Supply chain questions CFOs want answered
Today’s CFOs are tasked with more effectively managing company finances because of new competitors,
Software AG's Sean Riley
changing consumer trends and new requirements for capital (think funding digital transformation). So, aligning a supply-chain strategy and a company’s financial goals is increasingly critical for driving overall value for the business. To increase productivity and shrink profit losses, CFOs must understand how effectively their financial positions can be affected by supply-chain changes or disruptions. Below are three questions that CFOs want answered about the supply chain—and how organizations can prepare to answer those questions with a strong supply-chain-visibility plan.
1. How accurate is our supply-chain visibility?
One of the key challenges that comes with managing the supply chain is enabling complete visibility into all aspects of cost and performance. This task is made even more difficult when companies have multiple business units and/or locations. The IIoT has ushered in the ability to pinpoint issues within the supply chain by providing real-time data through sensors, video, GIS, and other connected technologies. Incorporating IoT devices into a supply-chain-visibility plan gives companies a better understanding of where a product is coming from, the condition of the product, and when will it arrive, as well as insight into processes on both the macro and micro levels.
Data analytics gleaned from IoT-connected devices enables manufacturers to have greater visibility into the actual business workings and processes by providing a holistic and accurate picture of efficiency. This data provides actionable insights that can be turned into decisions that improve the business’ bottom line by resolving issues with minimal disruption and cost. Real-time, end-to-end situational awareness of supply chain operations ensures that CFOs have visibility into all aspects of supply-chain management at all times.
2. How quickly can we identify and address challenges in response to a disruption?
Disruption to the supply chain—from increased customer demand, changes to the marketplace, or a physical disruption to a company's infrastructure—can happen at any time. CFOs know that unforeseen difficulties can impact the bottom line, and so visibility into when and why such issues arise (as well as a timely response plan) are key to maintaining business continuity.
Responsiveness is even more important as the supply-chain process becomes more pressed for space capacity and inventory, leaving little room for oversight or error. This is another area where IoT-connected devices can go a long way towards providing answers. Location data, temperature, and production yield can all be derived from real-time sensor data, meaning that anomalies in that data can be quickly addressed.
Of course, a response plan should take into account the age-old “quality over quantity” adage. In other words, an organization should respond strategically to disruptions, ensuring response at the appropriate time rather than devoting resources toward every issue. Manufacturers should also consider how long a business can operate on its current inventory in case of a disruption. Accordingly, such a plan should be developed in conjunction with the CFO.
3. How well can we respond to changes in the industry?
The digital landscape is rapidly evolving as new technologies come onto the scene. CFOs must understand how quickly their organization’s supply chain and IT leaders can make the necessary updates to their own supply-chain operations to keep up with the industry and competitors. For example, Gartner predicts that by 2020, 90 percent of supply-chain expenditure will be for cloud-based applications, while supply-chain-planning applications will remain on-premise. This means CFOs need to prepare to shift to a continuous opex for cloud-based subscriptions, but still understand that capex will be needed for the on-premise planning tools. And with the growth of IoT and advanced analytics, it is crucial that CFOs know how to capitalize on the value of these new technologies.
Such changes to technology have impacts not just on supply-chain manufacturers, but also on suppliers. This means asking questions about the different players in the supply chain to understand how changes out of a manufacturer's control can affect the business. Which suppliers does a business rely on for essential parts or materials? How quickly could a supplier problem be recognized.
As technologies change and disruptions occur, the supply chain must remain responsive and nimble in order to identify and rectify problems with minimal impact to customers. CFOs must have a clear understanding of how those changes will impact their costs and financial positions. Ultimately, the CFO operating in this era of digital transformation needs to ensure that their company’s supply chain is not only flexible, adaptive and resilient from a product standpoint, but also from a financial perspective. And the best way to manage this is to closely work with IT and supply-chain leaders to ensure the right capabilities are in place.
Sean Riley is global industry director for manufacturing and transportation with Software AG.