Partnering for performance: CFO and the supply chain
CFOs drive performance
Business partnering CFOs enhance, as well as monitor, performance
Traditionally, finance leaders have a strong role in monitoring performance, including:
- Defining and setting key performance indicators (KPIs)
- Assessing whether these targets are being reached
- Determining whether further action is needed to address performance issues
In a business-partnering relationship, CFOs go beyond this to help functional areas to really drive performance. Here are some of the ways finance leaders can make a difference.
Using data to create a “single version of the truth”
CFOs have an opportunity to help standardize the language, measurement, tools and KPIs across the organization. This creates consistency and clarifies the targets for different functional areas.
“CFOs have a unique skill to bring together different parts of the organization that may be at odds with each other or may not have a great mechanism for open communication,” says Stan Brown, a Partner in EY’s manufacturing practice in the US.
Evaluating and managing trade-offs
The CFO is unique in having a relatively objective view over the business, based on cold, hard figures. This means that they can serve as the broker between functional areas and evaluate trade-offs between different objectives.
“The CFO can add a valuable perspective to this discussion by evaluating the impact of increased service levels on other metrics, such as working capital,” says Sean Ryu, Supply Chain Leader for Asia Pacific at EY.
Considering tax as part of investment decisions
All too often, tax is an afterthought when companies evaluate operational investment decisions. Tax should never be the primary consideration for choosing where to locate an asset or entity. However, it can be an important influencer, which can yield significant bottom-line benefits.
CFOs should ensure that they participate in discussions around investment from as early a stage as possible, and consider tax throughout the process. Joost Vreeswijk, EY’s Tax Effective Supply Chain Management Leader in Europe, Middle East, India and Africa says, “If tax is left as an afterthought, the consequences can be severe. We have seen instances where make-versus-buy decisions and location choices have had to be completely revised due to the late inclusion of customs and indirect tax effects.”
Realizing the potential of government incentives
For a multinational business, choosing an investment destination is a complex decision. As countries around the world increasingly compete for inbound investment, they are establishing or increasing government incentives, such as R&D tax incentives, tax holidays and other benefits.
CFOs should ensure they consider these incentives when evaluating investment choices and form part of the cost-benefit equation. As with tax, they should not be the sole driver of a location decision, but they should be considered.
Helping to select the right operating model
Choosing the correct operating model for functions in the supply chain, such as procurement, can play an important role in driving performance improvements. Therefore, CFOs should be at the heart of this discussion.
A centralized model not only helps to increase cost efficiencies, but can also achieve a broader goal of value creation. By bringing together procurement expertise into one place, companies provide greater visibility, enable rigorous control and facilitate process improvement across the value chain.
Diageo, for example, has taken steps to centralize procurement to drive economies of scale and consistency across the business. “Although we have local procurement teams, they now form part of a centralized group,” says David Gosnell, President of Global Supply Chain and Procurement at Diageo. “We have category managers at the center who set strategies and manage contracts globally.”