The supply chain is truly integral to the functioning of any business. Not surprisingly, it also consumes a large portion of a company's operating expenses in most cases. This can be seen even in an apples-to-apples comparison between companies in the same industry. However, the majority of firms lack supply chain expertise at the top, including in the finance department, which must control those costs. This calls for new solutions to integrate the finance function with supply chain management efforts to realize new levels of efficiency in each department.
1. Understand the nature of supply chain costs
Even when comparing businesses in the same industry, supply chain costs are highly variable and hard to accurately measure. According to research from Supply Chain Consortium, average supply chain costs as a percentage of sales can range from 2 percent to more than 10 percent across various segments of the retail industry. Health care is another business where supply costs are all over the map. For example, according to data from Definitive Healthcare, supply costs compared to revenue at some of America's biggest hospital networks in 2013 ranged from a low of 14 percent to a high of 36 percent.
Maybe high supply chain costs are unavoidable in your industry, or perhaps you just aren't tracking them accurately. SCM Best Practice pointed out that by the nature of traditional cost accounting, finance teams often know their firm's total overhead expenses but have trouble allocating those numbers to specific clients or products. Whether through old technology, inefficient processes or a simple lack of financial expertise, supply chain costs often go uncontrolled for these reasons.
2. Enable the strategic CFO
Writing in CFO.com, Chuck Franzetta points out that in all but the largest companies, supply chain management from a financial perspective often falls to the CFO. This might seem obvious, but it infrequently works out in practice. CFOs rarely have the time or resources to devote to the highly tactical work of supply chain management. Shipping and logistics are usually outsourced, and for good reason, but then so is the financial control over those operations.
It doesn't have to be this way. CFOs shouldn't be acting as the dispatchers for delivery drivers, but they should have the tools and time available to execute strategic plans for supply chain optimization. That power comes from a well-integrated financial platform that delivers insights to the CFO directly, allowing them to act quickly rather than continue hunting for needles in haystacks.
3. Don't stop at the supply chain
Supply chains aren't exactly linear - they entail a complex process of transactions flowing into and out of a business. For that reason, financial management of supply chains really requires optimization of the entire finance function across all departments. Gaining efficiency in logistics operations won't make much difference to the bottom line if CFOs don't follow through and apply the same principles to accounting, sales forecasts and more. It's also not possible to understand how any process improvements or strategic plans are translating into growth without a fully integrated financial solution.
Consero helps CFOs realize a higher degree of integration between their finance and accounting operations and the rest of the business. By streamlining back-office processes, this scalable financial platform frees up time for business leaders to think strategically and act on their most pressing challenges.
