Untangling the supply chain every day

Last June, Jonathan Fernando, ACMA, CGMA, took on a challenging new job as the supply chain and procurement manager for a fast-growing company.

He would be working for Yogi, a gourmet healthy food restaurant, as it tried to grow its three-year-old business in Saudi Arabia. And, of course, he was making the change just as supply chain disruptions were roiling companies across the globe.

Fernando has more than a decade of experience in finance and the supply chain, dating back to his work in his native Sri Lanka. In his new job, he has created a system for day-to-day planning and the procurement of everything from raw materials to packaging, equipment, furniture, and small wares.

In a recent interview with FM magazine, he explained how the supply chain crunch has affected food manufacturers; how the smartest companies are responding; and why financial leaders have an important role in logistics.

"Often, financial people get used to their routines. In supply chain, it's not like that," Fernando said. "There are challenges that are day to day, and you need to be able to react quickly and think on your feet."

(Editor's note: This interview has been edited for brevity and clarity.)

When did the current supply chain issues start to arise in your sector?

Jonathan Fernando: Starting in March 2020, in Saudi Arabia, restaurants and dining were restricted. It was only takeout and delivery — so that pretty much limited a majority of your sales. As a result, there were now things that suddenly became more important, like packaging items.

And then, a few months in, maybe around July or August, once the restrictions eased up and things started to reopen, we saw this huge upsurge in demand. We were breaking records. We were breaking our targets. There was that much demand. And as a result, even suppliers didn't carry the stock to manage this. Then you started seeing the current issues. All your demand planning, that whole dynamic just completely shifted.

How have these disruptions affected businesses in your sector?

Fernando: Companies are often incurring more costs. For example, we buy a lot of packaging from China. If we were to do that locally — it's possible, but there's a cost offset that's going to eat into your margins. If you do that repeatedly, you would not make any money.

What distinguishes the companies that have succeeded recently?

Fernando: One of the main things that we've done is to identify the fast-moving items and have alternative suppliers, especially with this dynamic demand that we're seeing. We needed to have not only an approved Supplier A, but B, C, and D. It fluctuates so much you need to have different options.

You have to essentially understand your suppliers' supply chain, not only your own. Even though Saudi Arabia was getting back to normal, the US, China, and Australia, where some of our suppliers are based, had restrictions.

Also, reach out to the suppliers — understanding from their point of view what's happening over there. By doing that, I can know whether I need to build up more stock or find alternatives.

What are some common mistakes?

Fernando: One mistake is harming your supplier relationships during a crunch, including by making late payments or failing to communicate any such delay. It takes years to build that trust with them. And in a crisis like this, it can ruin that. If you're able to settle them on time, then they will remember that, coming out of the pandemic situation.

What can finance leaders contribute to supply chain success?

Fernando: You speak to your operations, your people on the ground — the chefs, in our case. Then, they can identify the fast-moving items that you should be planning around. You can also look at your numbers in the inventory management system to corroborate this data.

Also, a key aspect is cash flow management. If you had a reduced sales period, and then you had suppliers that didn't get paid, that has knock-on effects. Finance has a big role to play in ensuring that we can buy items, pay overhead, and keep it running.

What types of metrics and data capabilities can help companies detect and respond to supply chain issues?

Fernando: You need dashboards that are able to highlight the fast-moving inventory, looking at your consumption on a day-to-day basis. You can't look at it on a monthly basis only anymore. You have to be involved on a daily basis.

You also need to watch costs daily. Costs keep changing because freight rates have gone up around the world. Just a few months down the line from your last order, there will be a cost difference.

Also, by analysing your data, you could build up a bit of a buffer stock before a peak period.

What skills do finance professionals need to succeed in the supply chain?

Fernando: Often, financial people get used to their routines. In supply chain, it's not like that. There are challenges that are day to day, and you need to be able to react quickly and think on your feet. It's not a case of reporting and somebody else taking decisions; you also have to make decisions. And as a supply chain professional, relationship management is very much a part of it, because at the end of the day, it should be win-win.

What kinds of long-term investments can companies consider to avoid future problems?

Fernando: Look at your long-term supply agreements, especially if you have items that you'll continue to use. For example, we have certain bags and bowls that are fast-moving. Now I've made deals with them for the whole year, so the suppliers know this is going to be our demand for the year. And then we can roll that on and update them. If you keep that going and you build that relationship, come the next year, they can also provide us cost benefits with volume.

And when it comes to cash flow, talk to your suppliers and understand their cash flow situation — see how we can work together to help each other out.

Is there anything that you wish more people understood about the supply chain in your sector?

Fernando: We can't do miracles. People need to give us time, especially in supply chain. People need to respect the lead time. That is something a lot of marketing teams, operation teams conveniently forget. Obviously, suppliers need time as well. They can't just run a machine and start producing for us — they have their own processes and timelines as well.

— Andrew Kenney is a freelance writer based in the US. To comment on this article or to suggest an idea for another article, contact Drew Adamek at Andrew.Adamek@aicpa-cima.com.