CFO Supply Risk Ignorance is Not Bliss — Looking Forward While Gauging the Damage

With a hat-tip to Bob Ferrari, I came across a December study conducted by CFO Research Services and American Express. The study surveyed finance executives on their views on economic recovery, and on their corporate behavior during the downturn. The study's findings highlight a few potential, disturbing trends that could create continued volatility and challenges for procurement and supply chain organizations. For one, there's no consensus on recovery -- or when financial executives expect it to hit. 21% of those surveyed see signs that recovery is "already evident," yet 5%, 18%, and 21% don't see recovery happening until Q1 2010, Q2 2010, and Q3 2010, respectively, and 36% don't see it until Q4 2010 or later. Spend Matters believes that a lack of consistency in forecasting could easily lead to situations where demand cannot keep up with new orders, creating shortages as well as driving commodity price volatility during both restocking periods and eventual, sustained recovery.

If there's any good news in the findings, it's that only 13% of finance executives report that the "downturn has led to a worsened relationship with suppliers." This number is higher than for partners (11%) and customers (10%), but lower than for employees (40%), creditors (18%), and investors (17%). Still, it's unlikely that finance executives are aware of all of the actions their organizations have taken -- and continue to take, in certain cases -- at the expense of their suppliers (e.g., extending payment terms without providing alternative financing/early-payment options, forcing suppliers to adhere to volume-discount schedules even as orders dry up, requiring R&D investments of new suppliers without committing to specific forecasts and volumes, etc.).

Perhaps this optimism accounts for why 66% of respondents reported that their organizations' actions during the downturn have "yielded cost savings with few negative consequences," and only 19% of those suggested that their decisions "have exposed the company to greater operational and financial risk." But at the end of the day -- let alone the recession -- ignorance of the impact of underlying buy-side behaviors will not give finance an excuse should supply disruptions or other maladies hit the supply chain. In many of the organizations I've interviewed over the past six months, the disconnect between procurement and finance seems to be decreasing when it comes to supply risk. Perhaps if this survey is conducted again two quarters from now, we'll see this awareness reflected more highly in the responses.

Jason Busch

Share on Procurious

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.