The hard truth is most C-level executives traditionally could care less about how the supply chain operates. They just care about results, and they don’t want any excuses about poor service. However, the trend of globalization, especially sourcing from low-cost countries such as China, is opening the door for the supply chain organization to gain a new C-level champion: the chief financial officer.

Aberdeen Group’s benchmark study of more than 400 companies in the past year finds that the interests of supply chain executives and the financial organization are converging. Global supply chain uncertainties—such as delayed or incomplete shipments leading to higher inventory buffers and freight-expediting expenses—contribute to budget overruns and cash-flow-management challenges. In one Aberdeen study, fully 91 percent of companies reported that unexpected supply chain costs were eroding their anticipated savings from low-cost-country sourcing.

Just as a supply chain organization buffers itself from uncertainty by holding more inventory, so does the finance organization buffer itself from uncertainty by holding more cash. Savvy supply chain managers are realizing that by reducing supply chain uncertainty and increasing visibility, they can also help the finance organization hold less cash as well as reduce the working capital tied up in inventory.

So how do you make the CFO a supporter of your initiatives? The first step is to understand the challenges facing CFOs and then be able to express how supply chain improvement initiatives help ease their challenges. Here are four of the top CFO pressures.

Pressure 1: Making the Best Use of Corporate Cash

Remember that CFOs want to actively manage cash the same way supply chain managers want to actively manage inventory. Longer and more uncertain lead times from international locations make it increasingly difficult for finance organizations to proactively use accounts-payable/accounts-receivable balances. And these longer lead times often stretch corporate cash-to-cash cycles. In addition, today’s multiparty supply chains make it more difficult for the finance organization to gain clear forward visibility of financial commitments.

How can supply chain organizations help relieve this first pressure? On the cash collection side, they can implement supply chain improvements that result in more perfect orders and use proof of delivery to trigger customer invoicing. This step will reduce the days sales outstanding and bring cash into the company faster.

On the supplier payment side, they can “double dip” with their finance counterparts on a transaction automation and global visibility platform to improve both supply chain and financial performance. Just as supply chain managers want to move away from phone, fax, and e-mails for placing orders and monitoring shipment status, so do CFOs want to move toward a fully visible, paperless environment for monitoring and settling orders with international suppliers. A robust platform will help the finance organization automate back-office financial processes, minimize invoice disputes, and make more proactive use of accounts-payable balances.

Some CFOs have already figured this out. The CFO at a mid-size apparel manufacturer explains: “I’m looking to drive financial efficiencies through automation and increased visibility of order and payment status with our international vendors. But my hidden agenda is to leverage the same electronic trade backbone to create automation across my sourcing and logistics processes as well.”

For CFOs, one of the intriguing aspects of deploying a platform used jointly with the supply chain organization is the ability to trigger financial activities off a much richer set of milestone events, such as shipment arrival at consolidator, vessel departure, and customs clearance. Each milestone is an opportunity to apply pre-transit, in-transit, or post-shipment inventory financing; early payment discounting; or payables extensions. In addition, supply chain financing pioneers such as Prime Revenue are creating innovative ways for companies to use automation and new financial instruments to mitigate the cost-of-capital differences between buyers and low-cost-country suppliers, thus lowering the overall cost structure of supply chains.

Pressure 2: Corporate Budget Oversight

Global supply chain uncertainties contribute to budget overruns and erosion of expected gross margins. For shipments from China, for example, Aberdeen benchmarks show that inadequate forecasting of transportation costs is the top reason for budget discrepancies (see Exhibit 1).

Companies frequently fail to take into account the uncertainty in global supply chains, which drives usage of higher-cost carriers and shipment expediting. At the extreme, some companies report hiring a dedicated cargo plane—at costs running up to half a million dollars—to expedite late goods. Many other companies are struggling to understand more basic issues, such as their average ocean freight spend per month, by lane. The reason: they lack the supporting systems for international transportation spend management. As a result, they are unable to forecast the impact of fuel surcharge increases, air or ocean rate hikes, or port fees on a product’s total landed cost. Supply chain managers are using these budget concerns to gain CFO support for technology projects that improve transportation sourcing, costing, and analytics.

A growing number of companies are turning to supply chain costing tools to help protect gross margins, even down to the order or ocean container level. A number of retailers are considering solutions such as GT Nexus’s new Global Cost Control application. These types of applications help them see total landed cost build as transactions occur and identify discrepancies with corporate cost targets. With this knowledge, a company can then take action to protect its profit margins. This could include shifting to a slower but lower cost of transportation for later legs of a shipment, ensuring product is moved before demurrage fees rise, or changing pricing or promotions.

Pressure 3: Reduce Working Capital Requirements

Supply chain managers have a bevy of opportunities to help reduce working capital by decreasing inventory investment and obsolescence. Some of the most effective activities include:

• Have suppliers manage inventory between minimum/maximum levels instead of sending them purchase orders. Stryker Instruments has reduced direct material inventory by 30 percent through this supplier-managed-inventory process, which is supported by a TradeBeam inventory synchronization platform. Suppliers report inventory, freight, and other cost savings on their side as well. This process is now used for 90 percent of Stryker’s direct materials, including large and very small suppliers.
• Investigate inventory optimization technology. New multiechelon inventory optimization technology bolts onto existing enterprise resource planning and supply chain planning systems. This technology can help set better safety-stock parameters, identify opportunities for postponement and inventory risk pooling, and improve sourcing decisions. These unintrusive solutions often reduce inventory by 15 to 30 percent because they account for supply and demand uncertainty better than traditional tools. Some of the best-of-breed providers include IBM, LogicTools, Optiant, SmartOps, and ToolsGroup.
• Connect supply chain visibility initiatives to Six Sigma programs. Just gaining visibility to shipment activity is not enough to reduce inventory levels. Successful companies are linking deployments of supply chain visibility technology to Six Sigma analysis to identify and remove recurring bottlenecks and minimize lead-time variability. This enables them to be more effective at reducing safety-stock levels.

Pressure 4: Cross-functional Global Trade Disconnects that Drain Financial Performance

A third of companies surveyed report that their finance organization is taking a leadership role in creating new cross-functional global-trade processes (see Exhibit 2). These CFOs are unearthing the financial costs that occur when purchasing, logistics, sales, and trade compliance operate off of different data, different views of supply chain activity, and different business goals. Aberdeen research found that companies that decreased their total landed costs and cycle times the most were nearly seven times more likely than their peers to measure global-trade-management performance on a corporatewide basis and to be investing in cross-functional processes.

An emerging cross-functional best practice is to move the trade compliance department from a paper-pushing administrative function to a “center of excellence” that helps the enterprise leverage free-trade-agreement and other customs knowledge to drive lower total landed cost. This is achieved through improved decisions in design, sourcing, packaging, and distribution network decisions. A finance director recently reported that his company’s trade compliance group had been moved out of the logistics department and now reports to the finance organization. The reason: it was not being treated as a strategic information asset for the company. Supply chain organizations should view this both as a wake-up call and an opportunity to gain CFO support for a single, enterprisewide trade compliance platform that can serve as a strategic knowledge center.

For supply chain managers, the exciting news is that the path to global supply chain improvement—greater automation, visibility, and functional coordination—is also the path to relieving key CFO pressures. By designing supply chain initiatives that also drive value for the financial organization, the supply chain organization can gain a new cheerleader: the CFO.