EY Partnering for Performance the CFO and the Supply Chain

8/12/2019 EY Partnering for Performance the CFO and the Supply Chain

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The Master CFO CollectionVolume 5

Partnering for performancePart 1: the CFO and the supply chain


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The CFOs role

We believe these six segments represent the breadth of the CFOs remit.The leading CFOs we work with typically have some involvement in eachof these six either directly or through their team. While the weightingof that involvement will depend on the maturity and ambition of theindividual, the sector and scale of the nance function and economicstability, they are all critical to effective leadership.

Leading keyinitiatives in nancethat support overallstrategic goals

Ensuring businessdecisions aregrounded insound nancialcriteria

Representingthe organizationsprogress onstrategic goalsto external

stakeholders

Providing insightand analysis tosupport the CEOand other seniormanagers

Developingand deningthe overall strategy for your organization

Funding , enablingand executingstrategy setby the CEO

TheCFOsrole

1

2

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In this report

Executive summary . . . . . . . . . . . . . . . . . . . . 4

A new relationship betweennance and the supply chain? . . . . 7

Who are the business partners? . . . . . . . . . . . . . 12

Business partnering in action . . . . .

19Creating consistency across the supply chain,the business and corporate strategy . . . . . . . . 20Supporting and challenginginvestment choices . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Monitoring and enhancing performance . . . . 26Managing risk and business continuity . . . . . . 30

Ten steps for CFOs . . . . . . . . . . . . . . . . . . . . 34

Survey respondentdemographics . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Other titles for CFOs . . . . . . . . . . . . . . . . . 37

Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38


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2 Partnering for performance Part 1: the CFO and the supply chain

The Master CFO Collection provides

insights on events and experiences thatCFOs encounter as part of their role.Partnering for performance is a serieswithin this collection that exploresthe contribution that CFOs can makeby working in a business partneringrelationship with different functional areasof the business.

In Part 1 of this series, we examinebusiness partnering in the supply chain,and explore how CFOs and heads of supplychain can collaborate to achieve superior

nancial performance. Our ndings arebased on a survey of 423 CFOs and headsof supply chains globally, and a series ofin-depth interviews with CFOs, heads ofsupply chain and EY professionals.


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We are grateful to all participants in this study. In particular, wewould like to thank the following nance and supply chain leaders

who readily shared their insights in a series of interviews:Mutlaq Al-Morished , Executive Vice President for CorporateFinance, SABIC

Giacomo Baizini , CFO, Evraz

Tony Barclay , CFO, Fisher & Paykel Healthcare

Simon Coombs , E&P CFO, Reliance Industries

Alistair Davidson , Head of Staff, IKEA

Simon Dingemans , CFO, GlaxoSmithKline (GSK)David Gosnell , President, Global Supply and Procurement,Diageo

Marc Gross , Chief Supply Chain Of cer, Heineken

Matt Hilzinger , CFO, USG

Michalis Imellos , CFO, Coca-Cola Hellenic

Anthony Maddaluna , President of Global Supply, P zer

Deirdre Mahlan , CFO, DiageoJim Muse , Head of Supply Chain, Fisher & Paykel Healthcare

Philippe Pdone , CFO, Galeries Lafayette

Giangaddo Prati , CFO, Barilla

The basis of this study 1

The results of our survey were analyzed to compare:

The perspectives of nance leaders with those ofsupply chain leaders.

The perspectives of respondents from companies where abusiness partnering relationship is in place between the CFO andthe supply chain, with those where the CFO ful llsa traditional nance role.

For the purposes of this study, business partnering refers to a

highly collaborative, enabling and supportive relationship betweenthe CFO and other functional areas of the business. A traditionalnance relationship emphasizes core nance responsibilities, such

as accounting, reporting and controls. We asked respondentsto identify where their relationship with their nance or supplychain peers sat on a ve-point scale between being primarily atraditional nance role (ranking 1 on the scale) and primarily amore enabling, collaborative business partnering role (ranking5 on the scale). We have characterized those who selected 1 or 2

as having a traditional nance relationship and those who selected4 or 5 as having a business partnering relationship.

1 The survey was conducted in collaboration with Longitude Research.See page 36 for further details on survey demographics.

