A recent CPO Crunch article over on Procurement Leaders said to Follow the Money as a focus on profit contribution can provide a starting point for improving supply chain transparency.

The article states that having knowledge of our suppliers is one thing, but it’s quite another to have a good understanding of who are suppliers’ suppliers are … not to mention those even further beyond and in a complex, risk-riddled world, such visibility is crucial and can bring meaningful competitive advantage.

In other words, following the money can increase profitability by allowing you to optimize the flow. Which is true, but only half the picture.

The other half is how the flow can be diverted or stopped. Two important things to remember about money flows. First, if these money flows present an opportunity for you, they present an opportunity for others. Not just outright theft of money (or product), but skimming, fraudulent billings/overpayments/handling fees (or your goods don’t move), and even fraudulent good substitution (with knockoffs). Secondly, if any input to any of these flows stops (beyond your visibility), the entire flow stops. And these flows could stop 6 levels down at the source.

For example, let’s say you are in medical device manufacturing or microwave-based manufacturing. Then you need thulium, which is one of the rarest rare earth minerals in the world. If a mine closes, even temporarily, and that mine is the only source of supply into your raw material or component supplier (that produces your enclosed radiation source or manufacturing ferrites), what do you think is going to happen? Production will stop, and your inventory will disappear. Or if you need a custom chip for the control system in your high end electric car, and the one plant currently capable of producing it experiences a fire. (This HAS happened, and chip shortages have been responsible for MULTIPLE shortages in MULTIPLE automotive lines. Just Google it.)

If your only production is in a country with geopolitical instability or deteriorating relations with your country, and borders (temporarily) close, what happens? And so on. If you don’t know the myriad of ways the spigots can be turned off, it doesn’t matter how well you know, or optimize, the money flow. These days, it’s all about risk management, visibility, and quick reaction if a spigot gets turned off to get it reopened again.