Strategy

Why CFOs Should Take a Closer Look at Supply Chain Visibility


by Bart De Muynck

With no end in sight for current supply chain woes and problematic new trends emerging, CFOs should consider investing in technology that delivers greater supply chain visibility.

┬ęBuntiam/iStock/Getty Images Plus

The economic fallout from the pandemic drew CFO attention to their organizations’ supply chain like never before. Ernst & Young research shows that 72% of surveyed executives reported a negative impact, with downstream effects that restricted cashflow. Anyone who was hoping the supply chain would bounce back quickly has been disappointed — it’s now 2023, and major supply chain challenges remain. 

Along with fragile supply lines, inflation and economic uncertainty are taking a toll on business growth, increasing the cost of raw materials and capital while lowering margins and stock prices. CFOs make decisions on company investments, and many are responding by shifting from capital to operational expenditure projects to generate value more quickly and improve company cashflow.  

With no end in sight for current supply chain woes and problematic new trends emerging, CFOs should consider investing in technology that delivers greater supply chain visibility. Supply chain insights through consumable technology that’s easy to deploy deliver value quickly for a relatively modest investment. Here’s a look at how supply chain visibility can help organizations improve cashflow and profit margins while maximizing efficiency, optimizing planning and enhancing current ERP investments.  

Supply Chain Visibility Cuts Costs, Improves Operational Efficiency 

Stressed supply chains have a direct impact on P&L statements and balance sheets by raising costs and depressing revenue on one side and increasing liabilities and minimizing assets on the other. One example is the cashflow crunch that resulted from the growing gap between the time companies make investments in products and shipping and when that investment pays off in the form of a sale.  

Some companies have made progress clearing backlogs of shipments at ports or stored in warehouses to await transit, which caused the initial cashflow issues. But logistics snarls continue due to a myriad of causes, including geopolitical issues. On top of that, slowing economies worldwide are contributing to a new round of belt-tightening, which has CFOs looking for more ways to improve profit margins.  

Insight that can drive down costs and increase efficiency has a positive effect on cashflow, and supply chain visibility delivers that insight. In the near term, supply chain visibility enables companies to reduce the cost of goods sold by eliminating supply chain costs for expedited shipping, detention and demurrage fees, and higher costs associated with spot rates for transportation. This reduces variable costs. 

In the medium term, supply chain visibility helps companies refine their carrier and supplier choices, making selections via a more data-driven process that factors in cost, performance and service rather than making choices based on price alone. Better partnerships can have a positive effect on revenue downstream as reliability and quality improve.  

Supply chain visibility can make a major impact on inventory issues in a longer-term scenario, i.e., 18 months out. Insight allows companies to optimize transit times to improve inventory turn, accelerating the rate at which goods move from source to sale and reducing the amount of cash invested in inventory. With more accurate transit times, companies can also reduce safety stock – for example, warehoused goods stored to prevent an out-of-stock scenario. This reduces inventory investment and frees up cash too.  

More Productive Partnerships — and Fuel for the Supply Chain Engine 

With accurate data about product movement through the supply chain, companies can also supercharge partnerships through better demand planning. Statistical analysis of supply chain data, combined with information about sales and inventory, can help organizations build better models to predict demand more accurately, enabling upstream collaboration with manufacturers, suppliers and other stakeholders. 

Supply chain visibility enables better inventory forecasts, more lead time insight and tighter alignment between sales and inventory. With improvements in demand planning based on accurate data from the supply chain, companies can ensure products are ready to meet consumer demand, increasing cashflow and profit margins. And the operating efficiencies gained by greater insight into the supply chain enable companies to offer more value to shareholders and customers.  

Data is fuel for the supply chain engine, and more accurate information on operations can enable businesses to maximize the investment they’ve already made in their supply chain solutions. This helps them manage risk more effectively and streamline the processes involved in turning materials into products and delivering them to customers. Better fuel means better performance, and depending on the size of the operation, even a small improvement in performance can equal massive returns.  

There’s significant debate about whether there will be a recession this year or a soft landing. But this much is certain: Supply chain operations have a direct impact on P&L statements and balance sheets, and supply chain visibility can help companies reduce costs and increase efficiency while building resilience through better demand planning. That’s why CFOs who are looking for projects that deliver value quickly without a major investment should take a closer look at supply chain visibility technology.   

Bart De Muynck is Chief Industry Officer at project44.