Why an arranged marriage between Finance and Supply Chain is a good thing:

Jan 17, 2017
  • finance
  • operations
  • automotive
  • SAP

In my previous article I explained how long-term growth can only be realized when operational excellence and customer experience are balanced. Two main levers to achieve this balancing act are cost to serve and customer lifetime value. These provide insight into the profitability of customers along their entire life cycle as the basis for well-thought-out trade-offs. In practice, this means that Supply Chain and Finance should team up and proactively deliver insights for smart decision-making.

So why is this easier said than done?

Multiple silos continue to form barriers to collaboration, and Finance focuses all too often on month-end reporting, conflicting with business users’ needs for proactive insights. Meanwhile, consumer behavior is changing rapidly and organizations need to act upon that. According to the major retail trends, consumers are becoming older, poorer, more urban, more environmentally aware, more socially concerned and better educated, connected and informed than ever before. These trends imply that consumers want to spend their time and budget more wisely and expect the shopping experience to be as simple, convenient and fast as possible. Furthermore, the access to products is enormous in a hyper-connected world. To stand out from the crowd and build a competitive edge, retailers need immediate insights into customer behavior and the ability to react in an instant.

Introducing transparency

From a supply chain perspective, these trends demand an outside-in approach, allowing quick responses to changing demand signals – based on predictive analytics – and optimization of customer lifetime value. However, Supply Chain cannot do this alone. To deliver customized services to profitable customers, insights from Sales, Finance and Supply Chain need to be merged into new, hybrid teams that are able to make the right trade-offs. The growing need for speed and agility are in sharp contrast with many of the processes that are in place today. At best, decisions are made in a monthly Sales and Operations Planning (S&OP) cycle, but for how long will a monthly cycle be short enough to enable companies to react to new opportunities on the spot? In the future, being able to act faster may make all the difference between success and failure.
To reach an appropriate level of agility, organizations need more mature, outside-in supply chain models. However, it’s a painful truth that very often even the internal supply chain organization is not optimally fueled with cost-to-serve insights. Ideally, these insights should then be complemented by a supply chain controlling function, which challenges the cost-to-serve estimations and explains the deviation between estimated supply chain costs and actual supply chain costs in a continuous feedback loop.

For profitable growth

Once these internal capabilities are in place, organizations can then extend their scope to the entire supply chain and develop an end-to-end cost-to-serve model in order to become a trusted partner in collaborative supply chain networks. Finally, leading companies will evolve towards a truly inside-out model that allows them to respond swiftly to changing consumer needs and to improve customer lifetime value. Upon reaching this level, they will be fully equipped to compete and to grow their business profitably.
In our upcoming blogs, we will elaborate on how these trends and challenges impact the roles of Supply Chain and Finance, how hybrid teams should create valuable insights, how S&OP can become smart and agile and how tools and processes can support this transformation.

Author: Thierry Bruyneel. You can connect with Thierry on LinkedIn.