CFO and Supply Chain Management
- 19 March, 2010 10:04
It will come as no surprise to CFOs that many Supply Chain Managers report directly to the CFO. After all, to a chief financial officer, inventory is often a line item on the balance sheet . In many industries (particularly retailing and manufacturing) ratios such as inventory turns are critical factors on the income statement and provide the CFO with an overall view of how much inventory is held across the company’s supply chain. This may thrust the CFO into the important role of questioning why the inventory is there in the first place or whether the return on each inventory dollar is sufficient. It’s not a role that a CFO may relish but is nonetheless a reflection of the elevated role of the CFO in supply chain management.
A contemporary management discipline, supply chain management is becoming a strategic tool hence involving the senior executive of the company. As global competition intensifies, supply chain management becomes a functional part of the company that also positively affects the bottom line. Indeed, a rapidly increasing pace of business requires tight alignment between financial and supply chain management decisions especially in regard to shorter product life cycles and changing consumer demand—something which is very evident, for example, in the mobile and wireless space.
As a tool, a company and its CFO, need to have a good overview of its total costs and revenue generators in order to align business strategy with the supply chain. The CFO’s skill-set is well suited to employing the supply chain to strategically cut costs and increase profits. As a case in point, the CFO is charged with reducing cash recovery times and achieving profitable growth while reducing the company’s risk profile.
One of the real challenges facing the company as a whole and the CFO in particular is that most companies lack centralised global supply chain management processes, meaning that decision making is often a fragmented process. Where the line of reporting is from Supply Chain Manager upwards to the CFO, there is some benefit available to be able to drive cross-functional execution in the management of the supply chain. Should the role of management of the supply report directly to the CEO (which it rarely is) then the chief executive, the supply chain chief and the CFO would be collaborating when necessary.
For listed companies there is another potential stress point: listed companies are required to detect and report on material changes in a company’s financial performance which acts as a strong driver to have complete visibility into the financial supply chain, including up-to-date changes in inventory value and other liabilities and contracts. The CFO has a significant role in this regard and one that is open to public scrutiny – not always a comfortable thought!