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KPI

How the CFO Can be a Change Agent in the Supply Chain

Managing cash flow, planning the financial outlay, keeping the balance sheet in order, and ensuring all financial compliances are met are a CFO’s core job function. But this is not all that a CFO does. The CFO is also responsible for identifying opportunities to reduce operating costs without sacrificing the quality of the products and services offered by the company.

But is it a good strategy to wait for things to go wrong to ask the CFO to step in?

Supply chain and transportation are two of the biggest cost centers in an organization. The cost for these functions is measured as a percentage of sales and differs from industry to industry. However, according to this McKinsey study, most industries report supply chain and logistics cost in the range of 1.8% to 10%. When costs remain within the industry parameters, supply chain and logistics are usually given the leeway to make their financial decisions. The CFO steps in only when the cost rise above the set industry norms or in case any other financial abnormality is noticed. But is it a good strategy to wait for things to go wrong to ask the CFO to step in? Wouldn’t the supply chain and the organization as a whole benefit if the CFO is a part of the supply chain decision making?

What Does the Corporate World Think of CFO’s Involvement in the Supply Chain?

The necessity of CFOs involvement in supply chain is not a recent phenomenon. A 2013 study by Ernst & Young aptly highlighted the importance of CFO’s involvement in the supply chain. Ernst & Young surveyed 423 CFOs and heads of supply chain around the globe to understand their view of a CFO’s contribution to the supply chain.

According to the results of the survey, of all the respondents, “only 26% finance executives and 21% supply chain executives said that the CFO’s contribution to the supply chain is based around a business-partnering model”. But this trend seems to be gradually changing as “70% of CFOs and 63% of supply chain leaders responded that their relationship has become more collaborative over the past three years”.

Organizations that have a collaborative relationship between the CFO and supply chain also tend to perform better.

The survey also revealed that those organizations that have a collaborative relationship between the CFO and supply chain also tend to perform better. “Among survey respondents with an established business partner model in place, 48% report EBITDA growth increases of more than 5% in their company over the past year, compared with just 22% of those that have not yet adopted this approach.”

In the past five years, the demand for CFO’s involvement in the supply chain has only grown. Last year, an article in the European Financial Review spoke about the book What CFOs (and Future CFOs) Need to Know About Supply Chain Transactions by X. Paul Humbert, Esq. According to the article, the book showcases not only the necessity of a collaboration between the CFO and the supply chain but also demonstrates how the company’s finances and its books are impacted by the decisions taken by functions within the supply chain:

“an organization’s financial results are intertwined with the performance of the purchasing function. Purchasing and purchased inventory affect the balance sheet and capital allocation.”

Another article in Smart Industry Update published in 2018, speaks on behalf of the CFOs seeking answers to supply chain issues which the CFOs may not have first-hand knowledge of. For example, the article lists the following three critical questions that CFOs should ask of their supply chain to be able to make better decisions regarding their supply chain and create better business strategies:

  • How accurate is our supply-chain visibility?
  • How quickly can we identify and address challenges in response to disruption?
  • How well can we respond to changes in the industry?

The survey and the two articles leave no doubt of how crucial it is for CFOs to be involved in the supply chain function and work in collaboration with the head of supply chain. In fact, it is not only the supply chain that needs the CFO, the CFO also needs the supply chain.

How The CFO Can Be A Change Agent For The Supply Chain

An article titled How Brilliant CFOs Use the Supply Chain to Drive Business Value – Do you know the questions you should be asking in Innovation Enterprise targeted at CFOs lists down possible areas that can benefit from the CFO’s involvement.

Source: Innovation Enterprise

It says “If the answer to any of these questions highlights a potential issue then it is important to engage with the head of supply chain and agree a process to address the issue. It may also indicate that there is an opportunity to partner more closely with supply chain/operations to leverage the knowledge and skills of the finance team to enable better decision making in the business.”

The transportation offered also influences customer’s buying decisions

All the above areas are crucial from the financial, product, and delivery point and can benefit from a collaborative effort from the CFO and the supply chain. For example, let’s take a look at the second, sixth and eighth question. Freight costs are pegged around 3 – 5% of supply chain costs. Freight contract negotiation is one of the most important activities of the logistics function. It has an impact on the budget, affects the cost reduction KPI given to the logistics department. In B2C businesses, to a certain extent, the transportation offered also influences customer’s buying decisions. How can the function benefit from CFOs insight?

