Companies are now increasingly acknowledging the role of finance in their supply chain operations. In a 2020 Finance Priorities Survey, 72% of business leaders agreed that the finance function was increasing in priority, followed by related corporate strategy and development.
It's undeniable that the supply chain operations underwent great financial disruptions during the COVID-19 pandemic, leaving devastating impacts on the global population's health and economic activities. As a result, this constrained the flow of goods and services, which in turn limited financial flows.
During the 2008 economic crisis, supply chain finance played a big role in helping industries bring together the supply chain and financial and technology providers. Its aim was to cushion suppliers including both large, small and medium-sized companies to sustain their cash flow while supporting the purchasing power of buyers.
How? By enhancing inventory velocity, reducing costs and decreasing time to customers. Integrating savvy financial management into supply chain management brings great rewards.
The benefits of accounting and finance in supply chain operations
The functions of a CFO or finance expert in accounting are diverse, depending on the nature of the supply chain and business in question. There are, however, universal insights and expertise they can offer to streamline the finance process through analysis, problem-solving and reporting. Here's how.
1. Helps to support the sustainability of supply chain operations
The supply chain organizations need finances to keep their doors open as it involves managing the flow of cash and capital. This should influence manufacturers to give more attention to the flow of finances instead of just the physical flow of goods.
Finances enable both buyers and suppliers in the supply chain to efficiently perform tasks such as ordering, purchasing, and paying for goods and services. It essentially sustains the cash flow movement, which is a mutually beneficial situation for both buyers and suppliers.
2. Promotes operational efficiency and boosts the bottom line
Effective supply chain management involves constantly maintaining costs, inventory flow, and increasing profitability. Supply chain accounting helps firms to analyze the costs and benefits to ensure the financial stability of the supply chain system. This helps supply chain managers achieve their objective of reducing costs associated with sourcing raw materials, producing, and distributing.
In addition, every firm aims for great performance and they can greatly benefit from instituting accounting procedures. The accounting department can conduct analysis of performance indicators and costs, leading to cutting costs and promoting the goals and vision of the management.
3. Helps strengthen customer service management
Customer service also plays a central role in the success of supply chain companies. A survey by Resilience360 reported that demand shocks and surges were considered as the biggest short-term challenges in the following 3-6 months at the onset of Covid-19 in 2020.
A demand shock and surge means customers are unable or unwilling to buy goods and services at certain prices. Moving forward, it would be imperative for supply chain managers to rely on financial forecasting to obtain reliable final customer demand.
Companies can use this tool to project their income and expenses, which takes into account short-term and long-term impacts of factors that affect the sustainability of the organization. This can include a demand forecast to ensure there's a balance between demand and supply to facilitate the S&OP (sales and operations planning) process.
The economy doesn't need another shock or downturn to value supply chain accounting and finance. Establishing effective supply management demands top-tier management skills. It would not be too far-fetched to outsource the core accounting and finance functions to make sure the final product and service reach the target customer.
In addition, the finance department in a company can't fail to have the perception of developing relevant risk mitigation strategies in case of a breakdown in the supply chain.
Focused Energy helps small and medium-sized companies reach their potential in their supply chain operations by offering finance and accounting services. Get a free consultation today to start reaping the benefits of your financial and operational efficiency.