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CFO2CFO: Connect Your KPIs with Supply Chain Insight

Despite abundant good news about the economy, business leaders struggle with vexing challenges—many

of which connect to mission-critical strategies in the extended supply chain. Financial executives must

command broader knowledge about their company’s sustainable advantage in the extended supply chain—

and be well-informed about negative impact on performance from creeping risks of increased complexity,

demand volatility and less efficient capital allocation schemes. Transportation Insight’s CFO Rennie

Faulkner shares three key “pivot points” that can help “by the numbers” executives develop the expanded

perspective they need to champion initiatives to both mitigate supply chain risk and more effectively

communicate its strategic value to investors.

CFO2CFO: Connect Your KPIs with Supply Chain Insight

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Looking Out for American Industry

Although consumer confidence continues to waver (largely due to

shorter term “close to home” concerns on jobs, wages, taxes and

education), business executives are increasingly optimistic. The U.S.

business climate through 2016 is forecast to be “better and improving.”

The supporting evidence is strong. Economic fundamentals are trending

in the right direction, marching steadily, if slowly, away from The Great

Recession. Recent industry survey insights—from the Institute for

Supply Management, the National Association of Manufacturers, the

Manufacturers Alliance for Productivity and Innovation Foundation and

the National Retail Federation (NRF)—reflect a baseline quarter-over-

quarter orders and sales improvement since 2010 and, particularly, robust

growth in commercial activity since Summer 2014. Energy costs have

plummeted over the past year, an unexpected bonus from global

over-production, with little expectation of a sudden rebound. And the

cost of capital is near historic lows, although interest rates are likely to

climb somewhat as the Federal Reserve acts to mitigate risk of the

economy overheating.

Overall, the longer term prospects are very encouraging across the U.S.

manufacturing and retail sectors, ranging from industrial services to

materials to high tech products to consumer packaged goods.

You Can’t Manage If You Can’t Plan

Despite abundant good news at the macro level, however, business

leaders are struggling to deal with several vexing challenges—many of

which connect to mission-critical strategy in the extended supply chain:

• Systemic physical supply chain problems related to port congestion,

transportation capacity and misaligned distribution networks.

• Data-centric information supply chain gaps resulting from discrete

legacy technologies (or conversely, the disarray of transitioning

to newer integrated platforms) and the lack of talent with the

right analytical skills needed to transform disparate raw data into

actionable insights.

• Financial supply chain risk and cost control concerns in the face of

rising freight cost as a percentage of sales and pressure on working

capital as inventory levels creep up to meet customer demand.

THE RISKS

Increasing Complexity, Demand

Volatility, Capital Allocation

THE PIvOT POInTS

Internal: Bridge knowledge

and expertise

External: Facilitate collaboration

Everyone: Build a unified view with

accurate data

THE AdvICE

Supply chains focused on greater

collaboration among all parties

will be the winners with a “what’s

in it for we” approach. But

to achieve those benefits, the

parties must be willing to step up

to Trust and Commitment.

Use your data to help break

down the silos. Communicate

objectives and shape alignment

within and beyond the

organization.

Develop stronger and more

resilient business relationships

with strategic vendors whose

expertise will expand or increase

your operational performance.

CFO2CFO: Connect Your KPIs with Supply Chain Insight

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FOuR FACTORS

1 Integrated business planning

2 Supply chain collaboration

3 Accessible, clean data

4 Network of capacity

The CFO’s Role

1 2 3 4

5

6

Ensuring business decisions are

grounded in sound financial criteria

Representing the organization’s

progress on strategic goals to external

stakeholders

Leading key initiatives in finance that support overall

strategic goals

Funding, enabling and executing strategy set by

the CEO

Providing insight and analysis to

support the CEO and other senior

managers

Developing and defining the

overall strategy for your

organization

Communicating to the Trusting the numbers

Providing Insight Getting your house in order Funding organizational s

trateg

y

De

velo

ping

bus

ines

s st

rate

gy

Communicating to the

exter

nal marketplace

Dev

elop

men

t

Execution

Enablement

“ Resist focusing only on short-

term cost reduction. If sustainable

business performance is what

you are seeking, invest the effort

to identify opportunities for

process change across the entire

supply chain. This effort does not

necessarily have to be as expensive

or as complicated as one

might think.”