When the CFO is involved in this decision-making from the start, it increases the possibility of improvement in contract terms and in cost reduction.

On the cost reduction and financial front, the CFO, with their fact-based view of the organization, can help the logistics team negotiate better freight contracts. The rates negotiated in these contracts are based on a multitude of factors like government policies, fuel prices, political relations between trading countries, and global business environment. Logistics may or may not have insight into these issues, but the CFO and his team will have knowledge of what is going on in the business world. So, if they know there is a possibility of fuel prices changing in the next six months or a recessionary trend is being noticed, they can advise the logistics team to negotiate a short-term contract and revisit it later. Similarly, in the case of B2C shipments (ref Q6), the CFO and the supply chain head can negotiate for contracts with different delivery options in order to serve different customers. But this can only be done if the supply chain knows the financial viability of these options and that information can be gained only from the CFO of the organization. When the CFO is involved in this decision-making from the start, it increases the possibility of improvement in contract terms and in cost reduction.

Today, to be effective in their job and to create a competitive supply chain, CFOs need to lend their expertise to the supply chain and seek their inputs in the setting the goals and objectives of the company.

Long gone are the days when the CFOs limited themselves to matters pertaining to managing company finances. Today, to be effective in their job and to create a competitive supply chain, CFOs need to lend their expertise to the supply chain and seek their inputs in the setting the goals and objectives of the company.

At BlueGrace, we have found that working with organizations where CFOs are directly involved has helped turn over a new leaf and make significant cost reductions, positively impacting the supply chain of that organization.

We provide quarterly business intelligence reports that give updates on the savings targets you give to us, key performance indicators (KPIs), and special project updates. The CFO of a company, in particular, is able to use these metrics to budget and forecast for the organization moving forward. Connect with our team at 800.MY.SHIPPING or fill out the form below to find out how we can work with your CFO to build an efficient and optimal supply chain.

7 Benefits of Outsourcing Logistics to a 3PL

To outsource logistics or manage it internally is a major point of consideration for organizations. The decision is usually arrived at after extensive cost-benefit analysis of both the alternatives. While the outcome is often based on the size and nature of the business, availability of capital and manpower, geography served, operational risks involved and extent of control an organization is willing to let go of, outsourcing is increasingly becoming a favored option. Below we will highlight the top seven reasons why you should consider it too.

While your in-house team may be expert at all the functions, the complex nature of the job makes it challenging for them to do all of it by themselves.

Expertise: Logistics is a very dynamic function. A logistician is required to understand business strategy, manufacturing planning, inventory management, and the nitty gritty of different modes of transportation depending on regions served. Along with having expert knowledge of these functions, they are also expected to be good at creating strategies and implementing them. It also requires a lot of coordination and collaboration with various service providers and government regulatory agencies. While your in-house team may be expert at all the functions, the complex nature of the job makes it challenging for them to do all of it by themselves. A 3PL has expertise in all these functions, they also have a connection with external agencies. They can take over the more tedious and complex jobs, freeing your team to strategize and plan the business.

From negotiating rates, booking the freight, providing storage, arranging for the transportation, getting the shipment loaded to following up on the shipment till it reaches the final destination, a 3PL can do it all.

Taking product to market: A 3PL arranges the transportation – local or international, to ensure that your product reaches the intended destination on time. From negotiating rates, booking the freight, providing storage, arranging for the transportation, getting the shipment loaded to following up on the shipment till it reaches the final destination, a 3PL can do it all. In the case you have international shipments, a 3PL has the experienced professionals to manage that as well. How much and how a 3PL contributes to the process depends on the organization that it works with.

Trained staff: A 3PL not only brings in the logistical facilities like warehouse facilities and transportation, but it also brings with it trained personnel who are equipped to handle the day-to-day logistics of the business. 3PL staff is trained to handle the exigencies of the business and deliver on the KPIs you set for them.

This is the age of digital logistics.

Technology: This is the age of digital logistics. A 3PL brings with it specifically designed, trusted, and ready-to-use systems and processes that can manage the end-to-end logistical process on a single platform. Most of the 3PL service providers are also open to customizing or integrating their digital platforms with that of the organization they work with. This flexibility offered by a 3PL not only helps the organization bridge the gaps in its systems but also helps it to do it at a comparatively lower cost.

