Partnering for performance: CFO and the supply chain
Interviews: Simon Dingemans
Simon Dingemans is CFO of GSK. Here, he tells EY about how the relationship between finance and the supply chain is changing, and the importance of a strong partnership between the two functions.
How would you characterize the relationship between finance and the supply chain at GSK?
The relationship between finance and the supply chain has always been close, but, in the past, it has also mirrored the fragmented nature of the supply chains with which GSK historically operated. Finance support for the manufacturing organization did not talk as much as it should to the commercial finance teams, and vice versa.
We are now in the middle of making a number of significant changes to the way in which GSK’s supply chains are configured. In particular, we are making them more integrated with the rest of the business.
A focus has been to join the supply and demand sides of the business more tightly together by giving manufacturing end-to-end ownership of the complete supply chain. This includes logistics and distribution, as well as inventory management, across the chain. By doing this, we are giving our manufacturing and distribution operations better line of sight to the commercial teams, as well as aligning them more closely to the needs of our end markets to make them more responsive and competitive.
Already, this approach is driving a range of efficiency benefits out of our supply network, including lower operating costs, procurement savings, reduced costs to serve, simplification of our portfolio and integrated working capital. This process is furthest ahead in our consumer business, but many of the learnings of that transition are now being rolled across into the pharmaceutical supply chains.
In response to this and other enterprise-wide challenges, finance has had to change. It is now itself much more integrated and unified as an organization. This has allowed us to deliver a more consistent view to the business across our supply chains, so that the many trade-offs necessary in the integration can be debated on a more transparent basis.
What has the change meant for finance?
Integrating our supply chains has meant bringing together many previously separate parts of the organization, such as commercial, logistics and manufacturing. Finance has been right at the heart of that process, ensuring transparency and that transfers across interfaces are done accurately, and building the trust needed to get the organization fully aligned. With so much change going on, finance is critical in ensuring the right things get done to deliver value to shareholders, as well as customers and patients.
This has meant finance itself has had to become more joined up. We have worked hard to build an effective network between the various finance teams and develop stronger capabilities to partner with the supply chain, as well as challenge and debate the choices we are making from a more consistent and informed knowledge base. We have also standardized our own language and terminology, measurement tools and key performance indicators (KPIs).
Why is it important for finance to play an active role in linking the commercial and supply chain sides of the business?
Essentially, what we have been doing is joining up what used to be series of very fragmented steps and multiple handoffs across the organization. If you are going to do that successfully, you need to create an environment in which everyone trusts the way that information has been passed along the line.
Finance is essential to ensure the success factors are delivered; getting the balance right in allocating resource across the supply chain to deliver high-quality products to the right place at the right cost. It also provides the organization with confidence that costs are allocated correctly and that everyone is thinking about this from an enterprise point of view. Transparency is key to a successful implementation, and an effective partnership with finance will deliver this.
Do you think it is central to the CFO’s responsibility to ensure that the manufacturing footprint is aligned with what you’re trying to achieve strategically in the company?
I think it is absolutely critical. If the CFO’s role includes making sure that we’re investing our resources effectively and in a way that’s aligned with the group’s strategy, I don’t see how you can’t be heavily involved in it. The supply chain represents a very large element of your cost base and, ultimately, determines how competitive and accessible your products and medicines are going to be, so it is essential for the CFO to be very close to the supply chain that delivers these products.
What are the biggest sources of tension between finance and the supply chain?
There are always tensions whenever you have to make choices about where you allocate resources and the returns you are expecting. However, the partnership we are building between finance and the supply chain has helped to make it much more transparent as to the “why” and “how” of those choices.
It also helps that we are now much more aligned around a stretched, but realistic, set of goals. So tension is genuinely relatively limited and definitely of the healthy kind.
Consequently, it also helps that the supply chain can now see the impact – positive and negative – of their actions much more directly on the parts of the business they serve. The supply chain teams are much more responsive, can deliver much more targeted actions and impact cost of goods much more quickly in the face of commercial challenge. I have charged finance with facilitating this process in a way that avoids a blame game and makes it a shared challenge.
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