– RENNIE FAUlkNER, CFO, TRANSPORTATION INSIGhT

The CFO’s Role

As financial executives, what do these trends mean for us? Our role is

so much more than guarding the corporate treasury—today’s CFO must

have an expansive perspective of the business strategy and how the

entire organization works. Yes, we remain the objective voice on financial

performance. Yet the imperative to fully communicate long-term strategic

value to investors (public or private, debt or equity) means that we must

be able to clearly define sustainable advantage beyond the four walls of

the business—we must be able to discuss very concretely how we monitor,

measure, plan and manage financial performance and value drivers in the

extended supply chain, from sourcing location to purchase decision to

point of use.

Supply Chain Risks Every CFO needs to Know

Various conditions can introduce market risk and new constraints into

this ecosystem that will disrupt optimal supply chain performance. Some

have incremental consequence, while others posit major business model

shifts. More importantly, while our colleagues from other functions in the

organization see the same problems and interdependencies, we often do

not agree on the solutions.

—From the SAS IW Custom Research Report “Take Demand Responsiveness to the Next Level”

CFO2CFO: Connect Your KPIs with Supply Chain Insight

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Increasing Complexity:

• Evolution of extended and multi-echelon supply chains,

often linked to market globalization

• Adoption of more robust technology for enterprise

operations, coupled with retraining, reorganization and

business process improvement

• Converging disruptive technologies—cloud computing,

device mobility and social business—which have shifted

expectations on data access, sharing and collaboration,

inside and outside the organization

demand volatility:

• Market-driven volatility, including proliferation of product

SkUs and optimizing omni-channel sales strategies

• Policy-driven volatility, particularly impact of driver hours

of service and environmental equipment standards that

have tightened trucking capacity and destabilized freight management

Capital Allocation:

• Capital investment “spreadsheet” models that undervalue innovation

funding that may be essential to sustain competitive relevance

• Entrenched resistance to technology investment—beyond the complexity

issue—based on legacy expectations, cost to implement and talent gaps

• less efficient working capital management—reflected in longer sales to

cash cycles and increased inventory carrying costs

Three Approaches, One Goal: Better Results

An expanded perspective requires a more nuanced understanding of the business ecosystem and insight about

how to best optimize performance. For that we must champion initiatives that break down the data silos and

introduce cross-functional analytics to everyday business processes. Based on my experience as a CFO of a

company that provides supply chain insights and logistics services to hundreds of companies, I see three key

pivot points for financial executives:

ResponsivenessThe planning for and actual ability of the

supply chain to react to changes in demand.

Internal DynamicsThe internal environment

for and attention to supply chain issues

among business decision makers.

InsightsThe ability to

coordinate and track the performance of

the supply chain across its channels.

TalentThe presence of

professionals with the functional knowledge and anaytical skills for supply chain insights.

1 2

3 4

1 2 3Bridging knowledge

and expertise within

your company

Facilitating collaboration

beyond your organization

Building a unified view

of the business with lots of

accurate “little data”

Factors Affecting Demand Volatility—From the KRC Research/Capgemini November Report 2013 “The Supply Chain Impact Survey Research Results”

(Risks Continued)

CFO2CFO: Connect Your KPIs with Supply Chain Insight

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While this expanded perspective on how to optimize performance

hinges on knowledge sharing and collaboration, it ultimately points to

the main pivoting action, which is how you as CFO take a leadership

role in a strategic discussion around which skills, functions or

technology need to be entirely owned internally, and determine the

areas where outside expertise or resources might bring value. Our most

forward–thinking clients are conducting this evaluation on an ongoing

basis to determine its effectiveness in terms of connecting people,

process and data in order to plan and execute more predictably with

greater agility.

The CFO’s Supply Chain Pivot Points

Create efficient knowledge bridges across the functional boundaries

within our organizations.

high performance organizations take advantage of the power of

expertise. Yet current research on how CFOs interact with supply

chain management suggests that we have just begun to leverage our

“human capital.” A 2012 EY (formerly Ernst & Young) study found that

“only 26% of finance executives and 21% of supply chain executives

say that the CFO’s contribution to the supply chain is based around an

enabling, collaborative, business-partnering role.” however, these same

executives said that their working relationships were moving toward

greater collaboration.

• Organize a cross-functional Supply Chain Center of Excellence

(SCCOE) as the nexus of comprehensive supply chain optimization.

