Is Your Supply Chain Manager Thinking Like Your CFO?

In the corporate world we often hear the term "silos" and how they negatively impact the overall performance of a company. Silos create blind spots where departments that do not often directly work together have issues communicating and sharing information in an impactful manner. Unfortunately, this happens all too often when it comes to the relationship between the supply chain and the CFO.

Jarrod Goentzel and James B. Rice Jr., of the MIT Center for Transportation and Logistics, wrote in the Wall Street Journal, "Companies once again made almost no improvement in working capital management, doing little to generate cash internally by optimizing how they collect from customers, pay suppliers, and manage inventory." 

Those three factors are general decided by the supply chain manager and each one of these decisions shows up on the balance sheet. It would only stand to reason that controlling debit and managing cash outlays on the supply side is the bridge that both departments need to meet on.

Here are 4 reasons why your supply chain manager should start thinking like your financial manager:

1. ROI – There's a sense of physics to every interdepartmental relationship. Each action that occurs on your supply side has a positive or negative financial impact on the income statement. As Logistics Management notes, "Modeling the impact of increased inventory turns on return-on-assets (ROA) using the DuPont Model, for example, is an indication that supply chain managers appreciate the language of finance." Being aware of all factors that determine cost, beyond simply moving goods across a supply chain, can pay dividends for both departments.

2. Investment – Supply chain managers are typically bottom line focused but how they view that bottom line may need to shift to a new paradigm. Logistics costs are often thought of as expenses and a supply chain manager's job is to avoid expenses wherever possible. However, if we start looking at these capital expenditure projects (distribution centers, trucks, software, etc) as investments, we can alter the finance department's perception of them and get more projects approved. Instead of looking at shipping as a singular dollar value on a carrier's invoice we can focus on net present value (NPV), internal rate of return (IRR), and payback. With both department's speaking the same language well modeled investment analysis will mitigate risk, increase cash flow, lower expenses, and move initiatives forward.

3. Cash Flow – Improving the cash conversion cycle and managing freight accruals will actualize in increased revenue. As Jarrod Goentzel and James B. Rice Jr., of the MIT Center for Transportation and Logistics, wrote in the Wall Street Journal, "In enlightened organizations, supply-chain managers are fully engaged in efforts to optimize inventory levels, collect payments from customers speedily, and to secure payment terms that benefit the company without undermining trading relationships with suppliers." In other words, in order for finance managers to be thinking proactively they need to be working with supply chain managers who are thinking proactively.

4. Data – We can't optimize our supply chains until we recognize that the cost per unit, container, or truckload isn't reflective of our total and final costs. If we want to properly manage the capital that is entered into and taken out of our supply chain then cost models need to be established and data shared between departments. Incomplete, inaccurate, or misinterpreted data lends itself to decisions that aren't informed by the whole picture. This can increase both cost and risk while fostering interdepartmental strife and confusion. That's a silo your company can't afford to keep standing.

Need to bridge the gap between your supply chain management and finance departments? Get started today with Aborn & Company’s Advantage Modern Managed Freight Solutions. Find out how we’ve combined traditional freight management fundamentals with data and technology to help companies reduce freight costs, improve carrier service, and bring visibility to their supply chain. Click the link now to set up a complimentary consultation. 

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