Partnering for performance Part 1: the CFO and the supply chain 3


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When cost reduction leapt to the top of the corporate agenda at

the height of the nancial crisis, supply chains which typicallyhold a large proportion of many companies costs were one ofthe rst places that CFOs turned to for savings. Cost ef ciencyhas since remained high on the corporate agenda but, ascompanies get used to navigating ongoing economicuncertainty, nancial market volatility, the impacts ofglobalization and an unrelenting pace of change, the supplychain has taken on a new strategic signi cance. A supply chainstrategy that is aligned with the broader corporate and nancialgoals of the business is essential. An ef cient supply chainthat enables companies to respond to new market-growthopportunities is also paramount. As such, the role of thesupply chain leader has become more prominent, and theynow often sit on executive boards as peers to the CFO.

Meanwhile, the CFOs role has also been transformed. LeadingCFOs contributions now go far beyond the traditional nanceremit to encompass a strong strategic and commercial focus. 2 In order to do this effectively, CFOs are collaborating moreclosely with other internal functions not just from amonitoring, reporting and risk management perspective,but also as supporters and enablers of performance.

The result of this convergence is that CFOs and supply chainleaders are working increasingly together to understand,analyze and address supply chain issues. In companies where a

business partnering model is established, CFOs are drawing ontheir unique, fact-based view of the organization to identify andsolve business problems, and provide insight to deliver moreinformed decision-making. Together, CFOs and supply chainleaders are creating alignment between strategy, nance, taxand operations, unlocking hidden value within the organizationand strengthening nancial performance.

2 The DNA of the CFO: a study of what makes a chief nancial of cer , EY, 2010.

In this report, we examine the bene ts a growing number of

CFOs are realizing for their organization as they increasinglypartner with the supply chain leader. We also explore whatbusiness partnering means and how, in practical terms, theCFO can collaborate with the supply chain leader to improvecorporate performance.

Business partners are in the minority, butcollaboration is growingOnly 26% of nance executives and 21% of supply chainexecutives say that the CFOs contribution to the supply chainis primarily based around an enabling, collaborative businesspartnering role. However, 70% of CFOs and 63% of supplychain leaders say that their relationship has become morecollaborative over the past three years.

The business partnering model relates to growthand strong nancial performance

Companies with evidence of strong business partnering betweenthe CFO and the supply chain leaders report better results thanthose with a traditional nance model in place. They are morelikely to report closer alignment between nance and the supplychain functions, and a mutual understanding of key risks andopportunities. Business partnering models have a strongerassociation with growth. Among business partner respondents,48% report earnings before interest, taxes, depreciation andamortization (EBITDA) growth increases of more than 5% in

their company over the past year, compared with just 22% ofthose with a more traditional relationship.

The US, South Korea and Singapore take the leadFrom country to country, there are signi cant differences in theproportion of supply chain leaders and CFOs with a businesspartnering relationship in place. While the US, South Koreaand Singapore top the list, Western Europe makes up the tail,

Executive summary


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5Partnering for performance Part 1: the CFO and the supply chain

with all respondents from France, Germany, Italy and Spain

continuing to operate around a more traditional model. In theUK, however, business partnering is well established.

Analytics can be a powerful tool to drive a strongerbusiness partnering relationshipAsked whether data and analytics present CFOs with asigni cant opportunity to drive a more collaborative, businesspartnering relationship with the supply chain, an overwhelming85% of business partners agree. Robust information and insightare central to any business partnering relationship. CFOs accessto nancial information from across the business allows them tocreate a credible single version of the truth to drive decisionsand performance measurement.

Four key opportunities to business partnerWe identify four focus areas where the CFO has an opportunityto enhance performance through business partnering with thesupply chain:

1. Creating consistency across the supply chain, thebusiness and corporate strategy: companies where abusiness partnering relationship between the CFO and supplychain leader is in place report much stronger alignmentbetween the supply chain and broader strategy. They alsoreport better end-to-end visibility across the supply chain.This is crucial to a companys ability to plan, align

manufacturing capacity with demand, improve the ef ciencyand effectiveness of operations, and ne-tune the supplychain operations as a whole.

2. Supporting and challenging investment choices: businesspartner CFOs support and challenge investment choicesthroughout the cycle, from idea formulation through tomanaging an assets performance, retiring it or reinvesting

in it. This also extends to larger investments in the supply

chain, which might include M&A transactions. In particular,business partner CFOs help to set the right growth prioritiesand pace of growth; they support and challenge the rationalefor new investment, and they apply data analytics to supportand challenge business decisions. They also ensure that tax isconsidered as part of operational decisions.

