Aligning Financial and Supply Chain Strategies for Success
William Shakespeare labeled them “strange bedfellows” in The Tempest. Centuries later, Neil Simon’s 1965 play The Odd Couple paired neat freak Felix Unger with slob Oscar Madison.
Both unlikely companionships based on shared circumstances succeeded. Shakespeare went on to a degree of fame in his lifetime – and beyond. And Simon’s tale of mismatched roommates was such a hit it spawned a movie and a TV series.
Today, the phrase “odd couple” describes unusual relationships or collaborations between parties that typically have opposing viewpoints, goals or values. Neither party sees the other as compatible. In fact, in many cases, the two sides previously conflicted.
Today’s C-suite roommate concept involves the neat, uptight chief financial officer (CFO) and the harried chief supply chain officer (CSCO). Business leaders have long held the chief financial officer in high regard. Post-pandemic, they realize the CSCO should have a place at the table as well.
But if you want your financial plans and supply chain plans to provide competitive advantage, your CSCO and CFO should join, not fight. Integrated business planning requires cooperation, not chaos.
In fact, working together, the CSCO and CFO could develop organizational superpowers. They could make integrated business planning a reality that spurs competitive advantage and profitable growth.
What Chief Supply Chain Officers and CFOs Do – and Don’t
Long-term business success requires C-suite leaders who can align on goals, priorities and approaches. But CFOs do a number of things that CSCOs don’t. And vice versa.
So, let’s examine how the CFO and the CSCO supposedly clash. Consider:
- Traditionally, CFOs focus on financial statements and outcomes. CSCOs focus on fulfilling customer expectations.
- Traditionally, CFOs want to minimize capital expenditures. They see supply chains as non-value-added activities – a notion that leaves the CSCO aghast.
- Traditionally, CFOs only target expenditures. While CSCOs aim to reduce end-to-end supply chain costs, they must deliver to customers. (See the first bullet point.)
- Traditionally, CFOs want to increase terms on accounts payable so their suppliers are in their “bank.” CSCOs, on the other hand, want to keep their suppliers financially solid. That keeps the supply chain moving and supports great customer satisfaction. (Again, see the first bullet point.)
Educating Each Other Begats Alignment and Success
So, no way the CSCO and CFO can collaborate, right? Wrong.
Not only can they collaborate, they can align – both from a strategy perspective and during mergers and acquisitions.
CFOs and CSCOs who align financial strategies with supply chain operations create huge opportunities. They can ensure investments and supply chain strategies increase a company’s profitable growth.
The CSCO can educate the CFO on how (and whether) network redesigns, technology implementations or process improvements could reduce costs or improve service levels. The CFO can incorporate these initiatives into financial forecasts and budgets.
Conversely, financial modeling can inform the CSCO’s supply chain planning. For example, a CFO’s growth projections may require expanded supply chain capacity. This visibility gives the CSCO a heads-up to strategically plan ahead.
This two-way strategic alignment allows the supply chain to drive profits, not just increase costs. The CFO equips the CSCO with resources for prudent supply chain investments. In turn, the CSCO can better match supply and demand and increase supply chain resilience.
Such alignment is critical in today’s era, where companies are furiously examining options to nearshore, friendshore and reshore.
Likewise, consider mergers and acquisitions.
Years ago, a PE firm asked me to examine whether to buy part of a huge food conglomerate. The company should have had two distinct supply chains: One for manufactured food and one for grown food.
For manufactured food (beer, cereal, coffee, chocolate and more), you roughly produce and store a month’s worth at a time. For grown food (canned fruits and vegetables), you pick and can during whatever short growing season God tells you to.
But they did supply chain management wrong by operating one supply chain.
How M&A Due Diligence Saved $24 Million Annually
During harvest season, the conglomerate processed a year’s worth of canned fruits and vegetables. They shipped and stored that product at one of North America’s most expensive locations. That costly distribution center then shipped product to regional warehouses or directly to retail stores.
Beyond the spiked inventory costs, transportation cost a bundle since the trucks had nothing to backhaul to the fields. Making matters worse, the conglomerate had several nearly unused warehouses near their fields.
I told the PE firm they could easily save $20 million a year in inventory and transportation costs. Just store canned food near the fields, shipping it further down the line on demand.
The PE firm made the move. My team redesigned supply chain operations. We actually saved $24 million a year.
Profits spiked. The PE firm later sold the “God-grown food” operation for a healthy profit.
From Integrated Business Planning to Digital Transformation and More …
The dynamic partnership between CFO and CSCO can unlock further superpowers that can drive organizational success. Here are five key areas:
- Integrated business planning: Collaborating on integrated business planning (IBP) can improve forecasting, inventory management, customer satisfaction and overall organizational performance. IBP has significant impacts on supply chain operations and financial metrics, requiring expertise from CFOs and CSCOs.
- Cost management: CFOs can drive a holistic approach to cost management through rigorous operating and capital budget processes. CSCOs, on the other hand, provide invaluable insights into supply chain disruptions that impact these budgets. But working together enhances their magic. Collaboratively, they can optimize inventory levels, manage working capital, streamline sourcing and logistics, focus on core competencies/outsourcing and effectively mitigate risks.
- Risk management: Speaking of risks, cooperation can foster supply chain resilience. Resilient supply chains can respond to financial and operational disruptions. By combining their expertise, CFOs and CSCOs can proactively identify and mitigate potential risks, ensuring business continuity and minimizing adverse impacts.
- Real-time communications: Risk management is virtually impossible without real-time data. Operational excellence hinges on supply chain connectivity and visibility. CSCOs can provide CFOs with real-time insights into supply chain operations. These insights enable swift responses to evolving situations and informed decisions based on accurate, up-to-date information.
- Digital transformation: Digitalizing supply chain operations can increase efficiency, effectiveness and accelerate profitable growth. CFOs and CSCOs must collaborate on global supply chain architecture and the role of artificial intelligence and machine learning. They must jointly define and align on key performance indicators (KPIs) that measure whether digitization succeeds or fails.
CFOs, CSCOs Can Become Your Organizational Superheroes
CFOs and CSCOs have great power. But finance and supply chain traditionally have not worked together.
A lot of that comes from the fact that boards previously had not elevated their top supply chain leaders to the C-level. So, the CFO’s only goal was to minimize supply chain cost. CFOs simply could not comprehend that supply chain affects every financial KPI.
I would love to hear how you are integrating your CSCO into the C-suite. But first, you must recognize that this odd couple must work together for either one to succeed. Together, they can develop superhero-like superpowers for organizational success.
In the end, the chief executive officer (CEO) will be happy as well.
Related Reading
- The Chief Supply Chain Officer vs. the Chief Operating Officer (COO)
- Supply Chain Resilience Requires Amazon + 3PLs
- The Supply Chain Team that Saved Patton after D-Day
- Global Supply Chain Management: You’re Doing It Wrong
Jim Tompkins, Chairman of Tompkins Ventures, is an international authority on designing and implementing end-to-end supply chains. Over five decades, he has designed countless industrial facilities and supply chain solutions, enhancing the growth of numerous companies. He previously built Tompkins International from a backyard startup into an international consulting and implementation firm. Jim earned his B.S., M.S. and Ph.D. in Industrial Engineering from Purdue University.
