6 minute read 18 Jan 2021
Man sitting in office working late in his start up company

Why the CFO might become the chief resiliency officer

Authors
Sean Harapko

EY Americas Supply Chain Transformation and Global Supply Chain RPA leader

Passionate about friends and family both in and out of work. Husband and father surrounded by girls. Outdoor adventure seeker. Big supporter of the military and military community.

Jeff Schlosser

EY US Supply Chain Transactions Leader

Assisting clients as they hone their go to market model. Champion of championing great people. Music fanatic, especially when it comes to getting it in kids’ hands. Proud dad of two serious drummers.

6 minute read 18 Jan 2021
Related topics COVID-19 Consulting

The next generation CFO is a change agent who’s aligned to the supply chain and on top of resiliency, agility and financial efficiency.  

Three questions to ask
  • Is your supply chain an asset or a cost center?
  • What is the most critical financial risk related to changing regulations and trade agreements?
  • How do you deliver enough cost savings to reinvest in innovation?

Every business has a chief financial officer (CFO). It’s the universal role — but the days of CFOs being solely accountants and controllers are long gone.

CFOs are not always comfortable with supply chain topics — but increasingly they must be. They own the quarterly reporting, and the COVID-19 pandemic has driven dynamic demand and volatile supply costs, which have made accurate reporting hard. Further, supply constraints are complicating when things arrive, and raw materials costs are going up.

These impact cost management and the cash that CFOs are trying to free up to drive growth or to just maintain stability. But there is even more on the plates of many CFOs today, such as having to manage resiliency, sustainability, visibility and tax.

All of this is driving the CFO to become a change agent and a driver of resiliency, agility and financial efficiency — where the CFO evolves to a chief resiliency officer role.

The CFO and the supply chain

In non-asset companies, the chief supply chain officer (CSCO) is typically a procurement officer reporting to the CFO. And in companies with a chief operating officer (COO), who are often senior vice presidents of planning, the COO also reports to the CFO. This is feeding into a growing trend of CFOs being key buyers for supply chain. Some finance functions already have global business services organizations that incorporate supply chain, but with or without this there is a growing need to integrate customer, supply and logistics services — all supply chain issues that have a direct bearing on finance and the CFO.

CFOs often tell us they need more visibility into supply chain, notably:

  • Supplier financial health
  • Dynamic customer demand and how that will impact working capital
  • Near real-time fluctuations in cost of goods and labor pricing
  • Contingency plans that will require immediate investment (for example, standing up a new supplier in a supply crisis)
  • Investments to make the supply chain more resilient

One challenge between the supply chain function and the office of the CFO is how to pay for a supply chain transformation. A recent EY survey of US-based supply chain executives suggested that nearly 50% of companies are funding their digital supply chain transformations from either their supply chain budget or the overall enterprise digital transformation budget. For companies without these funding sources, the CSCO might be working with the CFO to find money to fund some of the digital transformation efforts via cost reduction, reinvestment, supply chain financing (such as reverse factoring) or delaying invoice payments. Therefore, for many companies with a limited supply chain transformation budget, the CSCO and CFO will have to work together and closely align to digitize various supply chain functions.

Monitoring and tracking supplier disruption

The CFO is always concerned with enterprise risk management. And one critical area that CFOs and CSCOs must continually monitor is supplier risk — understanding the financial position of suppliers, especially those critical to the continued success of the company. CFOs and CSCOs are both concerned with the liquidity and delivery capabilities of crucial suppliers. Therefore, the two roles will continually need to collaborate in understanding supplier risk (e.g., geographic footprint, reputation, liquidity and potential for disruption). Gaining visibility into supplier financial risk — beyond tier-one — helps a company react to disruption and, in many cases, avoid it in the first place.

Five issues touching today’s CFOs

As supply chains span the globe and become more complex, we’re now also seeing the CFO involved and having influence in new areas, such as transparency and resiliency, sustainability, and the digitally networked supply chain:

  1. Strategic architecture: Managing finances, new tax jurisdictions, company names, changing operating model taxes, trades and tariffs.
  2. Cost reduction: The pandemic has demanded strenuous efforts to reduce costs and find cash as payment terms change.
  3. Transparency and resiliency: Supplier risk management is always a concern; however, the COVID-19 pandemic and lock-down policies in countries around the world have elevated the topic of supplier resiliency.
  4. Sustainability: Supply chain sustainability is moving beyond a compliance demand and becoming a key competitive differentiator. There is a major role to play in the green, circular economy.
  5. Digitally networked supply chain: Visibility and automation along the supply chain tie in directly with the CFOs remit to lower risks and keep costs down.

The next-generation CFO will become the chief resiliency officer

COVID-19 has accelerated a shift to the CFO becoming the chief resiliency officer, almost adding a function to their hat. For example, the CFO is usually first on the scene with regard to distress, transactions and urgent cost take-out. They also have to firefight around potential breakage points — low cash reserves, lean inventories, distressed suppliers and shippers. All these should be restructured to build in greater transparency and resiliency. And for these scenarios, CFOs need to be armed with supply chain key metrics.

So, how can today’s CFO work more closely with the supply chain function? Here are some first steps:

  • Embrace digital supply chain: According to EY research, only 26% of surveyed companies are digitally networked. There is still huge potential to be explored. EY research also shows firms that are digitally networked with suppliers and customers — and are on the journey to an autonomous supply chain — may enjoy increased market share and higher customer satisfaction.
  • Forecasting must become a core competency: In an EY webcast poll, 77% said that changes in customer behavior were the key risk for their company when it comes to forecasting, significantly more than those who identified liquidity and capital restraints (the next most frequent answer at 38.4%). CFOs must have a pulse on customer demand by analyzing data from multiple and sometimes novel sources to understand potential changes in who customers are and how to deliver value to them. And financial modeling and simulation need to predict when materials and products are coming back in line to avoid disruption or rapid increases in inventory.
  • Envision the future: Every step the CFO will take must now begin with potential scenarios of the future — especially the autonomous supply chain. In a recent EY survey, 52% say the mostly autonomous supply chain (robots in warehouses and stores, driverless forklifts/trucks, delivery drones, fully automated planning, etc.) is either here or will be here by 2025. With the autonomous supply chain looming large, it will be important for CFOs, along with the CSCO to chart a path of differentiation for their enterprises — especially against the internet commerce giants.

The CFO’s role has never been an easy one. But now, stressed supply chains, new customer demands, the influence of evolving technologies, and greater cross-functional collaboration mean that it’s an increasingly complex one. Tomorrow’s CFO is truly a super-CFO: actively driving change, resiliency, agility and — as ever — financial efficiency.

Summary

The CFO’s role has always been difficult. Burning issues in today’s business world such as stressed supply chains, new customer demands, the influence of evolving technologies, and greater cross-functional collaboration indicate that it’s an increasingly complex one. The CFO of the next generations should take on the role of an agent of change, aligned to the supply chain to improve areas such as resiliency, agility and financial efficiency.

About this article

Authors
Sean Harapko

EY Americas Supply Chain Transformation and Global Supply Chain RPA leader

Passionate about friends and family both in and out of work. Husband and father surrounded by girls. Outdoor adventure seeker. Big supporter of the military and military community.

Jeff Schlosser

EY US Supply Chain Transactions Leader

Assisting clients as they hone their go to market model. Champion of championing great people. Music fanatic, especially when it comes to getting it in kids’ hands. Proud dad of two serious drummers.

Related topics COVID-19 Consulting