Partnering for performance: CFO and the supply chain
Ten steps to a successful business partnering relationship with the supply chain
Ten steps for CFOs towards successful business partnering.
1. Make time for the supply chain
Most CFOs juggle many different priorities and struggle to meet demands on time. To make business partnering effective, there needs to be a genuine commitment of time and resources. Business partner CFOs surveyed spend an average of 25% of their time, or more than one day a week, working with the supply chain. Those in traditional relationships, spend around 12% of their time on the supply chain.
2. Allocate finance resources to the supply chain
Business-partnering responsibilities should not rest exclusively with the CFO. Finance leaders need to think carefully about how the finance function supports the supply chain and ensure there is a structure in place to encourage collaboration. A common model is to “embed” finance business partners in the supply chain, with a hard reporting line back to finance and a dotted reporting line into the functional head.
3. Participate in the sales and operations planning process
The sales and operations planning (S&OP) process is the nerve center of the business and a vital bridge between the commercial and supply sides. CFOs have not traditionally played a central role in S&OP, but there is a real opportunity for them to provide insight and information to the process to help ensure alignment across functions and with the broader strategy. The CFO’s relative detachment from the day-to-day operations also allows them to bring a more neutral perspective to the process, which can help to keep it “honest.”
4. Own your organization's data
Many companies rely on multiple data sources in different functional areas. This leads to inconsistency in the data-driving decisions and benchmarks. By helping to eliminate these “information silos” from the business, CFOs can provide a more consistent picture and prevent multiple interpretations. Taking ownership of data and presenting a “single version of the truth” defuses arguments over which numbers to believe and facilitates a more constructive dialog around how to turn insights into action.
5. Stay involved throughout the investment cycle
Business partners go beyond the traditional finance responsibility as the “gatekeeper” of investment and budget allocation. They also play a more supporting role by helping to strengthen the business case for investments, explore alternatives between “make-or-buy” decisions and educate their partners in the supply chain about how to be more effective in making investment choices. This means being involved throughout the investment life cycle, from choosing an asset for investment through to managing its performance, retiring it or reinvesting in it.
6. Help build an integrated operating model
When high-performing companies design their business model, they make sure they address all the layers that can enhance performance. This includes not only the physical, people and organizational structures, but also indirect taxes, transfer pricing, the effective tax rate and legal structure.
Ultimately, market competition comes down to how one operating model performs against another. The CFO and the supply chain leader have an opportunity to build an integrated, cost-efficient, effective structure that puts the company in a better position to create shareholder value.
7. Focus the supply chain on the metrics that matter
Over time, many companies add new metrics and key performance indicators (KPIs) to the supply chain to deal with specific challenges and priorities. However, when teams have too many different metrics as incentives, the result can be confusion and lack of clarity around the real objectives of the organization.
CFOs can play an important role in simplifying the performance management structure and reducing the number of KPIs. With a focus on a few metrics, companies are better able to provide clear direction and align the business behind the objectives and goals that matter.
8. Identify performance incentive misalignment
Specific incentives within a function may help to improve performance, but they can sometimes have unintended consequences. Consider, for example, a manufacturing function that is encouraged to push as many products through the supply chain as possible to keep down unit costs. While achieving their own objectives, this can cause problems elsewhere with a buildup in unnecessary inventory.
CFOs can play an important role in anticipating and avoiding these unintended consequences, and ensuring alignment of incentives to meet the objectives of the business.
9. Consider centralizing business functions
CFOs should advise on the right operating model for the supply chain, often drawing on their own experiences of finance transformation. A more centralized model for functions, such as procurement, enables companies to achieve economies of scale. It also facilitates better performance by bringing together expertise in one place and then leveraging it globally.
Some companies are taking the next step in centralization by creating multifunction shared service centers. These single, unified business services organizations can manage end-to-end processes across a range of different functions, including finance and HR, as well as procurement.
10. Look deep in the supply chain for risks
Most companies today have highly global complex supply chains that comprise primary, secondary and sometimes tertiary layers. With operations happening far from a company’s direct control, it can be challenging to identify exposures, understand and mitigate these risks.
Working together with heads of supply chains, CFOs should focus on gaining visibility into secondary and tertiary layers of the supply chain and ensure that they have appropriate control over their external partners.