5 key tools to mitigate operational risk
1. Coordinate reporting and KPIs for consistent performance management
Without a cohesive measurement process, a supply chain team could look at its reports and think they are doing great – while the financials suggest something entirely different. Finance may not be receiving frequent updates from supply chain, so decisions are often based on out-of-date data.
Leveraging integrated reporting tools facilitates a unified performance management process. Although finance and supply chain may be focused on different timelines, they should be aligned on metrics.
Management reports must have input from both groups. This process provides an accurate view of the health of your company. When systems are integrated, there is no lag time, and information flows transparently to all stakeholders. The result is fewer surprises and better alignment across KPIs. Adopting a finance-forward approach lets businesses gain a more complete view of both their financial and operational health.
2. Leverage Extended Planning software to align supply chain and finance
Traditionally, finance, supply chain, sales, marketing, purchasing, and manufacturing teams haven’t spoken the same language. Finance leaders need to work on breaking down organizational barriers and engage with their business and operational units on a regular basis.
Extended Planning, or xP&A, aligns senior management around their long-term strategic and shorter-term tactical plans for effective decision-making that satisfies customers in the most profitable way.
Extended Planning tools enable finance, supply chain and other operational areas to better connect the essential information that is required to update forecasts and develop/model scenarios, leveraging shared data and common repositories. Essentially, xP&A creates a unified planning ecosystem that allows the entire organization to adapt to unexpected changes in costs and understand the true cost of goods and services sold – thus identifying the need for contingency plans and potentially future funding requirements.
3. Invest in predictive analytics to increase agility
Accurate forecasting is the key to building organizational agility. Finance teams need to invest in predictive analytics tools that analyze customer, market and geopolitical information to identify high-impact trends.
For example, the major shift from brick-and-mortar to online shopping during the pandemic requires management accountants to evaluate the operating costs of fulfillment centers, service desks, and reverse logistics processes as well as the costs of physical stores.
Advanced predictive analytics tools can leverage omnichannel data to model the impact of both financial and operational decisions, reduce risk, and improve control.
4. Prepare for “just-in-case” inventory to mitigate revenue loss
Supply chain systems are shifting inventory strategies from just-in-time to “just-in-case” models to better manage demand spikes in both unpredictable supply and limited stock scenarios. As they work to find the most efficient and cost-effective balance in inventory policies, finance teams need to leverage financial data to help mitigate any potential loss in revenue.
Management accountants can create financial models related to just-in-time compared with just-in-case inventory scenarios, providing information to help evaluate meeting customer demand while managing overall inventory investment, cost, quality, and time trade-offs. Thoughtfully segmenting inventory can further refine inventory policies to better balance service and cost.
5. Advocate for integrated supply chain planning tools
Supply chain technology has advanced leaps and bounds in the past decade. But not all businesses have kept up with that innovation. Quantifying the costs of instability and maintaining production agility throughout the supply chain is critical to leveraging the financial benefits of healthy operations.
Finance leaders should encourage supply chain teams to move beyond standard tools such as request for proposal and historical datasets, instead, pushing for new methods like real-time data analytics, omnichannel data sources, and integrated supply chain planning to avoid margin compression. With the right tools, supply chain teams can help improve the overall bottom line.
CCH Tagetik can help Reduce Supply Chain Risk
Amazing things can happen when finance and supply chain team up. Leaders can make better decisions. Operations teams can better manage goods and inventory. And finance leaders can reduce business-wide risk.
Success in the uncertain current economic landscape will be largely impacted by firms’ abilities to leverage the right tools in the hands of the right people. Extended Planning software, like CCH Tagetik, provides a powerful and flexible integrated platform to unify organizational reporting, planning, and analytics. Book a quick call today to discover how your team can leverage finance-forward technology to build resiliency in times of uncertainty. CCH Tagetik drives organizations to create one platform, one plan, and one set of numbers to run your business.
