The CFO's View of Procurement and the Supply Chain

In recent years I’ve increasingly found that more and more CFOs are "getting it" when it comes to procurement and supply chain. Perhaps that's because the operational executive role (COO) is reporting into the function (not to mention procurement directly) with what feels like increasing frequency. CFO Magazine recently published a useful article that examines the role finance can play in easing some of the pain from global supplier and supply chain challenges. The article highlights some of the challenges that even companies with strong demand face in securing supply these days. Consider the case of Best Buy, that "noted in March that it could have sold more electronics equipment in the previous three months had its suppliers not reduced their volumes in anticipation of slowing demand". Or consider Mattel which saw "its net income plummet, from $600 million in 2007 to $379.6 million in 2008, as customer orders shrank and 1,000 Chinese toy exporters went out of business". So how can finance help in this equation?

The article offers both pedestrian and more advanced answers to this question. From helping suppliers find new ways of accessing working capital to providing better forecasts, they're quite a number of areas where finance can intervene. But perhaps first and foremost, finance organizations must play a key role to either enable or fund issues surrounding supplier financial risk. Take the case of Corning, where "the procurement group has turned to the finance group for credit analysis expertise" to survey their supply base. Corning's SVP and Treasurer remarks in the article that "The global economic crisis catalyzed the need for us to be more deliberate and rigorous around examining the financial security of our suppliers; consequently, finance has taken on the task".

I've recently interviewed a number of executives on both the consulting and practitioner sides of the market, targeting or representing the finance organization rather than procurement or supply chain. And almost universally, you'd be surprised how much more savvy these individuals are at thinking through the broader implications of supplier financial risk, not to mention how to get a process up and running to assess an organization's supply chain health, compared with many of their supply chain and operational breathren. What's interesting here is that it's often CFOs stepping up to the plate -- not just internal audit. Which shows that finance is taking the timeliness of the situation far more seriously -- not only in terms of evaluating their own controls and visibility, but also when implementing new programs before disaster strikes.

Jason Busch

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