Finance and SCM - the Perfect Allies

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Supply Chain Leaders

Finance and SCM - the Perfect Allies

“Finance and SCM verticals go hand-in-hand to ensure that goods or services are available to the consumer at lowest cost and in process, creating value for the organisation. The finance department plays an important role to partner with the supply chain team in managing these costs. Right from working on vendor selection to the cost negotiation to agreeing on credit terms, finance helps supply chain optimise costs. CFOs and finance departments aid in making sure that we are able to assign the right financial impact to any risk and then work closely with the supply chain team to look at mitigation actions,” highlights Mukesh Gupta, Director Finance, RBIS South Asia, Avery Dennison. During this interview, he shares the perfect synergies between the supply chain and finance function that ultimately drive an organisation’s success.

Having worked with FMCG for most part of your professional journey, how has been your experience in managing adverse times and how do you think that supply chain plays a pivotal role in managing the crisis?

Supply Chain (SC) in general, and in FMCG in particular, plays a very important role in keeping the whole business running. I see Supply Chain like the blood in the body, which moves the essential nutrients across the organisation. Especially during adverse times, e.g., an event like Covid or the global container crisis where the normal infrastructure comes to paralysis, it is the Supply Chain which ensures that goods or services from the business are available on time, in full. Just recall the Covid times, where everything was locked down across India; SC functions across the different segments ensured that essential goods were reaching the public. Not only were consumer goods made available, but the whole backend supply chain was working efficiently to ensure that production did not stop. As the demand for garments went down, Avery Dennison’s customer apparel factories quickly geared up to meet the safety gear requirements. This was possible only due to the fact that our SC was ready to meet the dynamic requirements.

We have always been constantly hearing the phrase, ‘Supply chain is the cost center’. What’s your take on this? How can it be made a Value Creator?

While we incur most of the cost of the business in Supply Chain, these costs only help the business to earn revenue. So, it is wrong to call it only the Cost Center. Over time, the role of SC has changed from just creating the goods to creation of value. And efficiency of SC now determines if your business model can work or not. Take the example of e-commerce companies like Amazon or Flipkart, they sell most of the same goods, which were available earlier. But their supply chain model is now ensuring the goods are available to consumers quickly and more efficiently. With globalisation, the SC function now creates a lot of value in terms of getting material at the lowest cost, creating scale, which helps to keep the final price for consumers low. If SC is efficient, that efficiency will ultimately pass on to the consumer in terms of lower prices, which will mean more demand at lower prices. Thus, an efficient SC can create value in terms of higher demand and higher sales for any company.

How well do the two verticals viz., finance and SCM complement each other? How do finance leaders partner with supply chain and procurement officers to make effective strategic financial recommendations?

Finance and SCM verticals go hand-in-hand to ensure that goods or services are available to the consumer at lowest cost, and in process and value creation for the organisation. We incur significant costs in the supply chain and the finance plays an important role to partner with the SC team in managing those costs well. Right from working on vendor selection to the cost negotiation to agreement on credit terms, finance helps supply chain optimise the costs. In one of my previous roles at Unilever, where I was working as Supply Chain Finance Partner for their largest business of Personal Care division, myself and the supply planner worked very closely to redesign the whole manufacturing and distribution footprint as the fiscal benefits (tax incentives) from key sourcing sites weregetting over. It was like redesigning the whole footprint strategy for the personal wash category to ensure the least depot delivered cost while reducing the overall lead times from sourcing of material to availability of soap in retail. Another classic example is having the right credit terms for the vendors and ensuring that your suppliers don’t choke down due to liquidity problems and how you can leverage your financial strength to get them a bill discounting facility to get early payments.

Please share with us one of the most challenging days for you at work while managing supply chain disruptions?

The initial few months of Covid were really challenging from the supply chain perspective. It was truly a VUCA moment and tested everyone. Overnight, the suppliers from China and other countries were shut, the airlines were no longer moving the raw materials, we had a large order book from customers but were not sure if they would pick up the material and at the same time, many customers moved their orders from China to South Asian countries. It was a herculean effort to manage the whole demand supply network. If I look back, I am sometimes surprised by how well we were able to manage the situation by working closely with our customers and prioritising the critical requirements. I must congratulate the Supply Chain teams at Avery Dennison who made this complex task look easy. It was a well-coordinated effort between the commercial teams, supply chain teams and finance teams to keep the business running and that actually became our competitive edge as well.

