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


Effectively optimizing total landed cost, despite global supply chain uncertainties, helps in the management of corporate budgets and gross margin erosions. Companies frequently consider the lower unit costs in choosing global suppliers and fail to consider the uncertainties inherent in global supply chains. Several factors impact the total landed cost, among them:

  • Elevated transportation costs due to increased fuel surcharges and specially expedited shipping needed to offset delays from outsourcing.
  • Longer lead times require that more in-transit inventory and reduce responsiveness.
  • Lost business due to delays in custom clearance or a sudden surge in demand that could not be immediately fulfilled.
  • Increased inventory holding costs due to higher inventory needed to offset these risks.
  • Increased inventory holding costs due to higher inventory needed to offset these risks.

3. Achieving profitable growth

As CFOs experience the impact that strategic supply chain management has on the financial picture, they see they must not only focus on cost reductions but also on growing revenue and market share. The majority of supply chain organizations can measure and model cost reductions, but only the best can quantify the supply chain's impact on revenue. The CFO is in an excellent position to analyze and quantify the financial tradeoffs of supply chain investments to improve revenue and market share.

4. Delivering predictable revenue

The financial community expects CFOs to deliver predictable revenue and profits on a continuous basis. A majority of the future supply and demand information the CFO needs to fulfill this responsibility lies within the supply chain. In addition, the CFO's ability to execute the financial plan is tied to the ability of the supply chain to deliver on the company's business plan.
Supply chain management programs can reduce working capital requirements through effective supplier-managed inventory programs, multi-echelon inventory optimization techniques and supply chain visibility linked to Six Sigma programs. These programs offer ways to free up cash flow and reduce current assets tied into operations.

CFOs can clearly see the relationships among the projected financial statements, financial metrics such as return on assets and return on equity, and operational metrics impacted by supply chain performance. Therefore they are positioned to make the proactive investments and decisions required to make the business plan happen using their greatest strategic tool – the supply chain.

About the Author: Dr. Mahesh Rajasekharan is the vice president and general manager of the high tech industry sector at i2. In this role he is responsible for the P&L for i2's High Technology business across software solutions and services. He is currently advising major global companies such as Texas Instruments, Hitachi, Infineon, ST Microelectronics, NXP Semiconductors and others in benchmarking and designing enhanced supply chain management processes. More information on i2 at www.i2.com.

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