Supply chain issues have been causing headaches for manufacturers in one way or another since 2020. Though business leaders understandably want to mitigate supply chain risks and move forward, top-down attempts by corporate finance leaders to restructure supply chains haven’t yet delivered true supply chain resiliency. Successful manufacturers have found that, instead of running the supply chain strategy from the C-suite, getting finance leaders on the ground in the supply chain function leads to greater efficiency, strategic alignment, and success.
The marriage of finance and supply chain is best represented by the emergence of a new breed of supply chain leaders: supply chain finance VPs and SVPs. These leaders keep one foot in the finance world (aligning with corporate and strategic goals) and one firmly in the supply chain. Supply chain finance VPs oversee all financial matters related to plant operations, supply chain and sales support for the organization. They provide oversight for working capital programs, inventories, accounts payable and receivable, and supply chain financing.
| Supply chain finance: a financing method particular to supply chain that allows the buyer (manufacturers) to approve credit for the sellers (suppliers) via a third party, allowing the sellers to be paid faster and providing the buyers (who preferably have better credit to allow for better payment options) liquidity and more time to make necessary payments. |
Supply chain finance VPs take a hand in the operations side of things as well, working to increase inventory turns, collaborating or overseeing cost and pricing strategies and identifying advanced financial tools to optimize budgeting, planning, and sales performance. Between their collaboration with corporate finance and their efforts to balance cost optimization and pricing strategies, supply chain finance VPs are a true bridge between supply chain management and corporate finance departments.
Belts have tightened since 2020. The ensuing supply chain crises, inflationary pressure, and rising interest rates spurred a renewed effort to recession-proof businesses, especially in manufacturing.
These new supply chain finance leaders are in the right position to do a cost/waste audit of various supply chain processes and examine how working capital is deployed. They may assess whether old or slow-moving inventory should be reduced or eliminated altogether, as well as recalibrate other inventory and supply processes.
One of the biggest cost concerns in manufacturing supply chains lately is the rising cost of labor. Rather than reduce headcount to cut topline costs, supply chain finance leaders have perspective on the operational impact of layoffs and attrition, seeing how the long-term loss in capacity can be greater than any labor costs saved. Attrition is a huge disruption in terms of lost training investment, lost productivity, and impaired customer service. Many manufacturers find that retention incentives are worth the capital for many reasons: good retention protects company reputation, fewer hours are lost to new employee ramp up, and a stable-size sales force is better able to address the volatility of macroeconomic effects.
You may not need your full headcount today, but you might in six months, and quality talent is difficult to find quickly. Exploring controllable cost-cutting measures while not overreacting with headcount reductions is one of the many ways new supply chain finance leaders can use times of recession to prepare for the following periods of growth.
One major way supply chain finance leaders are controlling costs and ensuring supply chain reliability is nearshoring and friend-shoring. While offshoring gained popularity due to lower labor costs, recent supply chain instability, political pressures, and environmental issues have dimmed both consumer and manufacturer enthusiasm. Many manufacturers are exploring the reliability and reduced transport cost benefits of nearshoring, while others seek reliable suppliers who share political or cultural values through friend- or ally-shoring. Both these strategies center around mitigating risk, through collaboration (friend-shoring) or through reduced distance (nearshoring).
Not all these approaches will benefit every manufacturer. Realizing the benefits of restructuring your supply chain processes, supporting talent retention, or shifting to nearshoring depends on balancing financial strategy and complexities with operations realities. Embedding a finance leader within your supply chain function better positions you to evaluate your approach, weigh your options, and adjust quickly based on your results.
Supply chain success is a combination of commercial strategy, operations capabilities, and supplier base management. Embedding finance within this function is a great start to collaboration between these teams, but the success of this new approach depends on the ability to make collaborative decisions based on data.
These decisions should involve all business units, with scenarios evaluated in terms of impact on balance sheets, cash flow, and profit and loss. Leaders from each area need to have access to the same qualified data to gain insight and reach a consensus. This can’t happen with disparate data sources, legacy systems, or Excel sheets saved on your CFO’s desktop. Data should be unified so that stakeholders can run reports and compare insights using the same accurate numbers.
Unifying data into a single user interface not only makes collaboration easier but increases accountability and transparency, all the better to reduce spend without increasing risk. Proven benefits include reduced working capital requirements, better on-time performance for increased customer satisfaction, and reduction of cost of goods sold. Connecting your data and empowering cross-department collaboration empowers your supply chain’s finance leaders to make the right, data-driven decisions.
To learn how you can improve your supply chain’s finance capabilities, contact Ken Schrock.
