The supply chain

This secret weapon has always been there: it is an essential part of the daily operations of companies and at the same time the key to improving working capital and cash flow. It provides vital data to better understand risk and can even predict revenue and profitability with a degree of certainty that few would expect. The secret lies in examining the supply chain, which offers much more potential than is widely believed.

For the CFO, the supply chain is a tool that paints a picture of various factors that influence a company in near real time. After all, if you observe products along their supply chain, there are numerous conditions that impact these goods, their price, and ultimately customer satisfaction. Even a single critical component in the supply chain or a specific raw material can significantly impact a company's overall sourcing and profitability.

Predict prices for consumer goods

In recent years, market volatility has increased rapidly, especially when considering oil and consumer goods. In this context, balancing inventory investment and procurement costs is a constant challenge for CFOs. The solution to this problem lies in developing an analytical model that examines the macroeconomic factors affecting consumer goods such as metals and identifies price drivers. Such an analytical model also examines the gap between supply and demand of critical consumer goods and provides a technical analysis of historical and current price and volume trends.

One of the most important raw materials for manufacturing companies is aluminium, for example. Current market analyses, valuations and forecasts of the aluminium price are crucial for companies to make timely and advantageous purchasing decisions. With the use of an analytical model, companies can generate more accurate forecasts of commodity prices, make smarter purchasing decisions, and ultimately lower their purchase prices significantly. The better the CFO is able to sift through complex data sets and generate a clear overall picture, the better supply chain teams can forecast and set appropriate targets.

Improve inventory turns

With the increasing risks of another recession and the high uncertainties of the banking system, it is currently more important than ever to manage working capital as prudently as possible. Improving inventory turns is one of the key objectives in supply chain management and is the focus of the CFO's efforts to optimize working capital. To do this, the CFO needs a solid understanding of the composition of inventory investments and the ability to manage inventory in the most productive as well as profitable way. This is accomplished through multi-criteria inventory classifications, as well as optimization of safety stock levels and service level requirements.

Minimize end-to-end risks

Volatility affects the entire supply chain. With today's global supply base, this can have far-reaching consequences for companies. The supply chain is vulnerable to control risk because of its multiple physical and transactional hand-off points. A CFO who keeps an eye on the entire purchasing and fulfillment process is much better equipped to deal with potential chain reactions from emerging risks. Knowledge of the drivers of supply and demand, costs, and all end-to-end processes empowers the CFO to adopt a corporate policy that minimizes risk and achieves better results overall. The starting points for these efforts are a detailed financial evaluation and benchmarking of suppliers.

Integration of the CFO into the supply chain

To integrate the CFO into the supply chain organization, advanced companies are using technologies such as ERP systems and reporting that allow the CFO to extract data and make decisions quickly. This integration benefits both parties. The CFO is better able to predict sales and profitability while minimizing risk and increasing cash flow. On the other hand, the supply chain team can develop and implement plans that reflect the company's actual operational capabilities and goals. As part of this integration, some companies have already given their CFOs direct responsibility for supply chain functions.

Companies looking for a way to control their working capital over the long term should take a close look at their supply chain. It could well hold the very secret weapon that provides an edge in the market and over the competition.