The most critical challenges in Supply Chain planning can only be resolved through superior collaboration with top leaders in Finance and Commercial functions. Yet, many supply chain managers are often reluctant to initiate this dialogue. Why the hesitation?
Why Supply Chain and Finance collaboration still fails
Since publishing my first book on the Supply Chain riangle, I have stressed the importance of breaking down organizational silos in countless presentations. In our consulting engagements, we are seeing a rapidly growing interest from the CFO’s office to partner directly with supply chain teams on joint planning. When screening potential new clients, I routinely request the presence of a Finance representative in our initial meeting.
What I observe is that many financial leaders are highly motivated to create a unified planning process with Sales and Supply Chain, aiming for consistent, shared objectives. They clearly recognize that this approach is the key to unlocking superior value creation across the entire organization.
It is, therefore, disappointing to see that Supply Chain managers often are the reluctant party in this necessary collaboration. I firmly believe that most challenges faced by Supply Chain leaders could be mitigated, or eliminated by working more closely with Finance (and Sales) and focusing consistently on the strategic objectives of the business.
I see several core arguments that cause operational managers to stay within their functional "silos":
- Past trauma from Finance mandates: Some Supply Chain professionals have negative historical experiences with CFOs who, lacking operational context, unilaterally imposed drastic inventory cuts, often derailing operational KPIs and service levels.
- The financial knowledge barrier: Company objectives are intrinsically tied to financial performance, demanding a higher level of financial literacy. For many operational managers, upskilling their financial acumen is necessary. This learning curve is often viewed as an obstacle. At Solventure, we see it as our duty to help organizations bridge this gap. There is absolutely no reason to be intimidated by financial terminology; the fundamentals are rooted in basic calculations and the rule of three.
- Perceived power imbalance: In many organizations, the CFO wields more influence than operational leaders. This reflects the executive management's natural focus on financial outcomes. This power dynamic affects interactions at the executive committee level, leaving Supply Chain managers feeling like the underdog.
From silo thinking to shared objectives
By resisting collaboration, Supply Chain managers might preserve the illusion of independent decision-making within their department. However, when the stakes are highest, during a crisis or major capital investments, it is always the CEO and CFO who impose the final decisions.
The smarter approach is to collaborate on all key decisions proactively, ensuring that deep expertise in production and inventory management fully informs the company's ultimate strategy. When all executive leaders align on a strategy and corresponding goals, validated by both financial and operational metrics, everyone is empowered to contribute effectively to the targeted results.
In a recent webinar, participants themselves highlighted the transformative business benefits:
- Move away from discussing numbers to having strategic discussions.
- Clear decision-making.
- Maximizing the value bump in Return on Capital Employed (ROCE) - from cost control to value-creation.
- Execution is better aligned with financial KPIs.
- Optimizing working capital.
- Massive efficiency gains.
- Less stress.
How Finance partnership strengthens inventory decisions
Closer engagement with Finance also offers specific, tangible benefits for the Supply Chain manager, particularly in correctly managing inventory:
- The crucial question is: What is the optimal inventory level for the business? This level must be precisely aligned with the unique strategy of the company. By focusing on the economic contribution of inventory to the bottom line, you ensure you are making the correct decision. To execute this, the Supply Chain manager and the CFO must share data.
- In partnership with Finance, the Supply Chain manager can introduce Portfolio Management to verify that every item in stock continues to generate sufficient returns. This approach allows the company to strategically adjust inventory levels and lead times for individual SKUs, while also tweaking margins or costs. Furthermore, Portfolio Management identifies which products should be pruned from the catalogue. This is an exercise that should be conducted regularly to achieve continuous, measurable improvement.
Solventure now provides extensive training for Supply Chain managers looking to elevate their financial expertise. Our focus areas include:
- Using Supply Chain Planning as the foundation for financial planning by integrating price and cost data with volume forecasts. A single, shared planning exercise creates a unified plan, including the P&L, balance sheet, cash flow forecast, and the Supply Chain plan.
- Leveraging the Supply Chain Triangle to define the optimal balance between service, cost, and cash, in line with the company's specific strategy.
- Recognizing Return on Capital Employed (ROCE) as the ultimate metric for substantiating all strategic decisions and comparing competing projects.
