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January 10, 2013

Today’s complex global supply chain places greater demand on companies to manage both risks and costs, both at their supplier’s organization, as well as within their own enterprise. While the supply chain organization focuses on sourcing of supply, managing supplier relationships and the costs incurred from manufacturing to customer delivery, Finance should play a value-added role in providing a comprehensive view of risks and costs.

Supply chain organizations work to ensure goods that are produced arrive at the customer destination on time and in good condition. Often, they are operating within a fiscal year budget and are busy managing the inverse relationship between cost and risk in the short run. Examples of these near term trade-offs include:

  • Cost of quality control (by way of audits and checkpoints)
  • Cost of assuring availability of supply (through engaging multiple suppliers)
  • Cost of out-of-stock (via higher inventory “buffer” stock levels)
  • Cost of transportation (by selected geographic locations)
  • Cost of inventory (through “just-in-time” practices)

In contrast, Finance organizations are able to view the “bigger picture” with greater consideration for longer term consequences, given their multi-period responsibility for the P&L and Balance Sheet. They are also more likely to have access to broader decision support information than the limited supply chain transaction data in an ERP system. The Finance executive’s areas of concern that can add value to a global supply chain include: Supply Continuity, Price Volatility and Geographic Risks (See Figure 1 below).

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