3. Monitoring and enhancing performance: the CFOsperspective across the whole organization, and their positionas a trusted advisor, enable them to play a vital role in helpingto standardize the language, measurement, tools and keyperformance indicators (KPIs) across the organization.However, many nance leaders admit that they need to domore to align KPIs and ensure that they are driving behaviorthat meets the needs of the broader organization, not just thespeci c function.

4. Managing risk and business continuity: businesspartner CFOs take a strategic, long-term approach torisk management, which involves not only direct suppliers,but also secondary and tertiary suppliers. The CFO also hasthe opportunity to work with procurement and treasury todetermine the extent to which risk is owned and managedby the company, and to what extent it is pushed furtherdown the supply chain.

The typical business partner

CFOs and supply chain leaders are most likely to take a businesspartnering approach if theyve been in their role for less than

ve years. They are also most likely to be found in the US, in atechnology company with over US$1b revenue, and EBITDAgrowth of 5%10% in the last year.


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A new relationship between nanceand the supply chain?


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A new relationship between finance and the supply chain?The supply chain is a critical driver of both top-line and bottom-line performance. Through a complex webof processes and relationships, effective supply chains allow companies to meet the demand for theirproduct, keep costs to a minimum and maintain a balance between agility and resilience. In recent years,however, it has become increasingly challenging to juggle these priorities. Pressure on margins has becomemore intense, complexity has grown and the pace of change has continued to increase. This means that therelationship between the supply chain and senior nance leaders has become more important than ever.

Today, many supply chain leaders have been elevated to the top echelons of the corporate hierarchy, with aseat on the executive board and signi cant in uence on strategic decision-making.

This elevation of the supply chain has coincided with a re-evaluationof the CFO position. Many nance leaders are moving beyond thetraditional responsibilities of monitoring, reporting and controllingto play a more forward-looking and commercial role. This includesworking closely with other functional areas as business partners,

supporting their decision-making through insights and nancialimpact analysis, and helping them to identify and manage risksand optimize performance.

This changed dynamic creates a prime opportunity for CFOs andthe supply chain to work together to make signi cant performanceimprovements across the entire business. By applying rigorousinsight and measurement to supply chain decision-making,CFOs can improve alignment between corporate strategy, sales,

marketing and operations.Among many other factors, the companys executive managementstructure will in uence the nature of collaboration between theCFO and the supply chain. For example, some CFOs contributionto the supply chain may be more through partnership with theCOOs, when such a role exists, than directly with the head ofsupply chain. However, in a survey of CFOs and

heads of supply chain, there is strong evidence that relationshipsbetween CFOs and heads of supply chain are becoming closer.Among CFOs, 70% say that the relationship has become morecollaborative over the past three years, while the proportionamong supply chain heads is 63% (see Chart 1).

Chart 1Over the past three years, what change has there been to therelationship between the CFO and head of supply chain in yourcompany? (Shows much more collaborative and a little morecollaborative responses)

Finance

Supply chain

70

%

63

0 10 20 30 40 50 60


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CFOs should be taking active steps to align the nanceorganization with the manufacturing and supply chain to make

sure that nance is right at the heart of that discussion, saysSimon Dingemans, CFO of GlaxoSmithKline, a pharmaceuticalscompany. From my point of view, the supply chain is a very highpriority in terms of shaping the operations of the company tosupport the strategy, but also to make it more ef cient and agile.

Mutlaq Al-Morished, Executive Vice-President for CorporateFinance at SABIC , a petrochemicals manufacturer, agrees.A collaborative relationship between nance and the supply

chain is of paramount importance, he says. Finance should neverbe a policeman just throwing a report over the fence and tellingthe business its their problem. We should be helping the supplychain to work toward a solution, not just identifying problems.

Rising external costs, globalization and the rapidpace of change drive a more collaborative approach

Asked what has in uenced the need for a closer relationshipbetween nance and the supply chain, nance respondents point

to external costs as the number one factor while, for supply chainexecutives, it is among the top three (see Chart 2).

Chart 2Which of the following factors have been most in uential in creating theneed for a closer relationship? Select up to three.

