Supply Chain

CFOs play a key role in building their companies' supply chain resilience.

Experts say finance chiefs need to invest time, energy and resources wisely
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· 4 min read

This is the first of a pair of stories we’re planning on the current state of the global supply chain; in part one, we look at how serious and widespread the problems are. In part two coming next week, we’ll highlight how one company invested heavily in its supply chain even before the pandemic, and has been able to weather most of the turbulence with little disruption.

The current tumult in the global supply chain is unlikely to change any time soon and the risks—and costs—of supply-chain disruption are likely here to stay, according to Dawn Tiura, president and CEO of sourcing industry group SIG, which represents sourcing, procurement, and risk professionals in Fortune 500 companies and other major enterprises.

“I think we’ve got a number of years of instability in the supply chain,” she said. “This is not a 2022 fix.”

It is an unprecedented problem, the first time the supply chain has been disrupted on a global scale since the advent of the globalization era, according to a January report by IHS Markit, a research and business intelligence firm based in London that merged with S&P Global in February. And while some executives don’t expect the supply chain to recover before 2023, problems will likely linger for years.

The problem is so acute now that supply-chain disruption was the third most concerning global risk for respondents in McKinsey’s latest Economic Conditions Outlook survey, surpassing the fear of rising energy costs and higher interest rates. The Council of Supply Chain Management Professionals 2022 State of Logistics report found that “inventory carrying costs rose by 25.9%” and “transportation costs jumped 21.7%” in 2021.

If instability and uncertainty are now a permanent part of the supply chain, CFOs will need to make supply-chain management a much higher priority than they may have in the past.

CFO’s role. “Going forward, one of finance’s critical contributions may be to determine which supply-chain risks to mitigate—and how,” according to Deloitte’s CFO Insights publication.

The CFO has a critical role in building supply-chain resilience for the long-term financial viability of organizations, according to Sumit Vakil, chief product officer at Resilinc, a supply-chain resiliency and risk-management monitoring firm based in California. And the first step towards answering that question means adopting a new mindset and new time frames.

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“For CFOs, understanding that supply-chain disruptions are an ongoing thing, and it’s not just these black-swan events—that is so important,” he said. “The impact is not in a time restraint. It’s not like this disruption happened and in a few weeks, a few months, everything is back to normal.”

Traditionally, the CFO’s role in an organization’s supply chain has centered on measuring and managing costs. But both Vakil and Tiura agree that CFOs will need to go beyond accounting for costs and focus on investing in technologies, particularly AI and robotic process automation (RPA), that lend transparency and flexibility into the supply chain in order to effectively build resilience.

“You’ve got to be adjusting on a continual basis. You have to stay up on technology,” said Tiura. “I do think with AI, over time, we are going to have better planning mechanisms than we do today.”

For Vakil, automating supply-chain management with AI and RPA is key because it provides “predictive, prescriptive solutions” and removes the mundane tasks that often slow down finance departments.

“Once you do that, then you free up organizations to think big strategically,” he said. “You can take the big-picture view.”

Diversify, diversify, diversify. CFOs can also promote resilience by diversifying their supply chains. The COVID-19 pandemic highlighted the global supply chain’s over-reliance on China, andlockdowns there continue to cause disruptions.

“You thought you had built some resiliency in your supply chain by having two different locations that you sourced from,” said Tiura. “We never thought about the fact that both of those suppliers that you’re sourcing from are sourcing a lot of their componentry from sometimes even the same factory within China.”

Diversification is a multi-step process and may mean looking to countries other than China for sourcing, managing inventory for disruptions, redesigning products, and building collaborative relationships with suppliers.

“That’s the one big thing that came out of this COVID pandemic: Companies were just not investing in [their supply chain],” said Vakil. “They just didn’t realize how critical it was to understand all those interrelationships and dependencies that go into making the modern supply chain.”—DA

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CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.