How Caterpillar is using technology on its journey to improve financial forecasting

The EY team’s goal was to visibly demonstrate the speed, accuracy and forecasting capabilities offered with digital and advanced technologies by developing modeling tools. These modeling tools used a shadow copy of Caterpillar’s own data, along with selected external sources, to run forecasting models — validating and proving the functionality of the solution. Big differentiators for these tools included the EY Data Fabric solution and EY Intelligent Forecasting and Scenario Modeling.

These solutions, coupled with a human-centric approach transformation approach, provided a path for Caterpillar to scale new capabilities quickly while offering leaders new insights throughout the process. Caterpillar’s finance organization established an advanced analytics team and EY professionals worked alongside the team to build their initial capabilities.

Those insights also sparked inspiration for the EY teams — including a bold, experimental way of sourcing and querying finance data using a program originally created for other business uses.

“To help Caterpillar see the possibilities using their own data, we tried a completely new approach for finance,” said Kevin Tollison, EY Data and AI Partner, Ernst & Young LLP. “While the forecasting tool was being developed, we had discussions with Caterpillar about data sources, data management and lineage. Because the forecasting techniques were data-driven, the client’s data needed to be digestible.”

Once the EY team had demonstrated the modeling tool’s capabilities, a pilot was created connecting forecasting accuracy and insights to business operations within one of Caterpillar’s business units. This process showcased how improved accuracy and understanding could be gleaned from the new system. The pilot ran in parallel with Caterpillar’s current process, allowing the team to test the new technology without disrupting current operations. Next, statistical models were developed and deployed to better support the forecast and a scenario planning process was created.

A newly designed custom user interface allowed the team to execute more planning scenarios and establish a global repository capturing the critical data. The interface was able to demonstrate multiple finance scenarios and allow for overrides to the predictive models when new information was available that was not yet reflected in the system.

“This is a great example of a global manufacturer encouraging innovation across its finance organization and pointing the way forward for other Finance teams,“ said, David Herbert, Americas Finance Transformation, Vision and Strategy Leader, Ernst & Young LLP. 

The Caterpillar team is continuing to find ways to expand their analytics-based forecasting capabilities. Having a methodology in place has allowed the team to expand the scope of the initial project to provide more insights and detailed scenario planning. For example, colleagues that manage specific product lines, seeing the initial potential of the tools, are asking the finance team to help them understand the potential impact of unforeseen events and respond to evolving market demands for specific product lines.

“Encouraged by the progress we have made, the team is expanding our focus to include cash forecasting and we see potential of ML and AI tools in other areas such as corporate consolidations, invoice to pay, and more. I have no doubt that we will be able to improve our approach in forecasting as new advances are being made in ML and AI,” noted Epley.

He added, “The most rewarding part of this journey is seeing the benefits experienced by our finance teams from adding new skills to simplifying their workflow or just making their day-to-day work more engaging – not to mention the satisfaction of helping our business partners grow profitably.”

The combination of human business knowledge and proficiency with digital tools can supercharge the ability to provide business insights, run more efficient operations and enhance customer service. As organizations like Caterpillar look for ways to channel information and insights, the right amalgam of people, data and technology can be the differentiator needed to define a realistic growth strategy, anticipate demand and supply fluctuations, and prepare the business for future uncertainty.

“Financial planning in large business organizations is undergoing a sea change as technologies evolve. COVID-19 and the disruptions to supply chain highlighted two important requirements that organizations need going forward — robust scenario planning capabilities and the ability to incorporate industry and macroeconomic variables,” said Dennis Sparacino, Principal, US Consulting Finance Technology, Ernst & Young LLP. Sparacino, who served as the engagement Partner, went on to note, “It’s an exceptional opportunity to bring our broad perspective and experience to clients, like Caterpillar, that need the right combination of data, tech and talent to stay ahead of the game.”