Finance Supply chain

0 5 10 15 20 25 30 35 40%

Rising external costs

The pace of change

Rising supply chain complexity

Changes in strategy

Globalization of the supply chain

Rising internal costs

Shrinking product life cycles

Increasing supply chain risks

Need for more strategicoversight of supply chain

Inefciencies in the supply chain

Unpredictable demand forproducts or services

Impact of regulation and compliance on supply chain

Return of the growth agenda

3032

27

34

2720

27

25

2738

26

26

24

27

2419

21

20

1120

1619

15

15

10

10


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Globalization also looms large, particularly for supply chainrespondents. Global supplier relationships create signi cant

complexity, but also bring huge potential to optimize performanceby reducing costs and driving economies of scale. Globalcompanies also need to realign themselves to meet demand surgesin emerging economies while, simultaneously, managing atgrowth in the developed world. Meeting the needs of this highlydiverse global customer base demands constant innovation as wellas huge variety and choice, says Andrew Caveney, Global SupplyChain and Operations Advisory Leader at EY . It also introduceseven greater complexity, and requires companies to re-evaluatetraditional supply chain con gurations.

Fluctuating demand, shrinking product life cycles, volatileexchange rates and a constantly shifting risk landscape mean thatcompanies need a highly responsive and exible supply chain to becon dent that they can deliver the right products to the right placeat the right time. Equally, many sources of competitive advantageare now temporary at best. Rising labor costs, particularlyin core manufacturing hubs, mean that many price arbitrage

opportunities may be reaching their limit.Growth opportunities are now more uid and dependent onnon-traditional markets. Companies are operating in a world inwhich tried and tested approaches will no longer be suf cient,says Mark Yeomans, Leader of Supply Chain Strategy, Europe,at EY. Growth is taking place in non-traditional markets andchannels, many of which have unknown risks. Capturing thisgrowth will require new models and collaborative approaches to

leadership.

Companies existing structures and processes present anopportunity to improve alignment and ef ciency. Over the years,

many have invested in the supply chain in a piecemeal fashionby bolting on extra capacity to meet new demand, introducingnew outsourcing relationships or obtaining new capacity as aresult of M&A. Supply chain functions, including procurement,manufacturing and distribution, are often poorly connected andrely on disparate interpretations of data and manual processesthat are often inconsistent. In turn, the supply chain itself isfrequently not integrated with the commercial side of the business.This leads to dif culties in matching demand with supply, andan uneven ow of inventory from manufacturing through to thecustomer.

Bringing different perspectives to problem solvingcan lead to breakthroughsA cross-functional relationship between nance and thesupply chain can be the catalyst for addressing these issues.Breakthroughs in business performance occur when lookingat the business or supply chains from an end-to-end perspective,says Brian Meadows, Americas Leader of Supply Chain andOperations at EY . When operations are aligned with strategy,and organizational functions are aligned with operating strategy,innovation breakthroughs occur. These breakthroughs candrive greater productivity and can help the business performanceexceed customers expectations. Without this alignment,performance improvements tend to center on functionalimprovements. A partnering mentality is a core cultural

attribute behind innovative breakthroughs, where the successof your colleagues is as important to you as your own success,with everyone focused on delivering the customer promise.


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CFOs and supply chain leaders different perspectives on businesschallenges can be a source of con ict or, in a business partnering

dynamic, create a fruitful environment for problem solving. CFOs,for example, cite cost cutting and ef ciency as the single mostimportant priority for the next three years, while supply chainleaders cite improving product or service quality (see Chart 3).In reality, both are important, and it is only by bringing the twofunctions closer together that the right balance can be struck.

Chart 3Which of the following do you see as the single most importantpriority for your business over the next three years? Select up to three.

Finance Supply chain

0

2722

25

1914

17

6

6

3

14

25

21

5 10 15 20 25%

Cost cutting and efciency

Organic growth (e.g., investingin products, talent retention,research and development)

Inorganic growth(e.g., acquisitions, alliances

and joint ventures)

Improving product or service quality

Improving customer service

Survival



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Who are the business partners?

The term business partner has become increasingly commonto describe a more collaborative, enabling and supportive

relationship between nance and other functional areas ofthe business. Business partnering is not universal indeed,companies that have established this model between nance andthe supply chain are still in the minority. Among our respondents,26% of nance executives and 21% of supply chain executivessay that the CFOs contribution to the supply chain is primarilybased around an enabling, collaborative, business partneringrole. 55% of nance executives and 46% of supply chainexecutives say that the CFOs contribution to the supply chain is

primarily based around a traditional nance role. The remainderconsiders they strike a balance between the two.

