CFOs: Survival Trumps Profits, Supply Chain Growing in Popularity
Sean Murphy, Associate Editor -- Supply Chain Management Review, 6/26/2009
The current economy has prompted many corporations to worry more about staying alive than making money, and supply chain management may be poised to become an even more important business practice than it is now, according to the results of a new CFO survey.
The survey, commissioned by Basware and produced in cooperation with Indiana University’s Kelley School of Business and the University of Navarra’s IESE Business School, included finance officers in 550 companies in Europe and North America. It will be the first of many such surveys. Organizers said the surveys will help track trends in the years to come.
Among the findings, companies have set their priorities on a more defensive mode. According to the survey, 64 percent of respondents chose “reducing direct costs” as their main priority. Coming in second, at 60 percent, was “reducing indirect costs.” Few respondents, only 24 percent, chose “environmental practices,” and only 37 percent said “increasing profits” was a main priority in the next year.
One of the survey’s producers, Mark Frohlich, a professor of supply chain and operations management at the Kelley School, was a little surprised at the low interest in turning profits, compared to the financial circling of wagons.
“So many companies are in survival mode,” he said.
Frohlich said in reading over the data, it appeared most of the corporations adopted one of three overarching strategies:
Relentless restructuring: cutting back expenses, layoffs, furloughs, and other drastic cost-cutting measures. Cash flow: cracking down on customers who haven’t paid, reducing lengths of time customers have to make payments on orders, while taking the opposite approach with the company’s suppliers, working to buy time. The “Holistic” Approach: working on higher integration with procurement, eliminating siloes, and making operations more transparent.
Of the three, Frohlich said the holistic approach has the best chance of working, and described the other two mentalities as “total reactive panic mode.”
“They’re the guys, in this survey, that are showing higher performance,” Frohlich said of the holistic managers.
In addition, Frohlich said the survey showed about two-thirds of the respondents don’t yet see the strategic value in supply chain management.
What’s encouraging, Frohlich said, is that one-third do see the value, which is likely an improvement—just five years ago, even fewer CFOs might have found value in supply chain management, and future surveys may show an even bigger increase.
“I think that’s going to grow,” he said.
Ari Salonen, General Manager at Basware, agreed. Finance departments, he said, don’t understand supply chain management enough.
“They haven’t claimed their rightful place,” he said of supply chain managers.
Salonen also alluded to the problem of siloing, saying that the “lack of communication” breeds suspicion between finance and the rest of a company. The solution, he said, is integration. With that, he said, “then the suspicion disappears.”
View All On-Demand Webcasts
