In many companies and in many situations, CFOs are the most powerful people. Why? Because everybody needs money. Sales guys need it for customer discounts and bonuses for themselves. Operations people need it for inventories, facilities and staff. Support staff need it for projects.
Yet, CFOs face intense pressure. The boards want the cost savings now, while CEOs want long term strategic focus, or vice versa. The bankers and markets demand profits. CEOs’ and boards’ performance is measured on their ability to enhance and sustain profits.
How can CFOs balance the needs of all sides. How can they lead the strategy to generate current profits, and sustain future growth?
Every strategic and operational decision taken in a supply chain has financial implications. The “butterfly effect” captures the dynamics within the supply chain finance succinctly. When a butterfly flaps its wings in one part of the business-to-business network, somewhere across the ocean, a tornado is formed.
Only a handful of CFOs have the capacity to understand the full implications of financial decisions on the entire business network of their organisation.
When the cash conversion cycle is disrupted, or prolonged, a company may find itself being swirled into a profit-sweeping storm. Cash flow efficiency is only part of the financial component, but it gives you a rough idea of how far-reaching finance can be in many parts of the business. Other issues such as taxation impact, inventory impact, shipping impact and impact of shortages of critical parts are rarely well thought through.
Most CFOs do not realise that at a minimum, they need cost-to-serve accounting system which goes beyond the traditional cost accounting and activity based accounting systems to maximise the impact they have on the business.
What lies beyond cost-to-serve? Can your company achieve it? Why is it hard to achieve, and why do you require active help of your entire supply chain to do so?
Who in the organisation knows the numbers better than CFOs? Who can improve the planning and control system’s strategic impact and maximise profitability?
Most companies run two planning regimes in parallel and CFOs have the power to run them as an integrated financial plan. Very few CFOs know how they can do it well enough, and even out of those who understand, very few actually do it.
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