Supply Chain Issues: How the CFO Can Help

by Melba-Jean Bernad, 29 June 2010

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Management Technology

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Delta Airlines financial management Home Depot integration Sun Microsystems supply chain

What do Home Depot, Sun Microsystems and Delta Airlines have in common? According to Mahesh Rajasekharan of supply chain software firm i2 Technologies, the CFOs of these three American giants oversee supply chain management in their respective companies.

“More and more companies are recognizing that the CFO’s skill set is a competitive asset in its own right and well-suited to employing the supply chain to strategically cut costs and increase profits,” writes Rajasekharan in Supply & Demand Chain Executive. “Many profound changes in a company’s supply chain management processes require strategic financial bets that a CFO is in the best position to make.”

As if today’s finance chiefs do not have enough to do. Then again, it makes sense in the post-recession environment for a CFO to look at a major cost centre like the supply chain. As companies ease out of the financial crisis and restart procurement, production and inventory-building in a big way, there is an opportunity for finance to rationalize, coordinate and integrate towards the end of promoting efficiency, slashing costs and boosting profits.

Fruits of Visibility

No one is suggesting that finance professionals should take over supply chain management (SCM). Everyone knows it’s a specialized field whose nuts-and-bolts processes are best left to the head of supply chain (who typically now reports directly to the CFO, CEO or the board), procurement specialists and others in operations.

What CFOs can do is get more involved in analysis and decision-making around SCM. “They serve as an unbiased entity with no emotional affiliation to the current set of processes, and their top responsibility lies with the financial success of a company,” says Rajasekharan. “Their financial training gives them a solid financial foundation from which to evaluate the effect of system-wide changes on the bottom line.”

It’s a change from, say, five years ago, when the influence of CFOs on the supply chain was not recognised as some contend that working across functions would slow down decision-making and cause disharmony. The arrival of new technologies is increasingly changing that traditional picture.

“CFOs are adding SCM to the financial levers they already control,” explains Patricia Cheong, who is regional director, Asia, at Sterling Commerce, an IBM company that offers integration services. “New technologies and architectures have emerged to make the CFO’s quest for visibility and control over complex supply chain processes both possible and practical. Today, applications are available for managing the flow of orders, inventory and shipments both inside and outside an organisation.”

Case Studies

Rajasekharan cites several real-life examples to make his case. One semiconductor company decided to reduce production at a high-volume factory after peak Christmas shipments had been completed, something it had never done before. Supply chain managers had always followed the recommendations of the factory, which naturally always wanted to maximise throughput and utilisation, given the risk of not having enough stocks on hand during peak demand.

Not this time. The company had integrated sales and operations planning, which allowed closer links between the supply chain and financial management. Analysis by the finance function indicated that additional shipments would result in excess inventory at distributor- and supplier-managed hubs that could cause future price erosion and inventory write-offs. The conclusion was reached after finance matched forward-looking demand-supply data with financial ratio projections.

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