Finance is a critical element of supply chain resilience

Over the past few years, finance has moved beyond its historical oversight role to become a more integrated partner in supply chain management activities. Areas such as global trade management and supply chain risk management have been natural areas for this partnership to flourish. Now, increasing demands for supply chain resiliency require an even more active role by finance in overall supply chain management.

Supply chain resilience has become a key focus of many organizations as disruption has increased. Resilient supply chains allow organizations to mitigate risk by anticipating and addressing issues proactively, and by quickly adapting to disruptions without significantly increasing operating costs.

Companies can focus on resiliency within the supply chain across six dimensions, which allow them to properly control, collaborate and act on disruption:

• Visibility — the ability to monitor supply chains for issues and quickly gather current status for event response.
• Governance — how well a firm prioritizes and enforces risk management and resiliency internally and with suppliers.
• Manufacturing — focusing on the resilience of production facilities and products within the four walls of the firm.
• Suppliers — how well suppliers are positioned to provide materials in times of disruption or significant demand changes.
• Distribution — resiliency of the network that delivers finished goods to customers or material inputs to manufacturing facilities.
• Demand sensing and response — the ability to sense, predict and react to events and disruptions in the supply chain.

The finance organization has primarily engaged in the control driven elements of visibility and governance, while maintaining a more passive role in the other, more operationally driven dimensions. There is a need for finance to increasingly collaborate alongside all operations moving forward.

There are some natural areas where this increased role from finance fits:

• Near-term financial performance objectives. As organizations manage near-term cash, impact on supply chain resiliency should be carefully monitored. One example of where this can manifest itself is supplier payment term changes. Companies that attempt to extend payment terms should do so while understanding the resiliency of key suppliers. Similarly, efforts to manage working capital and inventory should be done while measuring the impact that order shifts have on suppliers.
• Managing finance aftershocks. With every critical disruption, there are peaks and valleys as markets absorb the impact. Finance can play a critical role in partnering with operations to manage the strategic planning and scenario analysis to allow for more proactive operational decisions that mitigate risk and detrimental impact.
• Planning for new realities. In the immediate term (stabilization) and longer term (strategic adjustments), finance can work alongside supply chain teams to plan investments and key decisions that will produce a more stable, resilient supply chain for future disruptions.

Outlook:

The role of the finance organization is critical in managing supply chains and their resiliency moving forward. Near-term impacts can be softened with an eye on supply chain resiliency and finance participation in operational decisions. Finance can also assist with managing future aftershocks and disruptions, and help to stabilize the supply chain through strategic planning and adjustments.

Andy Prinz and Jack Johnson are manufacturing and supply chain experts at PA Consulting