• Supply Chain
  • CFO.com | US

CFO Supply-Chain Role Tied to Profit Boost

Dispensing with the traditional hands-off role in supply-chain operations, CFOs should become business partners with supply-chain leaders, EY says.

Finance chiefs can help boost their companies’ earnings by getting deeply involved in their companies’ supply-chain operations, a new study by Ernst & Young shows.

Forty-eight percent of companies in which finance chiefs engage in such “business partnering” relationships with supply-chain executives reported EBITDA growth of more than 5 percent over the past year, according to EY. In contrast, only 22 percent of the companies where the CFO has a more traditional, hands-off relationship with supply-chain leaders saw a similar profit boost.

Many companies seem to be sensing the correlation, the study suggests. Seventy percent of the CFOs and 63 percent of the supply-chain heads responding to the survey say their relationship has grown more collaborative over the past three years. (Half of the 423 respondents were CFOs, half supply-chain executives.)

A_company's_supply_chain_(en)

Despite the perceived advantages of collaboration, just 26 percent of finance executives and 21 percent of supply-chain executives say that the CFO’s contribution to the supply chain is collaborative, according to the respondents, half of which work for companies with more than $1 billion in annual sales.

One reason may be that fostering such a relationship can take quite a chunk of time out of a finance chief’s day. CFOs involved in such collaborative relationships report spending 25 percent of their time with supply-chain heads, while more traditionally oriented finance chiefs spend just 12 percent.

One big value of CFOs taking a stronger hand in supply chains is that they can provide a balance between the often more aggressive push by sales departments to hit targets and the more deliberate pace of operations in providing products the sales team wants to sell, according to Brian Meadows, leader of supply-chain operations for the Americas at EY.

A hazard in the traditionally standoffish role played by CFOs toward supply chain issues is that the company’s rolling forecasts don’t get coordinated with the company’s operations, he says.

The problem typically occurs when companies plan their operations on the basis of sales forecasts “and make a determination how that sales forecast is going to be met by production plans,” according to Meadows.

In cases in which “the financial plan is only linked into the sales forecast, you could see challenges to the company’s ability to meet its financial expectations,” he says. “The forecast may be overoptimistic, and the company may not have the capacity to deliver it. And what happens in the operating category is they have to go to a third-party contractor to go back and supply that demand.”

Such situations are more likely to occur when there’s a clear divide between finance and operations. Too often, the CFO’s focus “tends to be on the numbers themselves or the scorecards that may be generated,” the consultant says.

That’s understandable, considering the job demands of finance chiefs, he adds. “It’s easy for the CFO to be focused on working with the controller on closing and dealing with the end of the quarter and how to present results to the investment community,” Meadows adds. “It’s easy to delegate the essence of the operating connectivity to your head of finance operations.”

Yet for finance chiefs who want to put in the time to get their hands dirty with the details of their company’s supply chains, there’s the possibility of driving additional earnings, the E&Y study suggests. “There’s an opportunity for the CFO to help in the alignment of the operating strategy with the business strategy,” adds Meadows.

Illustration by Stern

One thought on “CFO Supply-Chain Role Tied to Profit Boost

Discuss

Your email address will not be published. Required fields are marked *