Chart 4Where on the spectrum from 1 to 5 (see legend below) would you placeyour relationship with your CFO/ head of supply chain (%)?

Finance

Supplychain

1. Primarily a relationship based around a traditional nance role

5. Primarily a relationship based around a more enabling, collaborative"business partnering" role

15 40 20 19 7

20 26 33 18 3

RevenueIn companies with higher revenues, there is a higher incidence

of a business partnering relationship. Fifty-six percent ofbusiness partners work in companies with more than US$1bannual revenue.

Chart 5What is your companys annual revenues in US$ (%)?

Business partnering Traditional

56 47 5344

US$100m US$1bMore than US$1b

GrowthCompanies that have a business partnering model in place tendto have higher EBITDA growth.

Chart 6How has your companys EBITDA changed over the past12 months?

0

5

-5

-10

-15

-20

10

15

20

25

30%

Over 20 1020 510 15 15 510 1020 Over 20Nochange


Increase

Decrease


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SectorsTechnology and consumer products tend to have a strong

business partnering emphasis. However, in heavy industry,mining and metals, and oil and gas, it is less established.

Chart 7What is the primary industry for your company (%)?


34

34

20

46 56 74

41 58

3320

Technology Consumerproducts

Telecoms

10

Oil and gas

12

Life sciences

8

76

Mining andmetals

Automotive

GeographyThe countries in our survey where business partnering is most

established are the US, Singapore and South Korea. The story inWestern Europe is very different. In France, Germany, Spain andItaly, no respondents describe the relationship between the CFOand the supply chain leader as being one built around businesspartnering. This was also the case in Argentina and Russia.

Time in roleBusiness partners are also more likely to be relatively newto their role.

Chart 8

How long have you been in your current role (%)?

Business par tner ing Tradit ional

Less than 2 years25 years

1115 yearsMore than 15 years

610 years

7

37

31

213

3

40

16

29

12

To learn more from CFOs and heads of supply chainsabout how they are partnering for performance, readsome of our interview transcripts atey.com/cfoandsupplychain


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How would you rate the following aspects of the relationship betweenthe CFO and head of supply chain (%)?

Business partnering supply chain

23

18

178

23

26

100

91

82

80

78

91

Overall quality ofthe relationship

Level of agreementover key priorities

Alignment between thenance objectives andthe supply chain

Ability to link supply chainstrategy with nance objectives

Ability towork through

business challenges

Mutualunderstanding

of key risks andopportunities

Traditional supply chain

Teaming takes time

An effective, collaborative relationship between nance andthe supply chain demands time, resources and commitment.Among our sample of CFOs, business partners say thatthey spend 25% of their time with the head of supply chain,whereas those with a more traditional relationship spend12%. Both, however, agree that this is not enough: thebusiness partner CFOs think that they should be spendingone-third of their time on the supply chain, compared with20% for the traditional CFOs (see Chart 10).

Spending more than one day a week with the head ofsupply chain may be unrealistic, but it does illustrate theimportance of the relationship. The consensus, even amongbusiness partner CFOs who already dedicate a lot of theirtime to supply chain issues, is that this is an aspect of thebusiness that deserves more attention.

Chart 10 What proportion of your time do you currently spend working

with the head of supply chain, and what proportion do you thinkyou should spend?

Currently spend Should spend

0 10 20 30 40%

12

25

20

33

Traditional nance

Business partnering

nance

Chart 9b


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Business partnering is a two-way streetBoth CFOs and supply chain leaders need to work hard in order

to make a business partnering relationship work. CFOs need todemonstrate that they can make a valuable contribution beyondtheir traditional nance role, and heads of supply chain needto build trust through transparency. If I can deliver the costbene ts to the business that the nancial community has askedus, then it helps to reinforce the relationship, says Marc Gross,Chief Supply Chain Of cer at Heineken , a brewing company.By establishing a very good relationship with nance, thesupply chain gets the support it needs.

Asked about the quality of the support that they receive from theCFO, heads of supply chain in business partner organizations aremuch more likely than those in traditional nance relationshipsto report they are happy with their relationship with theCFO. For example, 87% of heads of supply chain in businesspartner relationships say that they receive good support instrengthening business continuity and risk management, and insupporting and challenging investment choices. This compareswith 33% and 40%, respectively of those in traditional nancerelationships (see Chart 11).

