How a CFO's influence on supply chains adds value in uncertain times

How CFOs can add value through uncertain times | Part One: Supply chain confidence

CFOs and businesses are feeling a higher level of uncertainty given current events around the world. As CFOs are making the transition to becoming more of a Chief Value Officer, they need to utilise their skillsets to add value and in uncertain times, this is to provide more certainty in the areas they can control or have an impact on.

Our Business Restructuring team have created this series to delve into specific areas where CFOs can add value by utilising their natural skills and financial acumen in the areas they typically have control over.

In Part One we explore how a CFO can secure their supply chain to provide their business with confidence to continue operations despite uncertainty in the market.

To set the scene, imagine you are a Business Development Manager, and you have just secured a significant sale; this client had been on the fence for some time, and now they have finally decided to make the purchase - great news. Except when you communicate with your Production Manager, they confirm they will not be able to deliver in the timeframe, because one supplier of a small part cannot meet the order, and even worse, that supplier is on the edge of insolvency. You are about to lose a significant sale all because one supplier cannot meet the order.

How might the CFO and finance team impact supply chain confidence?

In their remit as owners of the Procure to Pay function of the business, the CFO owns the whole process of procurement, they can decide how new suppliers are selected and onboarded into the business. They can also have visibility over the whole supply chain and the weaknesses and risks that may present themselves.

Some of the quick wins a CFO can implement or review in their supply chain are:

1. Identify the key suppliers in your supply chain and understand the risk of any of these suppliers not being able to fulfil their supply obligations.
2. Regularly check supplier credit scores and publicly available information to identify warning signs.
3. Communicate regularly with key identified suppliers about the pipeline and future orders to ensure they are supported to fulfil their supply obligations.
4. Look at advancing funds to key suppliers to fund working capital on large projects, ensuring you take out appropriate security over the supplier.
5. Offer more favourable terms (or prepay) to key suppliers.
6. Diversify suppliers, identify alternate suppliers, or bring in-house the operations.

All these actions are aimed at de-risking the supply chain and can be undertaken by the CFO or finance team. Utilising analytics from the financial statements will help to identify the risky suppliers, i.e. who are the major suppliers, however the accounts payable team will also be able to provide anecdotal information on who is chasing their funds ahead of due dates.

If you would like to discuss how you can reduce risk in your supply chain, or don’t have the capacity or analytics to understand your supply risks please contact your local BDO adviser.