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Partnering for Corporate Performance - Finance & Supply Chain

How finance and supply chain should work together

6Nov

The importance of both the CFO and the supply chain have grown in recent years. In fact, their rise in the corporate hierarchy appears to have occurred almost in tandem since the financial crisis, and as CFOs have positioned themselves more as a business partner, so too has the supply chain gained a seat at the table.

This has led to something of a coming together for the two. An EY report in 2013 found that a closer working relationship between CFOs and supply chain leaders tends to yield the best results for the company. However, it also showed that building a real partnership between the two is yet to become common practice, with just 26% of the finance executives and 21% of the supply-chain executives saying that their CFO’s contribution to the supply chain is focused on creating an enabling and collaborative business partnership.

The benefits of integrating the two functions are many. It is essential to have a supply chain strategy that is aligned with the broader corporate and financial goals of the business. The CFO is perfectly positioned to provide a holistic viewpoint, offering end-to-end visibility across the supply chain that can help identify and manage risks. Perhaps most importantly, they 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.

It is especially important, in a close relationship, that the data is not just thrown over with a post-it note to say that there’s a problem. They also need to be working alongside them to find a solution, and support their decision making through insights and financial impact analysis. The benefits are not realized only by the supply chain, it also has an impact on the finance function. It allows the CFO to respond rapidly to cost changes in their forecasting models - especially important as many have now adopted rolling forecasts.

Because of the nature of supply chains, juggling many different components that are frequently in flux, they are also often poorly integrated and lack transparency. By working alongside the CFO, they can unpick the complexity of the supply chain and greatly improve visibility.

The impact of a close working relationship is clear to see. Forty-eight per cent of respondents at companies where finance and supply-chain executives had close business partnerships reported increases in earnings before interest, taxes, depreciation and amortisation (EBITDA) in excess of 5% in the past year, compared with 22% of those that don’t operate with such ties. It is these sorts of figures that are causing companies to increasingly work to build ties, with 70% of CFOs telling EY that they believe the relationship has become more collaborative over the past three years, while 63% of supply chain leaders agreed with them. How this happens should be one of the primary focuses for CFOs, and they should take steps to ensure that the relationship works. 

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