Six Trends for Financial Leadership in the Supply Chain

By Natalie O'Donnell • Published April 20, 2022 • 6 minute read

Since the start of the pandemic, supply chains have become dinner table conversation. Global disruption has brought supply chain strengths and weaknesses into the spotlight, and everyone – from consumers to investors – is keeping a close eye on how supply chains are managed.

In the boardroom, however, business leaders are realizing the need for stronger financial leadership across the supply chain. The playbooks that effectively managed supply chain costs and stability five years ago are woefully outdated. As financial leaders narrow their focus on supply chain stability, several trends have emerged.

Minimize the impact of inflation on buyer/supplier relationships.

Inflation is at a 40-year high, and the market is now headed toward correction territory. Unfortunately, most indicators suggest it’s likely to get worse – or at least feel worse – before it gets better. Interest rates are expected to rise several times in the coming months, which will affect costs and available liquidity for some suppliers.

Buyers must not only figure out how to absorb the cost impact of higher prices, but they also need to assess the health of their suppliers. Do you have key suppliers that are struggling? If so, what tools can you provide that will help improve their financial position? Early payment programs are one way to allow suppliers to get paid early so they can improve their own cash flow and access the liquidity they need to grow/strengthen their business.

De-risk or devalue.

Shutdowns, slowdowns, labor shortages, increasing transportation costs – the list of disruptions affecting global supply chains goes on and on. This is causing serious pain for businesses around the world from both a a financial standpoint and a supply chain risk perspective. It’s no longer a question of “when will volatility end?” Instead, financial leaders are tasked with figuring out steps mitigate risk, increase financial agility, and prepare for the next wave of disruption.

One strategy that’s working for a lot of companies is taking on a working capital initiative that unlocks cash trapped in the supply chain. The vehicle of choice for many is supply chain finance. It allows companies to create a financial buffer to better respond to inevitable future disruption as well as gives them the financial fuel to quickly pivot and implement new strategies.

Increase payment transparency for suppliers.

Finance leaders have a lot to worry about these days – and paying suppliers on time shouldn’t be one of them. But the fact of the matter is that paying suppliers is cumbersome for most businesses, especially those with large, global supply chains. There are different regulations and currencies to consider as well as different systems in place. And for suppliers, the payment process is opaque and riddled with risk. Has your invoice been received? Approved? Was the correct amount due processed, or is there an error? When will you receive payment? These seemingly basic questions are often difficult to answer, and that difficulty comes at the expense of both buyer and supplier financial risk.

More and more companies are recognizing the risk and burden of supplier payments and taking steps to increase payment transparency. For many, this means giving AR teams access to automated tools that provide real-time payment information such as invoice approval, upcoming payments, and what invoices are available for early payment if a supplier participates in an early payment program. Critical payment information like remittance advice and reporting can be automatically pushed to them. It ultimately gives suppliers and buyers the most up to date financial information to feed into the business decision-making process.

Get rid of tech lag.

“Tech lag” is an unfortunate byproduct of the digital transformation race. It’s what happens when companies fall behind in adopting and investing in technologies that are propelling their industry forward. Think traditional auto companies that aren’t embracing electric vehicles. They may be able to get by for today, but their futures (and current valuations) aren’t promising. BDO recently conducted a survey of 600 finance leaders and 77% cited tech lag as a top business concern in 2022.

The pressure is on for companies to invest in transformative technologies. But with that pressure comes a hefty price tag and financial risk. Some areas like cybersecurity and workforce collaboration are no-brainers and critical to productivity in our new reality. Other areas, however, are less conspicuous. One example are the tech stacks that support financial and supply chain/logistics operations. Modernization in these areas can deliver meaningful ROI, stronger supplier relationships and minimize the impact of disruption on business operations.

As you kick financial tech lag to the curb, don’t forget scalability.

Financial leaders need to be the CIO of their purview. At a minimum, that means championing digital transformation within financial operations, especially as it relates to AR (an often-overwhelmed part of the finance team). The B2B payments tech stack is ripe for modernization, but careful considerations need to be made.

Should the company buy versus build? How does the solution support the company’s current and future-state supply chain requirements? It’s important for businesses to look at the broader B2B payments picture and assess their short-term and long-term needs. They may need a consolidated supplier payment portal right now for on-time payments, but what other solutions may they need in the future? What happens if they want to start an early payment program like supply chain finance or dynamic discounting? Investing in a solution that can solve all of your liquidity/payments needs now and in the future is wise.

Fight burnout with automation.

In 2021, more than 47 million workers quit their jobs in search of better work-life balance, flexibility, pay and working conditions. The financial industry is among the hardest hit with 45% of financial positions left unfulfilled. Burnout in the financial services industry is very real. Finance teams work under an extraordinary amount of pressure with little recognition. AP/AR teams are typically stretched thin and disruptive forces have made it substantially worse.

This is causing financial leaders to rethink a lot of things, including the use of automation in financial operations. And why not? Every industry in the world is upping their automation game – from manufacturing to marketing. The playbook for finance should look the same.

Financial leaders should be looking for ways to automate basic, mundane tasks that will free up people resources. There are plenty of opportunities, particularly within the AP/AR functions. So much of these teams’ time is spent on manual and tedious processes. Having employees waste time (which translates to money) on tasks that can be automated makes zero sense.

The above topics are top-of-mind for global financial leaders. In our web series The Financial Blueprint, PrimeRevenue takes a deeper dive into the challenges while exploring solutions to overcome business disruptions. Watch now to learn more.