why does supply chain 3.0 matter to the CFOs
Most powerful person
In many companies and in many situations, CFOs are the most powerful people.
Because everybody needs money.
Sales guys need it for customer discounts and bonuses for themselves.
Operations people need it for inventories, factories, 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.
The following framework, taken from our book The 5-STAR Business Network, outlines the enormity of the current challenge faced by the CFOs.
While traditional cost and works accounting, and its successor - the activity based costing (ABC) had a role in the pre digitisation era, today we live in a much more complex and real time world.
By now, most finance departments have already progressed to the level two or three of this above pyramid.
But, only a handful of CFOs have the real-time capacity to access 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.
Technology and its adoption
CFOs are often hampered by the tools they have. The technology exists – but the ability and willingness to harness the technology is limited.
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?
You have the ability to help sales know the true costs before making a promise. Pro-active information on how to optimise pricing on every transaction will help even more.
Who in the organisation knows the numbers better than the CFOs?
Who can improve the planning and control system’s strategic impact and maximise profitability?
Above all, CFOs are in a unique position to harmonise the two planning cycles: the budgetary cycle and S&OP cycle (Sales and Operations Planning cycle).
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.
You will have many questions about the interface between operations, sales, supply chain and finance.
- Why CFOs are best placed to lead this interface?
- Why timeliness of information is so important?
- How Supply Chain 3.0 can improve your company’s cash position?
- How it can also give you a sustainable path and smooth out earnings in volatile times?
.. and many other questions of your own.
The best way to get your questions answered is to contact us.