For supply chains to work effectively, they require close integration with the finance function. A successful supply chain strategy needs to be closely aligned with the broader corporate and financial goals of the business, and the budget needs to be extremely responsive to changes in demand to ensure that inventory is tightly controlled.
Traditionally, the finance department has not worked particularly closely with the supply chain, with most organizations preferring instead a relationship in which supply chain reports to finance leaders - normally the CFO. According to research conducted by IBM, however, of all the C-Suite, the CFO’s ties to the CSCO are only just better than those with the least connected executive, the CMO.
Organizations are, however, increasingly realizing that a close relationship between the CFO and the CSCO can bring a number of benefits. In a 2013 EY survey, 70% of CFOs and 63% of supply chain leaders said that their relationship has become more collaborative over the past three years.
The CFO and the CSCO need to have a close relationship in order to drive insight and provide more accurate measurement for supply chain decision-making. The CFO can offer end-to-end visibility across the supply chain to help identify and manage risks, cost savings, and help to understand what relationships are better or worse for the organization, particularly in identifying those where late payment may be more likely. When new items and services are added, bringing greater complexity to supply chains, finance can also help evaluate the value of product offerings and the strategies in place to bring them to market, and model the impact of complexity.
To build a more collaborative relationship, CFOs need to partner with CSCOs in two key areas. Firstly, in integrating financial planning with sales & operational planning (S&OP). An IBM survey found that 51% of top performing finance organizations said their demand planning and forecasting was more effective as a result of integration, while 46% noted improvements when it came to supply chain financials, economics and forecasting.
Secondly, collaboration between finance and supply chain can also help use analytics to address supply chain challenges. Finance departments have access to all of the firm’s data, including accounts payable, accounts receivable, manufacturing data, cost of goods sold, and vendor records. They can use this data to pinpoint risks to the supply chain and factors that may slow it down, and help to mitigate for them. By combining the data they generate with external streams of information into one view - both financial and non-financial - they can see at transactional level the ways that changing business drivers are having an impact on financial performance.
Most importantly, finance leaders need to ensure that there is flexibility when it comes to budgeting for supply chain, as there are so many fast-moving factors that impact upon demand. This may necessitate introduction of rolling forecasts, with the S&OP process using an input for any budget revisions.
Ultimately, the supply chain and finance are so intwined and so important to the company that it seems churlish not to work more closely together. Proper inventory control is vital to the financial health of an organization, and collaboration is the best way of ensuring it is maintained. Not only this, it can also help identify areas for growth, helping push both functions right to the heart of the organization.