Many CFOs are reluctant to get involved in the supply chain management process, leaving that area to the COO and his or her team of experts. But in the current environment, it should be all-hands-on-deck as businesses continue to grapple with supply chain disruption and the uncertainty it brings to the entire company.
Best practices for a manufacturer are different than those for a distributor, and both are different than those for a retailer. The challenge of finding the right best practices is that many manufacturing businesses now overlap all three categories. In today’s world of migration away from brick-and-mortar shops, the online fulfillment process places many companies in the position of operating as manufacturer, distributor and retailer.
This migration, combined with the rollercoaster of on-again, off-again demand caused by COVID and post-COVID environments, leaves supply chains snarled. The shift toward flexible work-from-home arrangements further complicates the issue, straining every function and process in an organization.
Fortunately, there are best practices in risk management that can help any CFO better support the supply chain management process.
Risk Management Essentials
Risk management for a CFO takes on new challenges in this ever-changing environment. Internal controls, remote procedures and the need for accurate forecasts, all force a CFO to reach beyond the normal four walls of the company to manage supply chain relationships and soften the blow caused by the pendulum of swing of demand.
Visibility into “sell-through” data is essential for manufacturers to navigate these changes. Best practices would have companies monitoring everything from customer inventory and supply availability to scheduled delivery dates from critical suppliers.
Key performance indicators (KPIs) throughout an organization take on new meaning in this context. At a minimum, make sure you are tracking forecast accuracy, on-time delivery, unit throughput, average days in work in process, yield, scrap, order fulfillment rates, workstation efficiency and lead times. In this environment, a yield loss on one manufactured part can hold up an entire shipment – just look at the impact of semiconductor availability on the auto industry.
This data combined with another best practice – communicating and working with customers and distributors to modulate inventory levels – enables a company to proactively mitigate as much risk as possible.
Evaluating internal controls is an essential best practice in any economy, but especially in today’s risky environment. Remote workforces and reduced headcount leave companies especially vulnerable to gaps in supply management controls. Everything from an initial requisition to the positive pay upload and bank reconciliation need to be executed with a proper segregation of duties within a system of KPIs. The CFO needs to elevate visibility into internal control operation from a background process to a monitored system.
In remote work environments, Zoom and Microsoft Teams meetings are typically focused on a limited number of issues. The visibility into the connection between various supply chain issues becomes blurred. Critical KPIs and vigilant controls are the guiderails that keep these connections at the forefront and create a clearer roadmap to delivering exceptional value to customers.