The Stream by River Logic

CFO and CSCO: Better Together

November 2, 2016 | By River Logic

In many organizations – even very well-run ones – there often seems to be an innate strain between the Chief Financial Officer (CFO) and the Chief Supply Chain Officer (CSCO). While many companies try to gloss over the differences, others take a more direct approach to resolving the situation.

The CFO and CSCO Can Truly be a Power Team

First, understand a little history

Traditionally, the finance department has never been particularly close or collaborative with the supply chain people. Instead, each department had their own purview and each pursued their own select goals without much regard for the other. For better or worse, the finance department was in charge of closely tracking spend (among other things) while the supply chain side was trusted to simply report their results and meet demand in the cheapest way possible. Historically, supply chain never had to be very accountable.

With the introduction of supply chain planning software, however, things changed significantly. Now, the CEO (and the Office of Finance) can track the activities in supply chain, making them much more accountable. (And, in turn, making their mistakes much more apparent to Finance!) So it's no surprise there still exists tension between the two: Supply Chain typically wants to meet demand and never be short on inventory while Finance is looking for ways to drive profit and cut costs — slightly conflicting goals, at times.

Second, recognize that the situation must change

As mentioned, times have changed. A forward-looking business should realize that these two departments must cooperate to a very great extent if the entire company is to flourish. Working to form a closer partnership between major business units has become the new norm in the worlds most successful supply chains (The P&Gs, Apples and Unilevers of the world). These leading companies recognize that CFOs and CSCOs must come together to create an alignment between strategy, finance and operations.

Finally, take a look at the wealth of opportunity

A close CFO/CSCO relationship presents a multitude of opportunities for an organization. In general, it not only strengthens financial performance but it can also unlock hidden value within the organization. In particular, it provides these benefits:

    • It creates a consistency not only across the supply chain but also across corporate strategy. Obviously, it's imperative that the supply chain be sustained, but it should also regularly be examined and optimized to reduce costs and drive profit (not just revenue). This process entails more than ensuring that the primary supplier is reliable but also that the suppliers are worth the cost. Collaboration between the CFO and CSCO helps open up conversation about supplier relationships, for example. Some relationships, despite being costly, are important for other strategic reasons, and it's crucial that finance understand that.
    • It supports and challenges investment choices. On that same note, the CFO can help the CSCO understand what relationships are better / worse for the company. With open dialog and collaboration between the two C-levels, supply chain and finance suddenly become major decision makers when it comes to investment choices.
    • It helps monitor business performance and then further enhances it. Keeping one's eye on the ball is essential for business success – and two sets of eyes is always better than one. In other words, when both the CFO and the CSCO are examining the same supply chain – admittedly with different priorities in mind – it cannot help but aid the process. The CSCO may have skin in the game and a more practical viewpoint, but the CFO has a wealth of data – accounts payable, accounts receivable, manufacturing data, cost of goods sold, etc – that can be analyzed to mitigate any supply chain disruptions.
    • It manages risk and supports business continuity – Occasionally a CSCO may build an over-reliance on a particular vendor because it supports business continuity – and makes his life a whole lot easier. The vendor, in return, will likely increment his price in small amounts because of the familiarity. A CFO, however, will focus on the bottom line and will probably opt to spread out the risk – and the cost savings! – across two or three other vendors. A close partnership/relationship will help keep everyone on the same page and minimize tension that oftentimes results when departments aren't good at collaborating (hello, modern day Sales and Marketing!).

It should be obvious that the roles of the CFO and CSCO are continually evolving such that these prime movers can no longer act unilaterally. Instead, a proactive approach to supply chain management is the new prescription for success. Business analytics will undoubtedly play a large role in this process (and the CSCO should thus also focus on giving the Finance more clarity into data via advanced analytics tools / dashboards), but the human factor cannot be underestimated.

Case Study: River Logic Cox Wood

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