Strategy & Operations » How CFO’s can cultivate resilient supply chains through strategic partnerships

How CFO’s can cultivate resilient supply chains through strategic partnerships

To improve sustainability, and to remain competitive, businesses should take advantage of new technology to gain better visibility across their supply chains

The uncertainty of the last two years has placed tremendous pressure on CFOs and business leaders to keep up with the changing needs of their organisations.

While change has become the new norm, finance teams have had to focus on mitigating new risks and fostering relationships with suppliers and key stakeholders to ensure stable supply chains.

Organisations have had to rapidly evolve their finance function to streamline and redefine their entire ecosystem; they have had to ensure their business models are not only fit for a post-pandemic world, but also for the digital age.

During a recent webinar, held in partnership between Financial Director and Transparent, senior finance leaders discussed how CFOs can cultivate resilient supply chains by fostering strong supplier partnerships.

Oscar Reitsma, business director at Transparent, noted streamlining business processes has been at the top of every finance leader’s agenda in order to drive down costs and ensure the sourcing process is sustainable in the long-term.

He notes that during the pandemic, a lot of businesses had to innovate to find ways to maintain growth while dealing with staff shortages and lower demand.

“A big area that required updating was the procurement process, as it remained old fashioned for many and driven by paper targets.”

The procurement process often includes several moving parts which finance teams need to respond rapidly to be as efficient as possible and meet business requirements in a constantly evolving economic landscape.

A key discussion point during the roundtable emphasised that given the procurement process tends to centralise all purchasing, it is imperative for businesses to look for ways to spend smarter and reduce costs.

Reitsma notes CFOs have been influencing procurement process decisions by determining the demands of the business and what needs to be delivered which, as a result, has subsequently had an impact on the business. “The procurement process has moved from a back-office function to a core part of the business,” he explains.

Balancing the benefits and risks of outsourcing business activities

Outsourcing can have significant cost-saving benefits, but the quality of the end-to-end process should be secured before outsourcing begins to avoid disruptions.

One roundtable participant said businesses should only outsource standardised processes, where decision-making is not required, rather than more complex activities.

However, other participants also noted that when the talent market in the UK is competitive, outsourcing to other countries can provide a necessary source of business support.

According to Reitsma, outsourcing could increase business costs if not successfully implemented.

“CFOs are required to make strategic decisions that could impact cost increases in other areas of the business, such as transactional administration and cash flow,” he said. “But if the outsourcing process is not implemented correctly, this can add unnecessary costs to the business.”

Several roundtable participants agreed businesses should be asking questions during the sourcing process such as what risks vendors post to their business model, and whether risk assessment frameworks are appropriate.

The participants also said businesses should not shy away from questioning the appropriateness of current vendors and whether there was a benefit to reassessing the market for better third-party partnerships. Understanding how the current economic environment can influence future business partnerships was also a key question to ask, participants said.

“We are certainly seeing a trend where there is much more invested interest into research for suppliers,” Reitsma said.

Finance leaders should look to create a more diverse supply chain which allow flexibility and the ability to withstand any major disruption. Relationships between businesses and their suppliers should also include constant communication and be based on honesty and openness, fostering an environment where problems can be resolved in a productive way.

“There can sometimes be a cultural barrier when outsourcing globally, which makes communication the key to overcoming these issues with external partners,” Reitsma said. “Improving relationships with external partners is therefore paramount during the sourcing process.”

Mastering data and insights

Fortunately, new technologies can help businesses improve visibility across the supply chain and help organisations master their data. As finance teams rely heavily on supplier data, there is significant credibility risk if the numbers are wrong.

“Master data should be clean and concise, however the journey to cleansing it can be long and requires a lot of resources,” Reitsma explained.

Best practices shared by roundtable participants included having the ability to multi-source data to reduce any redundancies, and to reset and start at the beginning to clean up the business data before putting it into a new system.

“The pandemic has shown us to expect the unexpected and think about how we mitigate risk,” said Reitsma. “Transparency and utilising data are a requirement to build lean operational processes.”

While technology can make price comparisons easier to comprehend, businesses should also utilise technologies such as artificial intelligence and machine learning to help with cost reduction and optimisation.

“We are in the age of digitisation,” Reitsma stressed. “The better the technology is implemented in a business, the bigger the impact on cost and visibility.”

Sustainability impact across supply chain

Roundtable participants also discussed what impact new climate legislation would have on their supply chains. One of the outcomes of the 2021 COP26 conference was that supply chains account for the majority of emissions within a businesses’ value chain.

Few companies around the world report in detail on carbon emissions from the value chain. One of the major challenges has been for businesses to gain visibility to correctly calculate and allocate greenhouse gas emissions. As a result, there is now a greater onus on businesses to evaluate the sustainability of their supply chains.

“Identifying the right supplier and evaluating costs and trading agreements will help businesses understand their supplier needs and provide value at minimal cost,” Reitsma said.

Location is also a key identifier as businesses should consider picking a supplier or manufacturer with a location which makes the most sense based on cost, resources, and proximity.

The procurement process should also be built into conversations with suppliers to gain an understanding of their impact on the environment.

“Costs almost always come first for finance teams, however we’re now seeing that in order to build sustainable supply chains, they need to revisit their conversations with suppliers and understand how to reduce costs,” said Reitsma.

“As the current economic climate allows for much smaller margins of error, there is more pressure to invest the time and research before gaining the ability to have less costs and a more sustainable business outlook.”

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