of our subsidiaries — especially those in September — are about 70% to 80% of the numbers in the first quarter of 2020. We hope that sales could return to the 2019 level in 2021. Investing again would help us achieve this goal faster.
What is your expectation of the recovery you just mentioned?
Lioe: This year, motor vehicle production in Indonesia has gone down by about 40%. The good news is that there are signs of economic recovery in the country. This year’s fourth quarter is expected to see negative growth year-on-year [but that could be a small improvement from the second and third quarters]. We are hopeful that demand will gradually return when the economic slump bottoms out.
But we never rely solely on the local Indonesian market, whose motor vehicle production has shrunk since the pandemic. Our export markets such as Japan, the US, and Europe have helped prop up our business.
Before the pandemic’s first wave, we started to further explore the overseas market as part of our expansion efforts. As a result, we received orders from automobile makers whose existing parts suppliers could not produce the parts they wanted due to the pandemic.
What are the biggest threats to your business now, and how are you overcoming the threats?
Lioe: The biggest threats facing us are the economic contraction and Indonesia’s political stability.
The pandemic is impacting not only Indonesia but the entire world and various types of businesses. Many people are losing their jobs, and their purchasing power is diminishing. Unlike food and medicine, vehicles are not essential goods, and demand for vehicles typically drops when purchasing power and business volume shrink. This consumer trend will impact the demand for automotive spare parts.
We also need political stability to see positive results of the government’s economic recovery efforts. One such effort is the omnibus law passed in early November in the country. The omnibus law — covering many different areas including labour regulations, the simplification of business permit application, and tax incentives for businesses in Indonesia — is expected to give a boost to the economy by attracting investment and creating jobs.
What approach are you taking to budgeting and forecasting for 2021? How is that different from past years?
Lioe: We were very optimistic when we were planning our budgets in the past. While we will continue to plan for the next three to five years, we have come up with moderate growth targets for 2021, with a focus on achieving the numbers we had before the pandemic.
We also created multiple scenarios with more details about production efficiency, cost impact, and investment impact. We have done rolling forecasts every month since the beginning of the pandemic and will continue to do so next year until the crisis is over.
What is one big reset you see happening post COVID-19 in the finance function?
Lioe: There will be more than one big reset. The first one is to build a more solid understanding of the impact of operations on finance. Without that, planning could only be good on paper without any actual positive financial results.
Lean manufacturing — maximising productivity and efficiency — is another because manufacturing of automotive parts is 60% to 65% of our business. We have already started lean manufacturing practice and will continue to do so. Finance and accounting have a crucial role to play in supporting this because lean manufacturing has to do with cost management.
The third would be enhancing the finance team’s communications capability. There have been many issues that needed to be discussed and settled with the use of data since the beginning of the pandemic. Finance has to summarise the data and communicate issues effectively to enable business leaders’ decision-making. This capability will remain important after the pandemic.
How has the pandemic affected the digital transformation journey at Indoprima? Are there any plans to accelerate or hold off initial plans?
Lioe: We have postponed investment unrelated to sales and production. As a result, our investment in an enterprise resource planning (ERP) system will be delayed to 2021 because that also involves a huge amount of investment in multiple areas including hardware, software, and consulting services.
As our employees need to work remotely during the current health crisis, we have invested in technologies for virtual meetings and communications. We have also decided to invest in the near future in a forecasting software program that allows the finance team to create scenarios and simplify planning and simulation.
When it comes to manufacturing and other areas, we plan to digitalise the maintenance and monitoring of machinery and its performance as well as employee attendance reporting.
Rapid fire questions
What has been your biggest lesson from this pandemic?
Lioe: Going back to basics — good planning, communication, and monitoring of performance to ensure success.
What one piece of technology is a must-have in your 2021 budget?
Lioe: Enterprise resource planning
Looking ahead, what is one skill you want to develop in your team?
Lioe: Using various digital tools to communicate ideas and present data.
— Teresa Leung is a freelance writer based in Hong Kong. To comment on this article or to suggest an idea for another article, contact Alexis See Tho, an FM magazine associate editor, at Alexis.SeeTho@aicpa-cima.com.