| In a truly global environment, an enterprise operation | | | | value in the extended enterprise space, or |
| extends beyond the confines of its business | | | | multi-enterprise processes. Here, the challenge for the |
| premises to encompass the operations of its | | | | CFO is that several of the expenses are incurred by |
| suppliers, partners and customers. But while most | | | | third parties and that inventory is often not on the |
| organizations have learned to fine-tune their | | | | books of the organization and thus out of the direct |
| enterprise resource planning (ERP) systems, few | | | | "control" of the finance executive. |
| have yet to experience the promise of their supply | | | | The added complexity of an extended enterprise has |
| chain management (SCM) systems. | | | | not changed the demands on the company to deliver |
| SCM systems have the potential to improve the | | | | shareholder return. Devashish concludes that it is |
| three key drivers of financial performance -- growth, | | | | considered best practice for CFO to be involved in |
| profitability and capital utilization. Many of today's | | | | supply chain management. Best practice companies |
| enterprises fail to achieve these benefits because | | | | including Wal-mart and Dell have realized that the |
| many C-level executives view SCM as a tactical | | | | supply chain is their true sustainable differentiator |
| back-room cost-center activity. Most SCM | | | | today. |
| professionals fail to link SCM to key financial metrics | | | | Dr. Stephen G. Timme, president of Finlistics Solutions |
| because they do not speak the language of finance | | | | and an adjunct professor at the Georgia Institute of |
| and are therefore unable to articulate how SCM | | | | Technology, suggests that CFOs take a top-down |
| drives financial performance. For SCM to drive | | | | approach to making the financial-SCM connection. This |
| performance throughout the organization, strategic | | | | comprises three elements: |
| and tactical decisions must be made with an | | | | Step 1: Calculate the Value of Gaps in Key Financial |
| enterprise-wide perspective. | | | | Metrics |
| "In an age of intense competition, supply chain | | | | Gaps exist between revenue, costs of goods sold |
| efficiency and adaptability are not just requirements | | | | and days in inventory (DII). The value of the gaps |
| for success. They are necessities for survival," said | | | | can be based on historical data, industry aggregates, |
| Patricia Cheong, Regional Director, Asia at Sterling | | | | benchmarks from competitors and aspirations derived |
| Commerce. "A recent study conducted by | | | | from business intelligence tools. Whatever metric is |
| Accenture, Stanford, and INSEAD found that senior | | | | used, these should be a correlation to shareholder |
| executives at leading companies view supply chains | | | | value, should be used to reward senior managers, |
| as critical or very important to their company and | | | | and are easily understood throughout the |
| industry, and most also agreed that investments in | | | | organization. |
| supply chain capabilities have increased in the last | | | | Step 2: Link Gaps in Financial Metrics to SCM Business |
| three years." | | | | Processes and Strategies |
| Central to achieving such a transformation is the | | | | Each process within an organization bears a direct |
| Chief Financial Officer (CFO). The CFO must take a | | | | impact on a company's financial operation. Resulting |
| leadership position in educating key personnel on the | | | | gaps in financial metrics should be identified in specific |
| financial connection as he is well equipped with the | | | | areas of the operation to provide a better |
| financial acumen to link business processes, activities | | | | understanding of the cause-and-effect relationships |
| and tasks to key financial metrics achieving an | | | | between SCM activities and financial performance. For |
| enterprise-wide view. | | | | example, a gap in profitability related to percentage |
| Cheong concurs, "Driven by cost-cutting needs and | | | | cost of goods sold can be mapped to an SCM-related |
| general dissatisfaction with supply chain performance, | | | | process such as distribution and logistics. This in turn |
| CFOs are adding supply-chain management to the | | | | is linked to a key activity such as warehouse |
| financial levers they already control. In the past, they | | | | management, which itself is related to tasks such as |
| have had a feeling that they have spent too much -- | | | | receiving, putting away, pick-pack-ship operations, |
| with too little to show for it. New technologies and | | | | and to key performance indictors such as labor costs, |
| architectures have emerged to make the CFO's | | | | average time per pick, and pick accuracy. A |
| quest for visibility and control over complex supply | | | | misalignment within any element of the process |
| chain processes both possible and practical. Today, | | | | creates opportunities for gaps to proliferate and |
| applications are available for managing the flow of | | | | impact the organization's overall performance and |
| orders, inventory and shipments both inside and | | | | profitability. |
| outside an organization. These applications provide | | | | Step 3: Map SCM Initiatives to Financial Performance |
| end-to-end visibility into critical supply chain events | | | | Gaps |
| and exceptions, together with the tools to | | | | The information obtained in the first two steps |
| proactively balance supply and demand in real time." | | | | becomes the foundation for exploring SCM solutions |
| Buck Devashish, SVP of Strategic Initiatives and | | | | that improve the SCM-related business processes and |
| Business Development at Sterling Commerce, looks | | | | strategies underlying the gaps in the key financial |
| at it differently. "In the late 80s/early 90s the CFO | | | | metrics. A logical methodology for identifying specific |
| became all-powerful because he/she became the | | | | areas of opportunities can thus be created, and a |
| voice of the shareholder driving corporate returns | | | | disciplined approach for estimating monetary benefits |
| through improved efficiency of operations and better | | | | can be built. |
| control of the entire cash flow cycle. This was | | | | SCM has the potential to help improve higher returns |
| enabled in part by the entire ERP wave that came up | | | | to shareholders. Improvements in SCM business |
| then and helped the CFO track every item of | | | | processes and strategies cannot completely close |
| expense incurred, and also track every asset actually | | | | financial performance gaps. But for many |
| owned by the corporation." | | | | organizations, the improvements have a significant |
| The supply chain management wave of the late 90s | | | | impact on the bottom line. |
| continuing through today is focused on maximizing | | | | |