• link in otherwise discrete teams responsible for S&OP (sales and

operations planning), Procurement, Merchandising, Promotions, Risk

Management and Financial Accounting.

Establish the platforms (people and technology) that will enable you

to forecast and plan more collaboratively with colleagues, suppliers,

partners and customers.

Supply chain strategies involve the interplay of key variables

in myriad operations—which typically span R&D, sourcing,

procurement, engineering, operations, logistics, merchandising and

customer support.

“ There was a time, back when

there were inventory buffers up and

down manufacturers’ comparatively

short supply chains, when forecasts

based on the previous month

and adjusted for seasonality were

sufficient. In any case, that’s all

there was. As data capture, storage,

retrieval and analytical power have

steadily evolved, and systems costs

have declined, one sometimes

wonders if increasingly advanced

supply and inventory management

capabilities arose to meet growing

market complexity. Or, if they

in fact created that complexity

by enabling massive global

supply chains, endless product

configurations and customer

choices, and product life cycles less

than half what they were not too

many years ago.”

– FROM ThE 2014 INDUSTRYWEEk/

SAS REPORT “TAkING DEMAND RESPONSIVENESS TO ThE NExT lEVEl”

CFO2CFO: Connect Your KPIs with Supply Chain Insight

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Demand forecasting and planning has traditionally been used to create

financial plans and produce inventory management, replenishment and

shipment schedules. however, it is a key “low hanging fruit” collaboration

opportunity. Despite increased complexity and demand volatility, 2014

IndustryWeek/SAS research on operations-level planning found that only

50% of all manufacturers have adopted some form of demand-driven

forecasting (which uses more types of both upstream and downstream

data to increase planning accuracy). The study also uncovered that 77% still

rely on Excel spreadsheets and that only 44% rated their forecasts as “fairly

accurate” or better.

Expense clearly is a factor. leading enterprises capitalizing on Big Data

are investing millions in technology and human capital to capture those

elusive strategic insights in the cloud to make adjustments to their supply

chain strategy and quickly adapt to ever changing customer demands.

According to Dr. C. John langley and Capgemini Consulting, only half

of shippers and 3Pls surveyed have access to necessary supply chain

and operations data to construct viable Big Data solutions that enhance

demand planning efforts.

Although it may seem counterintuitive, outsourcing supply chain

planning and/or operations can significantly improve overall performance

and reduce total cost. There are caveats: first, identify your core

competencies and develop clear consensus on which strategic activities

must remain under your roof; then define objective kPI and assess

specialist providers who can help you improve results. Trust—reflecting

the shared values, transparency and performance commitment between

0% 10% 20% 30% 40% 50% 60%

REDUCTIONS IN INVENTORY

BEST CUSTOMER SERVICE

INCREASED SALES

WORKING CAPITAL REDUCTIONS

REDUCED FREIGHT AND LOGISTICS

COSTS

OTHER

Benefits of Demand-Driven Forecasting

—From the 2014 Industry Week/SAS Demand-Driven Forecasting and Planning Research Study, n-344

CFO2CFO: Connect Your KPIs with Supply Chain Insight

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parties—is the essential enabler for a successful outsourcing

relationship. “Table stakes” capabilities must be demonstrated;

however, research on technical services providing expertise and/or

managing dynamic requirements indicates that the highest ROI is

found when criteria for trust and leadership are prioritized.

• Resist the temptation to oversimplify how you procure outsourced

services—unless you have near absolute market power, one-size-fits-

all procurement approaches are unlikely to yield the optimal balance

of operational excellence, quality and cost control that you need.

• If you are still producing forecasts using Excel spreadsheets and

historic volume data, start with an internal data assessment and

a baseline analysis. Then explore the array of options available

that will help you to improve forecast accuracy and value to

your organization.

Augment conventional planning processes with new data analytics

that expose leading indicators of your unique supply and

demand patterns.

The opportunity isn’t just about gaining access to more data—it is

to develop a unified “view of the truth.” like any type of business

intelligence, there’s no point in the effort and expense to collect and

analyze the data if the insights aren’t deployed. Don’t let the buzz

about “Big Data” scare you off; collecting lots of little but highly

accurate data can be very effective for targeted initiatives to identify

gaps, change tactics and improve performance. Moreover, starting

with “Small Data” enables you to take the crucial step back to evaluate

scenarios with “what if” analysis. With advanced management insight

and confidence in the data, you’ll feel more comfortable stepping up as

the champion driving forward a new level of business agility

and resilience.

