Linking the CFO to Supply Chain Execution

The rapidly increasing pace of business requires tight alignment between financial and supply chain management decisions, and the CFO may be best positioned to drive that alignment


By Dr. Mahesh Rajasekharan

As global competition intensifies at an increasingly rapid rate, savvy companies are staying ahead by turning lean and agile supply chain management (SCM) from a service utility to a strategic asset, a functional part of the company that also positively affects the bottom line. While it is becoming generally accepted that flexibility, real-time responses and agility are necessities for success in supply chain management today, few companies have recognized that the key to implementing such a system as a strategic asset is already right under their noses.

To use supply chain management strategically, a company needs to have a good overview of its total costs and sources of value to align business strategy with the supply chain. A company must also close the gap that commonly exists between the lip service paid to the importance of SCM and actually allocating the resources and experience necessary to optimize supply chain management performance. Fragmentation and decentralization among various supply chain processes too often hamper efficient product flow in today's global business environment. Also, no system can achieve all its potential without the proper metrics to measure and fine-tune performance.

You may think the odds of finding one person proficient in a range of tasks this broad would be next to nil. Surprisingly, he or she is already part of your company, occupying the chief financial officer's office. 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. In fact, CFOs lead SCM at Home Depot, Sun Microsystems and Delta Airlines.

Today's CFO is charged with reducing cash-to-cash cycle times, achieving profitable growth, delivering predictable revenue and reducing the company's risk profile. As the economy tightens, there are few places for the CFO to turn to affect the bottom line.

Innovative CFOs are recognizing that they are in a unique position to lead a company's supply chain management. 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. Their financial training gives them a solid analytical foundation from which to evaluate the effect of system-wide changes on the bottom line.

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. Most companies lack centralized global supply chain management processes, resulting in fragmented governance and control, and inefficient sales and operations planning (S&OP) processes. The CFO's position and analytical skills are a natural fit to drive cross-functional execution in S&OP process management.

It's not just a good idea to have the CFO involved in SCM. Unbeknownst to many, Sarbanes-Oxley (SOX) indirectly demands it. SOX and other compliance and risk management responsibilities require the public company CFO to have tighter control over supply chain performance and execution. Section 409 of SOX requires public companies to disclose rapidly, and on a current basis, any changes in the financial condition of the company — a challenging task given the complexities and changing nature of today's global supply chain.

For visionary CFOs, however, SOX compliance represents a unique opportunity to pursue best practices in supply chain planning and risk management integrated with corporate governance. The requirement to detect and report on material changes in a company's financial performance creates an acute need to have complete visibility into the financial supply chain, including up-to-date changes in inventory value and other liabilities and contracts.

Merging the Financial Plan into SCM Helps Both

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