Uniting your supply chain and finance planning

When your supply chain and finance teams are integrated by a collaborative relationship and supported by accurate data, you’ll see more profitable decisions being made in support of organizational objectives.

Your 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 of where inefficiencies in inventory management and sourcing most readily demonstrate their detrimental effects on financial and operational success.

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 costs to be marked against every part of the production cycle, including the amount of time worked on a job, component prices, shipping costs, etc.
• There is no such thing as a 100% accurate forecast, but if leaders can reduce the margin of error, they can optimize 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.
• 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 organizations on their ESG efforts. ESG considerations are critical in supply chain management, as they impact everything from the products consumers buy to the organizations that people invest in.

Conduct regular scenario planning

Organizations 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 personalized and seamless digital and in-person experiences, while avoiding major supply chain disruptions.

The globalization 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 organizations only focused on the top-tier suppliers, leaving many blindsided. It is critical for organizations 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 organizations to understand the root causes behind problems and predict future outcomes. Organizations 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 organization should conduct regular stress tests and reviews to ensure its resilience measures remain relevant.

This content originally appeared on bedfordconsulting.com.