CFOs can be an Agent for Change in the Supply Chain
Recently I took part in a webinar hosted by Brian Blalock and BlueGrace Logistics, titled THE CFO: How They Can Be a Change Agent in the Supply Chain. It’s a topic I love for two reasons. First, the supply chain spans all parts of a business and, second, it’s an area where collaboration between the Supply Chain team and finance team can create huge value.
I’ll share some of the 20-minute webinar here and include a link to the webinar at the end of this article.
Not only is the Supply Chain one of the largest cost centers in many organizations, it is also one of the biggest value drivers. This makes it an ideal area for business partnering with the CFO.
The CFO’s team brings capabilities and resources that will integrate financial performance, operational excellence and market related changes into the Supply Chain team’s processes and plans. Analytics and models, key strengths of most finance teams, have the potential to create new insight that will drive improvements in the corporate supply chain.
Answer the following questions as they relate to your company:
- Would your company be better off with transparency in their supply chain cost structure?
- Would you benefit by having analytical resources available to garner insight from data that is currently not mined for that purpose?
- Would you allocate capital more effectively if you could model the true cost of stock outs vs the capital cost of more warehouse space and holding more inventory?
- Would you be better risk managers if you knew who was supplying your vendors and where those raw materials are coming from?
If you answered yes to most of these questions your finance team is either already deep into a collaborative relationship with your Supply Chain team or building a business partner relationship between your supply chain and finance teams will yield big dividends.
The Bad News: In a study conducted by Ernst and Young, they found only 26% of finance executives and 21% supply chain executives reported the CFO’s contribution to the supply chain is based around a business-partnering model. Very unflattering figures.
The Good News: Business leaders recognize this is a problem and the majority of both CFOs (70%) and Supply Chain leaders (63%) report collaboration in their relationship has improved in recent years.
The business partner relationship starts with the finance and supply chain leaders recognizing they can help one another and committing to collaborate with one another to create more value in the supply chain.
Here are some ways collaboration between the CFO team the Supply Chain team can Drive Business Value:
- Margin Analysis and Insight into Margin Improvement
- New Product Analysis and Selection
- In-house vs Outsourcing for Supply Chain components
- Development of Key Performance Indicators Linked to Corporate KPIs
- Collecting Business Intelligence
- Assessing Business Risk
For finance to succeed in growing the relationship we must bring at least these tools and attributes to the partnership:
- High level analytical skills and tools
- Know the business, speak its commercial language and understand the needs of the Supply Chain team
- A platform to share our skills and tools…. INSIGHT
3 Critical Areas to Address
There are 3 critical areas finance should address in their business partner relationship:
….. ACCURACY - Is our information accurate enough to help us make good decisions? Accuracy does not mean perfection. It means good enough to trust for decision making.
….. SPEED - Is our insight delivered quick enough to identify and address the challenges facing the Supply Chain team? Data and information, like a newspaper, is a quickly decaying asset. If it is not available when needed it is useless, and could even be a distraction.
….. VISIBILITY - Does our information provide deep insight into how well we are performing and is it available to all parties who can benefit from it? Getting the right information to the decision makers in time for them to act is what solidifies trust and the business partner relationship.
To prevent misunderstanding while developing the most useful insight possible, the standards for these three areas should be set with the Supply Chain team. The trade-off between accuracy and speed, the depth of information provided vs speed and identifying where to focus are all decisions that should be made collaboratively.
Here are some examples of where the business partner model can be applied.
1. The cost of transportation alone makes freight a key target for collaboration. For example - Analyzing the trade-offs between bulk rates savings vs the cost of carrying inventory is a great place to apply the expertise of the finance team.
2. Freight contracts also present a good opportunity for the supply chain and finance teams to partner. Benefits partnering brings to this area include:
- Rate analysis – comparing different rates, volume discounts, load amounts, etc.
- On time performance bonuses
- Out of spec and product loss penalties
3. Valuing the needs of our customers and how transportation can improve their experience is another perfect fit for teamwork between these groups.
Ernst and Young concluded their study with the following:
“Working with organizations where CFOs are directly involved has helped turn over a new leaf, making significant cost reductions and positively impacting the supply chain of that organization.”
In addition to well trained staff, sound systems and well thought processes are enablers to creating a great partnership. I encourage you to invest your time and resources in all three of these enablers to create significant value in your supply chain. Near the end of the video Brian Blalock of BlueGrace Logistics highlights some excellent examples of the type of insights a well scoped out system will provide.
You can watch the 22 minute instructional webinar here The CFO as a Change Agent in the Supply Chain and read BlueGrace’s take on the collaboration here: How the CFO Can be a Change Agent in the Supply Chain.
We are curious to learn from your collaboration experiences. Please email them to me at Steve.Rosvold@CFO.University and I’ll share them with our community.
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