Why retail CFOs need to understand the supply chain

Jun 20, 2017 3 min

It’s a tough time to be a CFO, with huge pressures coming from competitors, customers and even partners within the business. And it’s not just external competition businesses face but also that from their own different retail channels; products sold online versus those offered in-store.

Driving efficiency and increasing revenue in this ever-changing environment means a constant pull in multiple directions. So how can the CFO create change, improve the operating ratios and minimize risks for the business?

The Cfo, a Champion to Breaking Down Silos

The growth of online business has risen so quickly, changing the nature of many businesses and creating silos in conflict with each other. The CFO is in a difficult position, needing to find a balance, often seeing the growth coming from the less profitable and higher cost part of the operation, yet knowing that in order to stay competitive, the company needs to offer multiple channels even if it does cannibalize its own business.

The one place that the CFO can find solace is in the supply chain, which, if run efficiently, can deliver major competitive advantage and huge improvement to bottom line profits. In contrast, if the leaders of the channel silos are allowed to control their own supply chain, there is all likelihood that massive additional cost will be introduced to the business, as well as duplication and inefficient use of inventory, with expensive distribution networks travelling the same routes, and worst of all dissatisfaction from the customer. In addition, poor availability, out of season stocks, or inefficient utilization of store space with the assortment, are all black holes into which a company’s profits fall. The result of these issues pushes up capital employed; increased costs through excessive stock holding in the wrong store or channel; and high wastage or markdown in one channel compared to lost sales through lack of inventory in another.

One Version of the Truth for Less Inventory and More Sales

A streamlined supply chain can change all this, impacting all areas of the business and giving the CFO their opportunity to turn around the performance of a business.

Indeed, the foundation of all well operated supply chains is having one single credible and accurate demand forecast that takes into account fluctuations in demand, seasonality, promotions and even weather. The CFO and other business stakeholders can then work from the same figures, the same truth breaking down silos.

With the introduction of intelligent supply chain planning solutions, such as RELEX, that forecast can then be utilized to direct the flow of merchandise through the entire supply chain from suppliers through to multi-level distribution centres into stores and shelves. The inventory can then be shared between channels and managed in a holistic way throughout the supply chain. Customer-demand forecasting at store and channel level is also the only way to drive micro merchandising to make sure that retailers can service customers with their local needs whether through stores or online channels.

Ultimately, it enables CFOs to reduce costs by minimizing stock holding, freeing up working capital and improve sales by ensuring the right product is on the right shelf at the right time.

Managing Risks with What-ifs Scenarios

If supply chain optimization solutions can take care of the operational supply chain, how can the CFO plan for the future and achieve continued improvement? The answer is to use the same solutions to model any changes to the supply chain, range and assortment. It is not efficient to use modelling technology that does not replicate the operation; this is only likely to duplicate efforts and lead to errors that can be costly and frustrating.

Smart, state-of-the-art technology can enable users to model changes to their own supply network, service levels, new items, and promotions, through to new warehouses or distribution channels using the same forecast. For example, going through the multiple scenarios to understand the impact of building a new DC or whether to source products off-shore rather than on-shore can speed up the decision-making process. This additional power can really enable the CFO to view potential impact to the business and make decisions based on knowledge not guesswork.

The supply chain is a huge bank for the CFO to finance the business, as it can have a direct impact on the bottom line profits. When retailers collaborate with providers who offer innovative tech solutions and understand the retail supply chain, they, will be able to unlock the true potential and see the substantial benefits of having a successful supply chain quickly and with minimum disruption.

Written by

Andrew Blatherwick

Chairman Emeritus and Advisor