The ‘New’ Brand of CFO’s and Supply Chain Risk

In the past Chief Financial Officers gave little recognition to the safety of the overall supply chain. They were mostly concerned with the bottom line – financial profitability – leaving the supply chain safety to others in the organization. Today, the new brands of Chief Financial Officers realize that supply chain performance does directly impact the profitability of an organization. They are beginning to look at supply and demand as a financial means to manage inventory on a global scope. The realization that the slightest miscalculation or interruption (sometimes completely out of their control) can decide the profitability. Supply chain Management or to be more precise supply chain risk management is an essential strategic concern for Chief Financial Officer. This has come about not just due to a global economy but also because of climatic catastrophes and political unrest where many manufacturing facilities are located. Suppliers/vendors and other third parties have a large influence on supply stability, especially those that are located off shore. This influence can extend to company performance and brand image. Despite this new view by the ‘new’ CFO’s there is still a resistance to seeing the supply chain in a holistic manner to understand the depth of the exposure a company can be faced with. Too many times it the issues facing supply chain are met or viewed in individual silos as opposed to the entire picture. Supply chain risk management is not about the firefighting mindset. One only has to consider the tragedy in Japan – the tsunami – had a perceptible impact on the supply chains of many companies. Among them being, the steel, automotive, electronics and chemical industries. Did this disaster raise questions about supply chain risk and security? As stated above climatic or weather disruptions are not the only threat to supply chain. What about the political unrest in the Middle East that threatens oil supplies? The CFO makes decisions to decrease inventory levels, rely on a sole supply source and adopts just-in-time manufacturing methodologies. These are all valid decisions but can a company afford the tradeoffs – quality and business continuity? The disruptions mentioned above are vivid reminders to the CFO that these tradeoffs do not come without risk. In a highly connected world, an enterprise wide view of the significance of the supply chain is vital managing risk. These risks can reveal themselves in various areas – internal planning, operations, suppliers, and any category of spend. These risks should force the CFO to consider upstream supplier relationships, together with second and third party suppliers and logistics, as fundamentals tied to the company’s operations. The organizations’ supplier relationships and supply network are just as important to a company as their internal processes as they are tied to the business model and its success. The new CFO now asks questions on the topic of what might happen to the ability to fulfill customer orders and business operations if a key part of the supply chain was put into jeopardy. 1. Which suppliers can we depend on for our raw materials and their delivery? 2. What would happen if we were to lose one or more of them? 3. How long would we be able to continue operations? 4. Are there other parties available to us? 5. Are there enough inventories downstream to sustain us through recovery? Not only these questions but the CFO must keep in the back of his/her mind the following – serious defects in these alternative raw materials, disruptions in transportation, material price volatility, transparency, how soon would the disruption be felt in our operations and for how long and our resiliency. If all of these questions are not proactively answered now risk management becomes CRISIS MANAGEMENT. When I say proactive it means weekly business continuity planning meetings. These meetings should assess any and all impact such disruptions to the supply chain can cause and create tested response plans to minimize the impact. Many companies argue that the cost of implementing these programs is prohibitive. My question to them is this: Would you rather pay now for prevention or pay dearly later at the risk of the entire company’s survival? Just for the record these are some of the proactive strategies that should be considered: 1. Identifying alternate suppliers 2. Contract manufacturers who can assist at a moment’s notice 3. Postponement strategies 4. Inventory buffers In conclusion I leave you with several questions. 1. Do we consider an end-to-end view of the supply chain? 2. Do we initially focus on a smaller scope? 3. For our suppliers, do we consider all scenarios that could lead to disruptions? 4. Do we address our resiliency and response time? CFO’s must work with all management to address these questions in order to make significant strides in limiting supply chain risks and preventing crisis management.