Sustainable packaging has been high on the agenda of FMCG companies. What measures is Avery Dennison taking on this front?

Sustainability is at the heart of everything we do at Avery Dennison. Our company has set ambitious sustainability targets for 2025 and 2030, and we are making good progress against them. These goals and performance against them are publically shared. We take pride in delivering innovations that advance the circular economy. We work very closely with our FMCG customers as well as global garment brands to provide recyclable labels/branding solutions from the product design stage itself. Our 2030 GHG emission targets are consistent with levels required to meet the goals of the Paris agreement, the binding treaty adopted in 2015 at the United Nations Climate Change Conference. To quote from our Integrated Sustainability and Annual report of 2021, “We innovate not only to reduce our environmental impact, but to go further by improving the planet, industries and communities we serve, helping the world move toward a regenerative future.”

What are the prerequisites that a supply chain finance professional needs to have?

Having worked for many years in Supply Chain finance area, my favorite is to put yourself in the shoes of Supply chain. Once you know a problem/opportunity in SC well, you can partner with SC to solve them. Open-mindedness, flexibility and strong analytics go a long way in helping a person to be an effective supply chain finance professional. Also, the person should spend lot of time on the ground looking at how the material sourcing works, be on the shopfloor to see that material converting from raw material to finished goods, and then how does these finished goods travel from factory to the customers. I, myself, have spent a lot of time on the shopfloor, including the night shifts, to see how we can reduce waste or increase productivity, or get more data which can provide good insights for effective decision making. 

What are best practices for finance executives to oversee and support their organisation’s supply chain management?

The top one on the list is to have the capability to generate the right data. Convert that data into information and the information into insights. Data can be very powerful and many times an eye-opener. The finance team should help do benchmarking, finding the gaps (I call them opportunities) and help set the right targets to bridge that gap. Benchmarking using powerful analytics has helped me throughout my journey to support supply chain management better and more effectively.

Your views on supply chain digitization and the tangible impact it has…

As I touched upon the power of data, digitization is the most effective tool, which helps to provide data to the organisation. One of the recent studies of McKinsey suggests that companies that aggressively digitize their supply chains can expect to boost annual growth of earnings before interest and taxes by 3.2% — the largest increase from digitizing any business area — and annual revenue growth by 2.3%. As the overall business environment is becoming more and more complex, the organisation and SC, in particular, need to be more agile and flexible. If we have to respond to those requirements, we need to understand those trends on time and then quickly adapt ourselves to meet the new requirement. Digitization is the only way you can serve your customers fast. For example, look at e-commerce companies who have been able to digitize most of their operations, generate a lot of data and then use this data to make their processes leaner and faster. In my company too, we are aggressively working on digitization of the Supply chain – right from customer order management to Manufacturing 4.0 to capturing data at each stage, to identifying further opportunities for simplification, optimisation and cost reduction.

Kindly share with us some critical aspects / pointers that aid in managing supply chain risk and inflation with improved resilience. How are CFOs well placed to mitigate supply chain risks and build financial resilience?

The first step is to manage the supply chain risks. The risks can be external like demand risk, environment risk or it can be internal risks like a manufacturing, quality, or planning risk. There should be a proper three-dimensional framework to look at risks – Probability, Impact and Readiness to mitigate the risk. Once you have that, one can devise the strategy to mitigate the critical risks. This process actually requires cross-functional effort. e.g., we always see plastic packaging as a big risk to the packaging industry as well as FMCG companies. Once you know this is a risk with high probability and high impact, you will start looking for actions to mitigate that. In the VUCA world, we need to keep refreshing the risk matrix so that we are ready for any new risk. CFOs and finance, in general, again aid in making sure that we are able to put a right financial impact to any risk and then work closely with the supply chain team to look at mitigation actions. With more and more globalisation and interdependencies going up, finance is well placed to map that out, look at political/ economic risks, and help navigate the currency risks through right hedging and lead cost saving opportunities to mitigate any risk and inflation.

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