Why Retail CFOs Need to Understand the Supply Chain

Supply chains need a single, accurate demand forecast that accounts for demand, seasonality, promotions and even weather.

Andrew Blatherwick
Andrew Blatherwick

It’s a tough time to be a retail CFO, with huge pressures coming from competitors, customers and even partners within the business. And it’s not just external competition, but also internal competition from the retailer’s own channels, such as online sales versus in-store sales.

Driving efficiency and increasing revenue in the ever-changing retail environment means a constant pull in multiple directions. So how can the CFO create change, improve operating ratios and minimize risk for the business?

The CFO, a Champion for Breaking Down Silos

The growth of online retail is rising so quickly that it’s changing the nature of many businesses and creating silos that conflict with each other. The CFO is in a difficult position, needing to find a balance between growth from the less profitable and higher cost parts of the operation, yet stay competitive and offer multiple channels, without cannibalizing the business.

The one place that the CFO can find solace is in the supply chain, which, if run efficiently, can deliver major competitive advantage and huge improvement to bottom-line profits. In contrast, if leaders of specific channels are siloed, controlling their own supply chain, there is a likelihood that massive additional cost is introduced to the business, as well as duplication and inefficient use of inventory. This can eventually lead to expensive distribution networks traveling the same routes and, worst of all, dissatisfaction from the customer.

In addition, poor availability, out-of-season stock or inefficient utilization of store space with the assortment are all black holes that can lead to falling profits. The result of these issues pushes up capital employed, increases costs through excessive stock holding in the wrong store or channel, and leads to high wastage or markdown in one channel compared to lost sales through lack of inventory in another.

One Version of the Truth for Less Inventory and More Sales

A streamlined supply chain can change all this, impacting all areas of the business and giving the CFO the visibility to turn around the performance of a business.

Indeed, the foundation of all well-operated supply chains is having a single and accurate demand forecast that takes into account fluctuations in demand, seasonality, promotions and even weather. The CFO and other business stakeholders can then work from the same figures and one truth to break down silos.

Retailers can forecast the flow of merchandise through the entire supply chain from suppliers to multi-level distribution centers to the stores and shelves. The inventory can then be shared between channels and managed in a holistic way throughout the supply chain. Customer-demand forecasting at the store and channel level is also the only way to drive micro-merchandising and make sure that retailers can service customers with their local needs in store and online.

Ultimately, this enables CFOs to reduce costs by minimizing stock holding, freeing up working capital and improving sales by ensuring the right product is on the right shelf at the right time.

Managing Risks with What-If Scenarios

CFOs can plan for the future and achieve continued improvement by modeling possible changes to the supply chain, range and assortment. For example, going through multiple scenarios to understand the impact of building a new distribution center or whether to source products offshore rather than onshore can speed up the decision-making process. This allows the CFO to make decisions based on knowledge and not guesswork.

The supply chain holds huge power for the CFO to finance the business, as it can have a direct impact on bottom-line profits. When retail CFOs understand the retail supply chain, they are able to unlock the true potential, and see the substantial benefits of having a successful supply chain quickly and with minimal disruption.