• Get your data in order, from all the little data in your organization to

the Big Data in your extended supply chain.

• Explore the new predictive analytics tools that will help you create

a more accurate picture of reality—or find a data specialist to help

you accelerate your journey.

“ With the economy showing

signs of improvement, the

opportunity is now for CFOs to

look beyond short-term crisis

management to longer-term

value creation.”

– RENNIE FAUlkNER, CFO, TRANSPORTATION INSIGhT

CFO2CFO: Connect Your KPIs with Supply Chain Insight

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References

views. vision. Insights. The evolving role of today’s CFO. An Americas supplement to The DNA of the CFO; EY

Report 2012 ey.com/cfo

2013 uS Working Capital Survey. A report on research of US-based companies by REl, a hackett Group

Company, www.relconsultancy.com/workingcapital/

The Struggling Supply Chain: Lack of talent and processes among key challenges in satisfying real time

consumer demand during the holidays. A report from Capgemini / kRC Research, November 2013

http://www.capgemini.com/resources/the-struggling-supply-chain

http://www.capgemini.com/resource-file-access/resource/pdf/capgemini_scm_and_consumer_survey.pdf

demand-driven Forecasting and Planning: Take demand Responsiveness to the next Level. A report of the

2014 IndustryWeek/SAS Demand-Driven Forecasting and Planning Research Study.

IndustryWeek link http://www.industryweek-digital.com/industryweekmag/november_2014?pg=3#pg3

The 2014 Supply Chain Top 25: Leading the decade. A report on Gartner’s annual assessment of supply chain

excellence; Supply Chain Management Review, September/October 2014

SCMR link http://www.scmr.com/article/the_2014_supply_chain_top_25_leading_the_decade

Gartner link https://www.gartner.com/doc/2746917?ref=SiteSearch&sthkw=supply%20chain%20top%20

25&fnl=search&srcId=1-3478922254

The Conference Board’s Consumer Confidence Survey®

https://www.conference-board.org/data/consumerconfidence.cfm

Institute for Supply Management (ISM)

http://www.ism.ws/index.cfm

Report on Business http://www.ism.ws/ISMReport/?navItemNumber=22306

Non-Manufacturing http://www.ism.ws/ISMReport/NonMfgROB.cfm?navItemNumber=12943

Manufacturing http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12942

The Manufacturers Alliance for Productivity and Innovation Foundation (MAPI)

https://www.mapi.net/

https://www.mapi.net/research/publications/us-industrial-outlook-widespread-growth-ahead

national Association of Manufacturers (nAM)

http://www.nam.org/

http://www.nam.org/Data-and-Reports/NAM-IndustryWeek-Survey/

national Retail Federation (nRF)

https://nrf.com/

 

ABOuT THE AuTHOR

Rennie Faulkner is Chief Financial Officer of Transportation

Insight, a leading 3Pl offering integrated transportation

management, freight bill audit and payment services, lEAN

consulting, warehousing, international, technology and business

intelligence. Faulkner has over 20 years of experience in finance,

specializing in capital raising, mergers and acquisitions, and the

strategic and financial aspects of managing growth companies.

Faulkner also oversees the company’s technology team, which focuses on

technology solutions for the end-to-end supply chain from Insight TMS®, its

modular, scalable Transportation Management System, to Insight Fusion®, its

proprietary Big Data solution that offers data-driven problem solving with

mobile, interactive supply chain metrics.

Understanding how to deliver measurable value to clients, Faulkner knows that the

supply chain can be a driver to operational efficiency and business advantage. he has

expertise in improving inventory visibility, velocity and efficiency; labor efficiencies;

cash flow metrics and operating cash flow; financial planning and analysis; forecasting

and demand; and profit and loss metrics.

Prior to Transportation Insight, Faulkner was Executive Vice President and Chief

Financial Officer of publically traded retail companies, kirkland’s Inc. and The Cato

Corporation. he began his career as an investment banker at SunTrust Robinson

humphrey where he advised growing companies on mergers, acquisitions and capital

raising transactions.

Faulkner graduated with a BA in Economics from the University of North

Carolina at Chapel hill, and he received his MBA from The Wharton School,

University of Pennsylvania.

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