Supply chain planning best practice: connecting finance and supply chain

Best practice: Connect finance and supply chain for greater collaboration

Here are three ways to improve supply chain planning to support the additional priorities, as well as meet the financial goals of the organisation, while meeting consumer demand.

When supply chain and finance are connected with a collaborative relationship, supported by accurate data, it drives more accurate and profitable decisions, and supports organisational objectives.

The supply chain network must ensure a steady flow of product—and in many industries, suppliers can be numerous and globally dispersed. Gaining visibility into suppliers’ capacity, delivery windows, and price fluctuations remains a daunting task for many manufacturers.

Additionally, wildly fluctuating commodity capacity and prices in recent years have compounded sourcing challenges. Raw materials sourcing is an example where inefficiencies in inventory management and sourcing most readily demonstrate their detrimental effects on financial and operational success.

In this environment, determining timing on raw materials purchasing can feel like high-stakes gambling. Timing and price are not the only factors—the sourcing process also entails determining how long to lock in a price and assuming a secondary position if pricing levels drop below the locked-in price.

This is where connecting finance and supply chain is so critical to business operations.

• An integrated planning system will enable all costings to be marked against every part of the production cycle, including the amount of time worked on a job, component prices, shipping costs etc. Given that price serves as the primary decision-making factor in most companies’ sourcing strategies, many buyers in the supply chain organisation second-guess purchasing decisions in the face of unstable costs.
• There is no such thing as a 100% accurate forecast, but if leaders can reduce the margin of error, they can optimise supply efficacy as well as revenue.
• Finance can support supply chain leaders by helping find innovative ways to manage the supply chain by forecasting potential issues, mitigating risks, and overcoming setbacks will ultimately help support organisational growth goals.
• Perhaps most importantly, deciding which suppliers to source from and how to gauge their performance on price, capacity, and delivery requires ongoing diligence. The still pervasive practice of managing supplier data and relationships via spreadsheets creates inevitable cost inefficiencies that reverberate across the finance team’s profitability goals. Because of their own profit-margin targets, finance also places pressure on supply chain to deliver best-cost options. This creates a breeding ground for adversarial relationships.
• Finally, stakeholders including employees, shareholders, investors, and consumers demand greater transparency and accountability from organisations on their ESG efforts. ESG considerations are critical in supply chain management, as they impact everything from the products consumers buy to the organisations that people invest in.

Conduct regular scenario planning to anticipate potential disruptions

Organisations are on a seemingly never-ending quest to get the right product to the consumer when, where, and how they want. And, they are having to not only deliver these personalised and seamless digital and in-person experiences, while avoiding major supply chain disruptions.

The globalisation of the business world has introduced a new set of problems such as higher risk, longer lead times, and less inventory. As more companies get involved with these global networks, the more complex those networks become.

Prior to the pandemic, most organisations only focused on the top-tier suppliers, leaving many blindsided. It is critical for organisations to map and manage the entire supply chain, to understand the impact that disruptions can cause. By using scenario planning, supply chain leaders can better understand the present, consider what might change in the future, and explore what those changes could mean for the business.

However, during times of disruption, traditional scenario planning can be too analytical and runs the risk of falling prey to a “failure of imagination”.

So, for scenario planning to be useful:

• It needs to integrate user-centric insights from a cross-disciplinary team that considers a broad range of possibilities.
• It also needs to be as complete and detailed as possible,
• continuously updated with the latest data,
• refreshed throughout with the impact of the strategies being considered.

Additionally, data analytics such as predictive modelling allows organisations to understand the root causes behind problems and predict future outcomes. Organisations should fully embrace analytics and machine learning to detect both abnormalities and opportunities.

Business leaders can experiment with the impact of external events, such as a supply chain interruption, and of internal changes, such as a new product launch to drive revenue or efficiency to lower costs. When a variable in the scenario is changed, the areas impacted by that change are updated instantly so all plans and forecasts are continuously up to date.

Leaders will also need to close their knowledge gaps by increasing surveillance of supply chain participants and their understanding of the physical, financial, political, and social risks they face. By leveraging analytics, companies can create heat maps or alert systems to focus in on high-risk regions or suppliers.

Leaders should carefully review the supply chain KPIs to ensure that supply chain design and execution balances both efficiency and resilience. Finally, because supply chain risk is a continually moving target, the organisation should conduct regular stress tests and reviews to ensure its resilience measures remain relevant.

For further information, including best practice tips for S&OP, supply, and demand planning, download our supply chain planning best practice whitepaper here