Daily Archives: August 16, 2006

Can Supply Chain Performance Really Induce a CFO to do Backflips?

When I hear CFO, I think of an aging C-level executive with grey hair in a grey suit and when I hear cheerleader I think of college student with brightly colored pom-poms doing backflips. So when I stumbled upon the Aberdeen Group Perspective entitled “Turning your CFO into a Supply Chain Cheerleader” (now for Aberdeen Access members only), I had a good chuckle, but then dived in to see what their take was.

The hard truth is that most C-level executives traditionally could care less about how the supply chain operates – they just care about results and they don’t want service excuses. However the trend of globalization, especially sourcing from low-cost countries such as China, is opening the door for the supply chain organization to gain a new C-level champion: the chief financial officer.

The reality is that CFO’s are now facing increasing pressures across the board and good supply chain practices are the key to reducing some of these pressures. The perspective overviewed four of the top pressures facing CFOs and their corresponding supply chain solutions.

CFOs are stressed with making the best use of corporate cash.
CFOs want to actively manage cash but uncertain international lead times make it increasingly difficult for finance organizations to make proactive use of the balance sheets. Supply chain organizations can help by implementing improvements that result in less errors, proof of delivery to trigger automatic invoice reconciliation, and e-procurement systems that result in full order visibility.

CFOs are charged with corporate budget oversight in a time when regulatory oversight requirements are constantly increasing.
Supply chain uncertainties contribute to budget overruns and erosion of expected gross margins. For overseas LCC shipments, Aberdeen benchmarks show that inadequate transportation cost forecasting is the top reason for discrepancies. Improved supply chain costing can be used to help companies protect gross margins.

CFOs are challenged to reduce working capital requirements.
Supply chain managers can impact working capital by reducing inventory investment and obsolescence by having strategic suppliers manage inventory positions, investigating inventory optimization technology, and connecting supply chain visibility initiatives to Six Sigma programs.

CFOs are concerned with cross-functional global trade disconnects that drain financial performance.
Aberdeen research identified that companies that decreased their total landed costs and cycle times the most were nearly seven times more likely than their peers to measure global trade management performance on a corporate-wide basis and invest in cross-functional processes. Supply chain organizations are in the best position to lead the development of these cross-functional processes and assist finance in the development of these metrics. And even though I really doubt that the significantly improved financial performance that will result will have your CFO doing backflips, there is a very good chance the CFO could be your supply chain organization’s biggest supporter once profits start skyrocketing from the significantly reduced costs and increased savings capture rates that result from your compliance initiatives.

In other words, CFOs are concerned with their primary responsibility: the corporate treasury, and making sure that the money is well managed, collected on time, and not lost on projected savings leakage. By implementing best practices, automated systems, and monitoring processes, supply chain organizations can make sure orders are placed on time, negotiated savings are maintained, invoices received, and payments made, on time.