In his recent series of blogs, Thierry Bruyneel zoomed in on 5 major transformation challenges facing the Finance discipline. One of those revolves around Finance’s ambition to become a true business partner – an evolution that I believe offers a huge benefit from a supply chain perspective. The most obvious place where both parties should come together is the area of supply chain controlling.
Mapping supply-chain cost drivers
Finance and Supply Chain often seem to be operating in 2 separate worlds. Supply Chain’s job is to get things delivered, whilst Finance is very much focused on and organized around the month-end closing figures. Once those reports are available, Controllers then provide comments and take care of allocating the costs within the organization. Many companies already have Plant Controllers and Commercial Controllers working on a more precise allocation of costs, but somewhere in between them is a vacuum waiting to be filled by Supply Chain Controllers.
All too often, supply chain costs are either a big black box or mistakenly pushed towards manufacturing or commercial departments. That’s why supply chain controlling should clearly map the real cost drivers in the supply chain. The denser your distribution network or the lower the value density of your products is, the more important the role of supply chain controlling will become. In-depth insights into these cost drivers are a prerequisite for making the right trade-offs. Whether the variables that can make or break your supply chain efficiency are stock levels, fluctuating energy prices, delivery complexity, capacity allocations or other such factors, almost every organization will have its own ‘burning platform’ for supply chain controlling.
Besides allocating supply chain costs correctly, Supply Chain Controllers should also detect anomalies – such as changing order patterns or smaller deliveries – as soon as they arise, allowing Supply Chain Managers to make timely and well-thought-out decisions. Today, these tipping points are often noticed too late, by which time supply chain costs have already risen sharply.
Furthermore, supply chain controlling introduces supply chain variance as a buffer between the invoices and the costs charged to the commercial organization. Hence, it makes Supply Chain accountable! Supply Chain Controllers should reach agreement with the commercial departments on a fixed logistics cost which will be charged to customers throughout the year. If an actual invoice should deviate from this fixed logistics cost, e.g. because a customer’s delivery is dispatched from a different warehouse than normal, the variance should be investigated and explained by Supply Chain.
A new mindset
Although the added value of supply chain controlling may be obvious, that does not make it easy to install such a role. You need to train someone with an accounting profile in the supply chain management fundamentals, which inevitably takes time and effort. However, while it is not easy, it is not impossible either. A good first step is to introduce a cost-to-serve mindset in the organization. Defining the cost to serve is often a one-off exercise and the results of it are rarely compared against the actual invoices afterwards. Supply chain controlling demands a much more dynamic approach to cost to serve – another challenging undertaking, but one that will definitely pay off in the long run.
Supply chain controlling is not something that can be introduced overnight, but it is an exercise that will deliver great value to the business. What’s more, it will not only allow Finance to position itself as a business partner, but it will also create a more strategic mindset within the Supply Chain organization, which often still suffers from a reputation for fire-fighting. So wouldn’t you agree that’s a perfect match?
Author: Kristof De Backer. You can connect with
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