The tie between finance and the supply chain
From the February 2016 print edition
Every organization is divided, either formally or informally, into those that make money and those that save money. Sales and marketing obviously fall into the first category, whereas accounting and finance are in the latter. But what of those who invest company money?
I’ve found in my work with organizations such as CPA and FEI, there’s an increasing trend towards CFO’s and financial executives (those who save company money) to be given the mandate to provide oversight to the supply chain (those who invest company money). With this increasing trend however there is a challenge. Many financial executives don’t really understand the inner workings of the supply chain.
To make this relationship work, with supply chain reporting into finance, there must be a mutual collaboration that supports wise investments of company capital at lightening speed. Any procurement professional knows if you’re negotiating with a supplier, time is often a factor in “closing the deal.” Too many delays in committing to an agreement can result in a change in terms or even penalties in payment. In my book Operational Empowerment: Collaborate, Innovate, and Engage to Beat the Competition, I devote a chapter to building stronger collaboration across the supply chain. I also discuss the key methods to build stronger collaboration between finance and supply chain. Here are the top three ideas.
Alignment of goals
If you’ve witnessed the typical relationship between sales and finance, you’ll often find a disdain between the two. Sales is rewarded and encouraged to spend money on client lunches, trips, product samples and the like, whereas finance is rewarded to keep costs low. How do these conflicting goals influence the relationship between sales and finance? “Negatively” would likely be an understatement. The same exists in finance versus the supply chain. Goals set by supply chain (reduce costs, maximize inventory utilization, reduce contractual risk) must align with finance’s goals. Any dissonance will lead to misunderstandings, ineffective collaboration and even mutual dissension. Ensuring departmental goals and metrics for both are formed in a collaborative fashion will serve to drive stronger, more supportive relationships.
It’s no secret most organizational communications flow top-down. This is no exception in communication across departments, with objectives and initiatives often flowing from the department executive down to frontline leaders and eventually employees. The problem is that it’s the employees who are interacting with customers, suppliers and contractors on a daily basis. Communication should therefore flow from the bottom up. Collaboration relies on communication flowing in multiple directions at once. To therefore build a stronger collaboration between finance and supply chain we must focus on introducing multi-directional communications. This includes tools, meetings and methods that ensure that what’s actually happening on the front lines makes its way to those who are making decisions around investment and initiatives.
In my experience there’s often a poor relationship between finance and supply chain extending across all roles. This gap typically results from a lack of understanding of roles and responsibilities. The solution is in creating more opportunities for both groups to work together. I’m not suggesting restructuring necessarily, although this can often be highly successful. A simpler and less difficult approach results from creating cross-functional teams. I once led a team of procurement professionals who battled on a daily basis (if not hourly) with a group of engineers. The emails, ranting and battles between them had been longstanding, so to introduce a significant organizational change seemed unlikely to succeed. To overcome this we moved team members so engineers sat next to procurement. We changed nothing else; they used the same computers, had the same boss, and we didn’t change the reporting structure. The results were powerful—email was dramatically reduced, conversations emerged and collaboration was a natural result. Are you placing your team members in cross-functional teams to tap into the power of collaboration?
There are dozens of other ideas to build stronger collaboration between the supply chain and finance, most of which I discuss in my book. Building stronger collaboration is much simpler than we might believe if we can get past our historic desire to work in silos with individual departmental objectives and instead seek to work together under supportive metrics. Solve this and you will be well on your way to a stronger collaborative group.