It’s no secret that supply chains have taken a beating over the past couple of years, a problem which has affected the finances of many companies. In response, many CFOs have had to get a little wiser about the role of their operations counterparts, as they protect their balance sheets from the supply chain’s volatility.
Even Congress is trying to set things right in the new year, as US Sen. Marco Rubio and US Rep. Ro Khanna proposed new regulations that would make federal agencies identify the risks in US supply chains that could hurt domestic supply and national security.
It’s not quite that simple, however, Dawn Tiura, president and CEO of sourcing industry group SIG, told CFO Brew. She said that even if such legislation were passed, companies answer to shareholders so they would in turn probably be asking Congress for some guarantees, such as a tax break. “It’s almost a one-to-one negotiation with the undersecretary of commerce,” she said.
2022: Supply-chain delays have spurred changes in the ways that finance works with operations teams, bringing both closer than ever. As the year comes to a close, supply-chain woes have been sidelined slightly, easing the tension at the end of a tumultuous year.
“What people don’t understand is that if you take any factory—let’s say it has a 10-day delay—it can take over a year to get out of low inventory levels,” Tiura told CFO Brew. She added that delays that last more than 30 days could mean years of low inventory, which in turn costs “the GDP billions of dollars every time we can’t produce and export our goods.”
Tiura said that many companies have not mapped out and risk-profiled their supply chains— meaning determining the risks with each respective location and then an alternative location in the event of a problem—causing chaos when there’s a disruption. She said that of 276 attendees on a webinar SIG conducted in December, only 69 companies (or 25%) had mapped their networks.
Why? “They didn’t have the resources, they didn’t have the technology, and they didn’t have the time and manpower.”
But all is not doomed, Bindiya Vakil, co-founder and CEO of supply-chain visibility tech platform Resilinc, told CFO Brew. Although companies were caught off guard, the good news is that if they embrace supply-chain technology, risk mapping could be much easier and save costs later on, she said.
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Onshoring, or bringing supply chains closer to home, is another tactic some companies have turned to, as a way to try to get around closed ports of factories in other countries where the rules may be different. Apple announced that it would be moving chip production to Arizona, alongside chipmaker Intel. Onshoring is not cheap nor fast, however, and may be a reason why finance chiefs are eyeing a tax break for some of their domestic R&D efforts.
CFOs had to learn the COO skillset as supply-chain issues took center stage over the last year. Francois Chadwick, CFO of an AI pilots manufacturer Shield AI, told CFO Brew that he and his COO talk regularly, if not hourly, on some supply-chain issues, despite the company having long-term contracts, which relieved them of some of the problems others endured.
2023: Companies will have to consider building redundancy into their supply chains in 2023—which basically means having a warehouse of product in case one link in its supply chain goes offline or is disrupted. A mid-year survey by global consulting firm Protiviti found that 45% of CFOs surveyed are moving away from “low-cost, just in time” supply-chain models. Tiura said it’s a 180-degree switch from before the pandemic when everyone wanted “just in time” delivery. But the hangover from years of operations backlog has companies wanting more of a safety net.
And, considering it takes time and money to rebuild or release warehouses that were previously discarded, companies should be very focused on fostering a “safety net” for themselves in 2023, Tiura told CFO Brew.
While it’s still too early to predict just how snarled the supply chain might continue to be in 2023, CFOs are already suffering from supply-chain hangovers after the seemingly endless twists and turns of the past year. And although other issues, like inflation and an impending recession, are also demanding finance chiefs’ attention, the challenge of building inventory while keeping a tight balance sheet will surely be on the top of their to-worry-about list.—KT, DA