June 2011 | Commentary | IT Matters

Rallying CFO Support for Your Supply Chain Initiatives

Tags: Supply Chain Management

Steve Ford is chief financial officer of TradeCard. 212-405-1837

Chief financial officers are not accustomed to making money from the supply chain. Most CFOs, in fact, could use an education on the benefits of supply chain efficiency and visibility.

So how should you approach your CFO to get buy-in for your next major supply chain visibility initiative? Present your case the right way. Here are five ways to engage your CFO.

1. Sell the numbers. Demonstrate your supply chain project’s revenue potential, impact on cash flow, or return on investment. The idea of getting a return on your supply chain appeals to CFOs, so provide figures such as number of days of reduced cycle time, savings generated per day of cycle time reduced, and impact on inventory and capital costs.

If I’m handed a plan that maps out exactly how we’ll make money, with real quantifiable benefits, I’m on board. Figure out what a full day is worth in your cycle time. If you can show your CFO how much inventory and capital cost savings will be achieved in 10 days, you’ve got a winning proposal.

2. Define a clear path to operating efficiency. Demonstrate tangible benefits, such as cost and time savings, and product cycle time improvements.

3. Connect the dots. Explain how better supply chain visibility and agility lead to margin improvements and other revenue opportunities. Show how initiatives such as early payment invoice discount programs generate a better return on capital.

Explain that by offering invoice discount programs, you can extend payment terms while removing the burden on suppliers by making cash available in five days, at rates close to five percent.

For example, if a company operates in a high cost of capital market with rates of eight to 12 percent, and sells its receivables while working on 30-day payment terms, or it gets paid in five days on 45-day terms through an invoice discount program at five percent, it doesn’t cost one penny more. If a buyer has cash in the bank earning two-percent interest, why not earn five percent or six percent by discounting its own receivables— and then extend payment terms by 10 or 15 days? The resulting cost of goods reduction also improves margins.

4. Present your proposal as an opportunity to partner on a strategic initiative. CFOs and finance executives are often labeled as bean counters and, as a result, may not always be included in strategic initiatives. Your project may be a chance for the finance department to be proactive and provide new value for the company.

5. Break down the barriers. Supply chain and global logistics are considered major priorities in boardrooms worldwide today. The problem is, many CFOs aren’t sure how to leverage the supply chain. Breaking down the barriers that have traditionally existed between finance, supply chain, sourcing, or procurement departments is a key milestone in achieving smarter supply chain strategy.

Approaching your CFO is the first step. Provide specifics. Deliver numbers and hard benefits. Give examples. It’s in all CFOs’ best interests to become involved in the supply chain. Sometimes they just need any entry point or invitation to get started.