How CFOs and Supply Chain Leaders Can Unlock Value Amid Turmoil
Traditionally, the relationship between CFOs and Chief Supply Chain Officers has been cost-centric, but today supply chain has become key to value creation. PwC's June survey shows that 30% of CFOs believe supply chain drives revenue growth more than talent, markets, or acquisitions. Oliver Wyman research indicates that supply chain costs account for 10% to over 20% of revenue, and optimization can reduce costs by up to 25%. This article uses case studies to illustrate how collaboration between CFOs and CSOs, supply chain transparency, and real-time data can help companies balance cost and resilience, unlocking hidden value.
The following is a signed opinion article by Stefan Reidy, founder and CEO of Arviem. The views expressed are solely those of the author.
Traditionally, the relationship between CFOs and Chief Supply Chain Officers (CSOs) has been cost-centric: how much the supply chain spends, and how to cut it. Today, this dynamic is changing. According to a June release by PwC,the Global CFO Pulse Surveyshows that 30% of CFOs believe the supply chain is more important to rebuilding or boosting revenue than talent, geographic markets, or M&A.
This result is not surprising. The supply chain is both a significant cost driver and a value creator for companies. Both CFOs and CSOs should look beyond mere cost optimization to examine the value hidden within the supply chain.
According toOliver Wyman research, supply chain costs can account for 10% to over 20% of revenue, and targeted supply chain optimization can reduce costs by up to 25%. In economically challenging times, this is certainly a substantial return.
Balancing optimization and value
Most CSOs believe their function is already optimized. But in a volatile world that demands both resilience and cost reduction, do these lean operations still make sense?
Take a manufacturer that sources raw materials from South America and produces in Europe. The raw materials require 30 days of transport from origin to the factory. To protect cash flow, the manufacturer agrees with suppliers on a 90-day payment term.
This is favorable for the buyer, but for the supplier, it means financing the raw materials for 120 days, tying up significant working capital. To compensate for the cost of capital, the supplier has to raise raw material prices. Suppliers are usually smaller than manufacturers and lack the resources or cash reserves, putting them in a difficult position.
Even so, such arrangements are manageable under normal circumstances, until major global events like a pandemic occur. Transport disruptions, factory shutdowns, and extended payment cycles for suppliers increase the risk of bankruptcy sharply. Manufacturers are then forced to find new suppliers.
At this point, collaboration between supply chain and finance leaders becomes crucial.
The manufacturer's CSO is reluctant to change partners amid numerous supplier bankruptcies, while the CFO focuses on high costs. Through collaboration, they can re-examine supplier agreements from both financial and supply chain perspectives. A possible outcome is adjusting payment terms, for example, the manufacturer taking on more financing in exchange for price discounts from suppliers.
As a result, the manufacturer's payment costs decrease, and the CSO strengthens supplier relationships and enhances resilience. This positive outcome can only be achieved through supply chain transparency and visibility.
Transparency first
This understanding stems from the collection and analysis of real-time data across all supply chain links—suppliers, manufacturers, logistics providers, warehouses, and intermediaries. This is not easy; it requires coordination among different organizations and highlights the need for a solid, mutually beneficial relationship between CFOs and CSOs. Both parties must clarify their needs, the information required, and its sources.
Value creation
CFOs are fully capable of leading supply chain optimization initiatives alongside supply chain professionals, jointly participating in value creation. Value creation means examining business units and functions from a fresh perspective, adopting an integrated approach to realize value—that is, quantifying the impact of changes in one area on another from a holistic viewpoint.
To achieve this, executives need to focus on the following three elements:
- Cost of capital.Measured by the cost of servicing assets. Assets in the supply chain include transportation, inventory, raw materials, or finished goods. Maintaining their operation and value requires capital. How do CFOs and CSOs determine whether working capital is truly "working" or is tied up in inefficient processes, solutions, and suppliers? Many companies do not consider the cost of capital—for example, a non-logistics company running its own fleet or warehouse; if vehicles are idle or warehouses are empty, assets are not being monetized. Reducing assets can lower the cost of capital.
- Plan for hidden costs.Many companies are aware of the direct costs of manufacturing and transporting finished goods, but may not account for hidden costs: port demurrage, cargo depreciation (shrinkage), and penalty costs (such as revenue loss from failing to meet agreed delivery dates). These performance- and quality-related costs are often not considered in advance, yet they can have a significant impact on the balance sheet. By identifying and quantifying their impact, companies can plan ahead and mitigate shocks.
- Payment terms.Suppliers typically have a higher cost of capital than customers because payment periods are often extended to 90 days after receipt of goods. Adding 30 days of transport time, small suppliers may need to finance goods for buyers for up to a third of the year after shipping raw materials.
When all companies face difficulties, these suppliers may go bankrupt, forcing CSOs to rebuild supply chains. One risk mitigation approach is to shorten payment terms and absorb more capital costs. This could be exchanged for better discounts from suppliers, as raw material prices no longer need to include long-term financing costs. In this way, the CFO achieves cost reduction, and the CSO provides much-needed "oxygen" to suppliers. Combined, this is value.
Data is key
To achieve the above, two conditions are needed: a mutually beneficial relationship between CFOs and CSOs, and end-to-end supply chain visibility. Want to know the cost of deployed capital? Want to identify areas that consistently generate unplanned expenses? Think the supply chain lacks resilience? The answers all point to accurate, timely, and reliable data.
How can CFOs and CSOs gain these insights? The answer is investing in digital tools and operational transformation. Investing during turbulent times can be hard to justify, especially when CFOs are in a cost-cutting mindset. Therefore, supply chain digitalization and visibility must be seen as part of an overall transformation.
That said, this is not the high upfront investment of the past. Software-as-a-Service (SaaS) or cloud solutions have disrupted traditional models, shifting costs from capital expenditure to subscription fees. The new model applies not only to data collection tools; digital organizations also find it easier to access new financing channels, especially beneficial for companies previously turned away by traditional risk-averse institutions.
Unlocking predictability
Visibility brings predictability—something that is currently scarce. Foreseeing the future and understanding its impact on the overall business can reduce reliance on buffers like safety stock, freeing up working capital.
This requires investment, but ultimately the focus should be on the value it creates and how it aligns with the broader organization. It is an ongoing balancing act, but if executed well, collaboration between CFOs and supply chain executives will unlock value, optimize capital use, and improve operational and financial performance.