A problem that’s lingered for finance chiefs and treasurers since the early days of the pandemic, snarled supply chains, has “Triggered double-digit market share and stock valuation declines in many organizations while driving valuable customers to competitors”, according to the recent 2022 Global Finance Trends Survey Report by Protiviti.
The fragility of global supply chains has been exposed by increasing frequency of disruptions exacerbated and elongated by interest rate volatility, the Russia-Ukraine conflict, and trade wars.
Against this backdrop, the global consulting firm Protiviti conducted the survey in June-July 2022 and elicited responses from 1,064 finance leaders worldwide, including CFOs, vice presidents of finance, and a broad range of finance directors and managers at both public and private companies across a broad range of industries.
The survey revealed that CFOs are rethinking supply chains because “The underlying problem resides in the standard supply chain model, with its all-consuming and narrowly defined focus on cost/efficiency, to the exclusion of reliability, responsiveness and resilience.”
Moving away from efficiency-based supply chain models
Supply chain bottlenecks have affected organizations in all industries – most notably healthcare, consumer packaged goods, and oil and gas.
In the wake of continual supply chain disruptions experienced over the past two years, nearly half (45%) of the surveyed respondents report that “Their organizations are moving away from efficiency-based supply chain models (e.g., low-cost, just-in-time) to revenue assurance models that emphasize flexibility and resilience.”
Source: Protiviti 2022 Global Finance Trends Survey Report
The survey found that organizations in health care, oil and gas, and retail industries are more likely to ditch efficient supply chain models for revenue assurance models. In essence, they will be more willing to look beyond efficient traditional cost calculations by evaluating and monitoring supply chain reliability and responsiveness.
Four in 10 companies (40%) are also incorporating ESG into more sourcing decisions, with financial services and manufacturing organizations likelier to embed ESG into more sourcing decisions.
Given trade conflicts, geopolitical tensions and economic uncertainty, 39% of finance professionals are diversifying supply chains to multiple sources and regions while also improving communication with either select suppliers or across the value chain (38%). The benefits of diversification transcend sheer cost minimisation and also involve gains from securing back-up sourcing plans to mitigate risks and threats from existing supply chain security.
Almost a third (32%) of finance professionals surveyed are looking to source more materials and products locally. As per the report, consumer packaged goods and manufacturing companies are more disposed to producing and sourcing additional materials and products locally.
Developing and sustaining a unified approach to supply chain risk management is imperative, according to Protiviti, and risk identification and measurement needs to be integrated – across all operations and regions, as well as across different time dimensions; “Focus not only on current risks but also those likely to pose challenges to short-term and long-term operations based on the organization’s strategic trajectories.”
The Protiviti report suggests that it is equally important to collaborate with COOs and other supply chain leaders and to partner with legal, compliance, sourcing, customer management and credit management, among other groups, to recognize supply risk triggers throughout the organization.
Several defining events over the past two years are putting pressure on CFOs to adopt more reliable, responsive and resilient supply chain models and pay more attention to these five considerations:
- The locations of key suppliers
- The reliability of second- and third-tier suppliers
- The availability of qualified alternative sources of supply
- The time span in which suppliers can operate and meet obligations amid a catastrophic event
- The period of time for which their own organizations can operate in the midst of prolonged supply chain disruptions
Besides these considerations, the report explains that CFOs and finance professionals must be prepared to respond to questions from the board concerning the organization’s alignment with values and its fundamental approach to supply chain risk management.
“Expect these questions to cover reliability and responsiveness, how ‘total costs’ are measured, whether risk management models hinge on ‘good days’ of operation (versus high-risk potentialities), and whether risks are evaluated in a sufficiently expansive manner”, the report notes.
CFOs are being forced to redesign supply chains not just to preserve businesses, customers and profitability, but also to gain market share and drive shareholder value. Orchestrating an enterprise-wide response to rise up to supply chain challenges with multiple moving pieces, risks and implications will also mean leveraging emerging technologies like blockchain. And if finance chiefs can make blockchain a priority, it will enhance supply chain trust, transparency and traceability and aid in the transformation of supply chain management.
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