5 supply chain investments for finance leaders to consider in 2021
While last year was a period of unprecedented economic and supply chain disruption, few expect a return to pre-pandemic times in 2021. Ongoing concerns about the virus, a slowing global economy, and the potential for new regulations due to a change in US political administrations mean that finance professionals still have challenging times ahead.
As organisations invest in new supply chain automation initiatives, software, and talent, many are framing these decisions in the context of risk management, according to Steven Bowen, founder and CEO of Maine Pointe, a global supply chain and operations consulting firm based in Boston.
"The CFO really needs to understand the business issues, not just the surface, cost, or cash issues, but the underlying issues. They need to connect with the supply chain people in how that translates to the income statement or balance sheet,” Bowen said.
Here are five supply chain investments for finance professionals to consider in 2021:
Driving resilience through digital transformation
Organisations have made incremental investments in supply chain visibility for more than a decade, but the pressure to adapt has increased. Eighty-five per cent of supply chain leaders struggled with “inefficient digital technologies” during the disruption in the second quarter of 2020, according to a survey by McKinsey.
A large part of resilience and reducing risk comes back to digital transformation and visibility across the entire supply chain, Bowen said. While many have been on years-long implementations of digital initiatives with enterprise resource planning providers, many are now looking to independent software vendors (ISV) that can enable them to move to the cloud more quickly.
"With the major disruptions that 2020 brought, many of these organisations were not equipped to adapt quickly. CFOs are now looking at designing an architecture that can respond quickly. ISVs will have a huge impact on companies’ ability to manage operations, make key decisions, and be supply chain resilient,” Bowen said.
Despite the challenges, many CFOs did find a silver lining in 2020, according to the PwC US CFO Pulse Survey. Nearly three-quarters said they would be more resilient in the long run, and half said the new ways they are serving customers have put them in a better position. “We’re now seeing things that would have taken 12 months getting done in only six weeks,” said New York City-based Neil Dhar, vice-chairman, Clients, Markets and Sectors at PwC.
Machinery, automation, and physical improvements
As social distancing, quarantines, and physical disruption are likely to remain a reality throughout 2021, CFOs will continue viewing automation as a tool to reduce risk, said Bernie Donachie, managing director and head of the supply chain practice for global consulting company Protiviti. Automated picking systems, warehouse conveyor systems, and autonomous mobile robots now offer double benefits by supporting social distancing and increasing efficiency. The continuation of historically low interest rates is likely to make these investments even more attractive through 2021, Donachie said.
“Many are looking at how they can have a [distribution centre] or warehouse with fewer people but more SKUs and parts with someone sitting at a keyboard and picking rather than interacting with other people in the warehouse,” he said.
Finance professionals will also look to artificial intelligence-based software solutions to help automate repetitive tasks in both the warehouse and office, Bowen said. One technology growing in popularity is automated procurement contract reviews.
“If you can take away those mundane tasks and automate the whole procure-to-pay process, you can free up that labour. Intelligent labour is a precious commodity, and you need those people doing the more high-order, high-value tasks,” Bowen said.
Talent and workforce
Organisations are also expected to invest more capital in supply chain talent in 2021. Even as organisations automate more low-value tasks, they still need talent with competencies in compliance, procurement practices, planning, analytics, and process engineering, Donachie said.
Nearly 60% of companies say it is hard to find employees who have both tactical/operational experience and professional competencies, according to a survey of 350 supply chain professionals by global logistics company DHL. DHL noted that leading companies are investing more in robust talent pipelines through clear career paths, education, cultural adaptation, talent development partnerships, and other means.
“Supply chain is becoming more sophisticated. Having people that are well trained and know the cost of capital, how to do forecasting and demand planning, and how to manage the supply base is critical,” Donachie said.
Trade compliance
The growing importance of trade compliance will lead organisations to consider talent, solutions, and outside resources that focus on trade controls, said Kerry Contini, a US-based international trade partner at the law firm of Baker & McKenzie LLP. Contini noted that the US Treasury’s Office of Foreign Assets Control (OFAC) has taken a closer look at supply chain in recent years. OFAC released a compliance framework in May 2019 and has brought several enforcement cases upon organisations that violated trade sanctions in their upstream sourcing.
While many large organisations already have trade compliance programmes, they may have to reallocate more internal resources to put a greater focus on supply chains.
“There may be gaps in how the trade compliance programme works in the upstream supply chain context, as historically many companies have put more emphasis downstream. Companies may want to consider engaging outside resources to assess their trade compliance risks and to ensure that they have good restrictive party screening software and other appropriate compliance processes in place,” Contini said.
New channels and growth
Consumers' large leap to digital channels and increasing expectations about omnichannel shopping and rapid fulfilment continue to pressure supply chains, Donachie said. As a result, many organisations are revisiting agreements and services with software providers to ensure the services can optimally support the growth. Organisations are also leveraging customer data to identify what trends may drive their behaviours in 2021.
“There’s a lot of capital being spent on analytics to understand the customer, what the trends are, and what the ecosystem is going to be like when we get back to a steady state,” Dhar said. “It’s all about driving growth.”
Some companies are also investing in the supply chain infrastructure required to support direct-to-consumer (DTC) channels. Disruption from the pandemic has led many brands, such as Nike, PepsiCo, and Adidas, to explore or expand DTC channels.
Donachie noted that the growing willingness of consumers and businesses to buy large items online, such as cars through Carvana, is leading companies to explore new distribution models. “Now with COVID and people’s [growing] comfort levels around technology, it is changing how and what they buy through digital channels,” Donachie said.
— Craig Guillot is a writer based in the US. To comment on this article or to suggest an idea for another article, contact Drew Adamek, an FM magazine senior editor, at Andrew.Adamek@aicpa-cima.com.