What Every CFO Should Know About Aligning Finance with the Supply Chain

Year-over-year lowering expectations for revenue, earnings, capital spending, and domestic hiring have taken a toll on most companies’ outlook on their financial prospects. According to Deloitte’s Q4 2022 CFO Signals survey, only 29% of CFOs believe now is a good time to take on greater risk, which lags far behind a two-year average of approximately 50%.

While market uncertainty and economic turbulence are likely factors, the hesitancy to take on new opportunities also stems from a misalignment between supply chain and finance organizations. Overcoming this hurdle requires both functions to use a common language to navigate supply chain constraints and expenditures in ways that achieve top finance priorities – especially cost management, financial performance, and both inorganic and organic growth.

Establishing that language can be accomplished through integrated business planning (IBP). Such alignment enables finance and supply chain leaders to fully understand each other’s challenges, goals, and opportunities and create mutually beneficial strategies that move the business toward greater compliance, higher profitability, and ongoing growth.

Integrating all corners of business planning

Finance and supply chain organizations can seem worlds apart, even though they are on the same continent. Finance teams speak about business issues in terms of currency and margins, while supply chain operations make decisions based on volumetric conversations around units, capacity, and lead time. As a result of this divide, the two organizations remain in their corners using siloed systems, acting in a vacuum, and ultimately surprising each other periodically.

But at the end of the day, both CFOs and chief supply chain officers (CSCOs) have the same common goal: meeting or exceeding the targets for corporate margins. Finance teams typically set annual plans to drive them, and supply chain planners engage in sales and operations planning (S&OP) and sales and operating execution (S&OE) to help deliver them. But it’s also important to translate the supply chain’s demand and supply plans back into real currency and cash flow to foresee risks and determine new strategies for achieving the projected outlook.

The key to resolving this dilemma is unifying finance and supply chain data, processes, and systems with an Integrated Business Planning platform. This approach helps ensure both organizations have the visibility they need to know where risks reside, which opportunities should be seized, and how to course-correct if goals are not being met or exceeded. More importantly, better decisions can be made faster by replacing outdated spreadsheets and paper reports with in-the-moment, predictive data analytics delivered through the platform.

Driving business goals from the same language

With an IBP platform, CFOs and CSCOs can leverage financial targets and supply chain performance to inform their strategies, as demonstrated by the following business scenarios.

1. Promote the right stock at the right time

Statistically, causal-driven forecasts can be used to understand how sales have historically performed. This information allows CSCOs to react to real-time differences between inventory levels, budgets, and fiscal projections.

For example, planners can shape demand by recommending promotions for underperforming product categories or items. In addition, they can assess exception messages to identify items and product groups that may be at significant risk of either gathering dust in inventory or falling short of fulfilling demand.

2. Influence operational supply chain planning

Insights from margin analysis of each customer, channel, and product line can help automate the prioritization of demand fulfillment with the highest-possible margins. Doing so closes the gap between actual budgets and revenue forecasts so supply chain planners can increase the size of the demand signal and determine how production capacity and stock shortages or overages can be best leveraged to maximize revenue.

3. Optimize inventory planning

CFO budgetary goals can also shape supply chain plans by enabling aggressive optimization of inventory plans. Planners can search for the ideal mix and inventory position across the supply network through a multi-echelon inventory optimization engine. As a result, they can free up working capital to improve cash flow and bridge the gap between plan and budget.

In terms of cash flow  CFOs and CSCOs can collaborate to source raw materials and finished goods from third-party vendors that offer generous payment terms. Such conditions may include discounts for early payments, quantity thresholds, or regularly scheduled delivery. In addition, both executives can monitor financial targets by hedging against supply variability by using specific metrics to measure the performance of the entire supply network, including all current and alternate vendors and suppliers.

Accelerating business value with a unified partnership

As demonstrated by the business scenarios described above, an IBP platform can set a solid foundation for a long-term partnership between solid foundation for finance and supply chain organizations. Together, they can create business value in a more holistic manner – optimizing costs and capital expenditures while ensuring the overall business accomplishes its fiscal goals.