Large network: The main objective of any business is to conquer new frontiers and markets. And, to do this, it requires a wide logistics network and a robust, flawlessly executed logistics strategy. Your 3PL partner is expected to and can help you achieve your business goals. They may either have their own network across regions or they may have business collaborations with transporters and storage facility providers in different regions or a mix of these two, their own network in some cities and collaboration in another. They are thus better placed to help you expand and grow your business. To do this, all you need to do is work with them in a collaborative manner to find the most optimum solution to reach your customers.

A 3PL not only has the means to do so, but also the technology and the trained staff to execute the process efficiently.

Dedicated customer service: Logistics is now a major part of customer service. Obtaining the right product, packed in the right manner, at the required delivery time is on every customer’s wishlist. This can only happen if the ordering process and logistics are synchronized and managed correctly. A 3PL not only has the means to do so, but also the technology and the trained staff to execute the process efficiently.

Cost Reduction: Last but not least, outsourcing logistics and allied activities to a 3PL not only provides all the above benefits and improves efficiency but also reduces operating costs and administration overheads.

Why BlueGrace?

When companies want superior supply chain management services and best-in-class technology, they turn to BlueGrace®. Why? Our progressive approach to transportation management helps customers of all sizes drive savings and simplicity into their supply chains.

How to Build an Effective Logistics Communication Process  

Communication is a vital aspect of building a successful business. An effective communication process ensures that information flows seamlessly between departments and amongst the various teams on time and in a form which will allow them to achieve individual, departmental, and organizational goals and objectives.  

While communication in varied forms and frequency is essential for all departments, it is extremely crucial for the executors of the organization’s plans and strategies – the Logistics Department. 

Why is communication important for Logistics  

Information interchange plays an important role in creating a cost-effective and agile logistics management process. It ensures that tasks are completed and transferred from one point to the other seamlessly and without delay.

For example, the sales department needs logistics data to analyze orders that have been shipped, customer service needs information to update shipment status, and the accounts section requires the data to cross-check transporter invoices. The procurement team needs information from logistics when new vendors are to be hired or old contracts are due for renewal. The other functions of the supply chain also have to collaborate or communicate with the logistics team to get their work done.  
 

In addition to the internal information requirements, vendors such as carriers, warehouse operators, and 3PLs also need to exchange information with the logistics team on a daily basis to ensure that the company’s products are delivered at the right time to the right place at the right cost.  

What are the features of an effective communication process for Logistics?

It should be in writing: Written communication is important as it minimizes the scope to misinterpret or forget the message. Today, written communication is the most common form of business communication. Since emails and all forms of messages across multiple platforms can easily be sent to multiple recipients situated across offices, countries, and continents, it is essential for all professionals to develop effective written communication skills and to encourage the same in all employees.

A clear, concise, and consistent message is the hallmark of effective communication.

It should follow the 3 C’s: A clear, concise, and consistent message is the hallmark of effective communication. A clear message ensures that there is no ambiguity in what needs to be conveyed. Conciseness ensures that the message is brief, but includes all important information. And, consistency in language, format, mode of delivery ensures that the receiver does not waste time in understanding the message.  

In logistics, given the fact that a lot of the work is time-bound, marking the right team or person on the email is of utmost importance.

It should be sent to the right recipients: More often than not information is lost in the organizational hierarchy because it is not addressed to the right person. In logistics, given the fact that a lot of the work is time-bound, marking the right team or person on the email is of utmost importance.  
 
It conveys urgency appropriately: Many executives are in the habit of marking all their emails as “urgent” to ensure that it gets immediate attention from the receiver. While this practice is great to ensure that important and critical communication does not get missed, however, if all communication is urgent, it becomes difficult to prioritize tasks. It also dilutes the meaning of the word. In such instances, the receivers take up the tasks in the priority that they think is correct. Hence, it is crucial to mark only communication or tasks that are the top priority as urgent and not all communication.  
 
It should provide clear timelines: The delivery or timeline for getting a response or the task being assigned should be clearly mentioned in the communication. This will help the receiver gather information, plan, and execute the requirements mentioned in the message and avoid unnecessary delays.  
 
It should be transparent and reliable: Interdepartmental conflicts, organizational politics, and cutthroat competition encourage employees to keep information from their counterparts or colleagues. This creates chaos, confusion, and mistrust which in turn affects the execution of tasks. It is thus important that the organizational culture promotes transparent communication and sharing of reliable information.  
 
It should be real-time: Logistics is a fast-paced function and information exchange also needs to be equally quick. Hence, information such as a change in freight rates, loading lists, customer orders, etc. needs to be verified and relayed to the next person as soon as it is received. Apart from these things, queries asked in relation to a task or process should be addressed promptly or the receiver should at least provide a timeline by when the sender may expect an answer. 

