In the classic sports playbook everyone works together on individual plays to score and be collectively more successful as a team.The same rules apply in business, where collaboration across finance, procurement, and supply chain helps companies save money, operate more efficiently, avoid supply chain disruption, and take advantage of strategic opportunities.
Unfortunately, organizational silos can result in missed and misaligned goals, causing supply chain impacts that can bring a company to its knees (and not in a soccer goal-like celebration!).
“It has become increasingly clear that, for an enterprise to achieve operational excellence within both its procurement and finance operations, the CPO and CFO must enjoy the benefits of a healthy inter-departmental partnership and achieve alignment on cash management, savings, and P2P performance,” CPO Rising points out in Five Ways to Improve the CPO-CFO Relationship.”
4 Steps to Increase Collaboration Amongst Supply Chain, Procurement, and Finance
By bridging the gaps that exist across finance, procurement, and supply chain—and by creating a more collaborative environment amongst all three---organizations can improve procurement processes, get higher returns from supply chain management assets, reduce operational risk, and improve their bottom line.
Here are four ways to make that happen:
- Establish shared values and goals across all three departments. CFOs have historically had a cost-conscious reputation in the same way that procurement is known for prioritizing cost savings and supply chain risk management is striving for cost-efficient delivery of goods and services. “Finance is the glue that holds the company together, and that provides valuable guidance on business progress, current challenges, and how those issues are impacting the company,” says Pete Tantillo, RapidRatings’ CFO. At the root of it all, however, these three departments share the basic goal of delivering the most value to the company at the highest profit. Understanding this common ground can help get everyone on the same page and working from the same playbook.
- Optimize information sharing with a common risk language. Procurement may naturally have strong ties with certain supplier sales reps, and supply chain managers may be in close contact with carriers that ship their goods. But what about finance? Often left out of the loop until it’s too late, the CFO that knows the details about a company’s supplier base will be best equipped to intervene when a disruption occurs as well as to help prevent exposure to companies that may cause those disruptions. “Pick your top suppliers (say, 2,000 out of a total 10,000 companies) that, if they couldn’t deliver the goods or services, would significantly disrupt your business,” says Tantillo. From there, leverage the most important Key Risk Indicators (KRIs), such as Financial Health Ratings (FHRs) – an analytic indicating a company’s overall financial viability – across departments. Whether in procurement, supply chain, or finance, everyone will be speaking from a common risk language, facilitating stronger collaboration.
- Leverage centralized Information for decision-making. When procurement, supply chain, and finance consume the same supplier insights, but in silos, certain actionable information can be lost along the way. Connecting the information dots, however, makes it easier to demonstrate a program’s value, and, moreover, return on investment. “When everyone is involved with these key decisions, it helps drive operational results and supports better decision-making,” says Tantillo. “Stakeholders don’t like being caught off guard by something that could have been proactively mitigated with good risk management.” Successful and cohesive supply chain risk management decisions can reduce the number of high risk suppliers that deliver faulty product or deliver , for instance, which can reduce a company’s historically high inventory levels, and ultimately have a positive impact on working capital.
- Take a collaborative ongoing risk management approach. Collaborative risk management should not only extend across departments from procurement to supply chain to finance, but also to suppliers themselves. Internally, everyone may understand the perils of operating a plant that’s located in Tornado Alley, but not everyone instinctively realizes that a small, family-owned supplier which is suffering cashflow problems and on the brink of going bankrupt can have an equal, if not larger disruptive impact. Including the supplier in the conversation strengthens relationships and provides a clearer path to mitigation. “When the company knows these details in advance,” says Tantillo, “it can act proactively (i.e., dual source, restructure contracts, even lend the supplier money or acquire the company in extreme circumstances, etc.) to ensure the stability of the supplier and the company itself.”
As the potential for supply chain disruption continues to grow—and as organizations reach toward more global trade opportunities and partnerships—the need for strong bonds across finance, procurement, and supply chain will increase exponentially. “The sky isn’t falling, but you also don’t want to ever feel like your supply chain risk management is out of your control,” Tantillo says. “All it takes is one or two incidents for people to start realizing that you’re not doing a great job managing risk in your supply chain.”