Technology Integration: In this digital age, just getting the written communication right is not enough to ensure the successful implementation of business plans. Organizations must also integrate the technologies, backend systems and processes that are used by different departments to ensure that information flows seamlessly and without manual intervention from one function to another. 

For logistics which is an intensely data-oriented function, this integration is crucial.

For logistics which is an intensely data-oriented function, this integration is crucial. It will help reduce manual data entry, delays due to incorrect system entries, and speed up the process. Digital records of all the transactions or logistical activities will also make it easier to get reports, analyze performance, find outliers, and standardize the process across different geographies and vendors. When designing or buying technology or outsourcing the process to a vendor, it is essential to understand if this technology will be able to integrate with other systems that your organization uses with ease and at least cost.

An organization’s logistical communication process can be complete only when all the above elements are present and interlinked via common technology.  

BlueGrace’s proprietary TMS (Transportation Management System) is designed to put the power of easy supply chain management and optimization back in your hands. BlueShip® 4.0 offers cutting-edge tools for strong reliability and quick performance. Many of our customers prefer to integrate their systems or ERPs such as SAP or NetSuite directly with our BlueShip platform. Our IT integrations team will work closely with your staff to complete the connection between systems. Not only will this simplify your freight but it will provide mountains of usable data to build measurable KPIs and continuously improve your program. To speak to a BlueGrace expert, contact us at 800.MYSHIPPING or fill out the form below.

Business Boondoggle: Multiple Business Units with Unaligned Transportation Strategy.

BlueGrace-ThinkOutsideTheBox

Businesses with multiple units employing different processes for the same task are NOT running lean or effective. It’s easy to get this way. Start-ups enjoy rapid success. Acquisitions are made. Technology is rapidly evolving. The skill set of the workforce changes. The result of which is that you end up using multiple systems, processes and even vendors to solve a single business problem. The business implications are far reaching and too often the executive suite or business owners are not privy to them.

Even when a need and benefit are identified, execution requires more complexity.

Whereas there is often a technology solution to the business problem or problems to increase efficiency and streamline productivity, it is not always understood. Technology often involves a subject matter expert in both the innovation and the problem it is intended to solve. Technology solutions are often misunderstood. More often than not – the business problem itself is misunderstood. Even when a need and benefit are identified, execution requires more complexity. This could include infrastructure, capital investment, training and most of all – change management. Poor Change Management is the single greatest threat to technology innovation and implementation.

During the sales process there are typically multiple detractors. They can come from all over the organization. “I do not like change,” Is the statement sales people hear most often. However, change is key to helping businesses run effective and lean. Change is critical to staying ahead of competition. And most of all change is inevitable, and should not be left alone in the hands of anyone not directly and greatly affected by the outcome.

Here are key issues facing businesses not already benefiting from a transportation and technology provider

  1. Visibility and Reporting. Without technology visibility is the hardest thing to management. Many shippers that do not utilize transportation technology typically have no key performance indicators nor know if their locations utilize a LCC (least cost carrier) program. BlueGrace is able to build a hierarchy to have each location reportable to a top tier level. Reports are limitless and business specific. Reports are built to see items like if your end users are choosing the least cost carrier or not, what is your price per pound or percentage of freight as a sale cost, and how those items are trending.
  2. Not negotiating pricing or GRI’s with full buying power: When a business has multiple units shipping with a number of different carriers and different rate structures the full price negotiation power of the organization is not being used. The pricing is being determined on a pure location spend basis and based on the skill and knowledge base of the decision maker on site at each location. BlueGrace takes all of the information from all of the locations and brings it to our key partner carriers to get tariffs for the entire organization to use. This makes things such as GRI (general rate increase) and KPI (key performance indicator) management so much easier.
  3. Consolidated Billing and Invoice Audit. When multiple business units manage their own freight and price negotiation this means there are freight bills flying around at a fast pace. If a bill goes to the individual unit to be approved, and then sent to corporate for payment how long does that process take? With a number or different carriers and billing times and schedules this has to be a business boondoggle. BlueGrace sends one consolidated invoice per week. This can be sent to multiple end users and is customizable. We also pre audit these bills to also save you time rather than having to perform this practice yourself.

 

These are a FEW of the issues facing businesses with multiple units doing multiple different processes. Please reach out today so we can help you run your business more profitably and effectively. This is our main thing.