Chart 11How would you rate the quality of support that you receive from theCFO across the following areas?

Supporting andchallenging investment choices

Strengthening business continuityand risk management

Optimizing and monitoring performance

Aligning operations withoverall corporate strategy

87

87

40

33

71

6712

11


Traditional supply chain

0 10 20 30 40 50 60 70 80 90

%

Business partnering between the CFO and thesupply chain improves:

End-to-end visibility across nance, operations and commercial

Alignment across objectives and priorities

Ability to work through business challenges

Overall nancial performance

Collaboration at a strategic level

Understanding and management of risks and opportunities

Quality of investment decisions

12

3

4

56

7



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Business partnering in action


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Business partnering in actionWhen business partnering between the CFO and the supply chain is happening, our survey indicates aclear link to good business outcomes. However, 55% of nance executives surveyed say their relationshipwith the supply chain is still based around a more traditional nance role, which suggests that the shift toa more collaborative relationship may be dif cult. In this section, we look at four areas where the CFOsunique skills and perspective can enable them to improve corporate performance by partnering withthe supply chain. We compare the perceptions of CFOs and supply chain leaders in business partnering

relationships to identify the opportunities that yield results, as well as the areas of tension.1. Creating consistency across the supply chain, the business and corporate strategy

A business partnering relationship between nance and thesupply chain offers the opportunity to break down functionalbarriers and establish a clear line of sight between corporatestrategy, sales and marketing, and the operational side ofthe business. By creating greater end-to-end visibility across

the organization, companies can strengthen planning, alignmanufacturing capacity with demand, and improve theef ciency and effectiveness of operations.

There is a strong connection between helping the supply chainto achieve nancial targets and ful lling our long-term nancialobjectives, says Michalis Imellos, CFO of Coca-Cola Hellenic .Ensuring that there is congruence between what the supply chainfunction aspires to, and how this aligns and enables the business

strategy, is of critical importance to achieving our long-termstrategic goals.



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The majority of CFOs and heads of supply chain in a businesspartnering relationship surveyed are in agreement that there is

good or excellent alignment between the supply chain and broaderstrategy across all key metrics measured (see Chart 12).

Chart 12How would you rate the following aspects of alignment between thesupply chain and broader corporate strategy? (Shows 1 or 2 ratings on a scale from 1 excellent to 5 poor)


Business partnering nance

87

83

78

81

76

65

65

69

84

82

87

91

0 10 20 30 40 50 60 70 80 90 100%

Use of technology to achieve aholistic, enterprise-wide view of

the supply chain performance

Level of communication betweennance and the supply chain

Operational alignment between nance and the supply chain

Consistency of processes acrossnance and the supply chain

Quality of governance and reporting lines to ensure alignment

between nance and supply chain

Degree of alignment betweensupply chain and broader

corporate strategy

Building end-to-end visibility improves the qualityof decisions

The CFOs access to numbers from across the business, and theirbroader view of the day-to-day operations, gives them a different,and perhaps more neutral, perspective in interpreting data. Thisposition enables them to produce a fact-based, single version ofthe truth for the whole business. Eliminating information silos alsohelps to defuse arguments over which set of numbers to believe.Having consistent data and systems frees up individuals to havea more constructive dialog about the value they can bring, saysSimon Coombs, E&P CFO of Reliance Industries . They are no

longer ghting over which version of the truth is right.Mr. Dingemans, CFO of GlaxoSmithKline, agrees. If every part ofthe supply chain has its own data, then you have lots of debateover comparability. An integrated supply chain depends on datastandardization, data comparability and simpli cation. This meansthat people can see a total cost picture, which is what drivescommercial behavior.

CFOs also bring an element of consistency to the way thatdecisions are evaluated, which can build trust throughout thebusiness. Greater involvement from nance as a link, oftenalongside the COO, between commercial and operations, forexample, can help to provide con dence that decisions are beingmade from an informed standpoint. Once we have a good ideaof how much product we are going to sell, we can build a strategyaround that and optimize our manufacturing footprint to deliverit, says Matt Hilzinger, CFO of USG , a building supplies company.As a CFO, it gives me comfort to know that weve got somescience behind this and that the recommendations being putforward are analytical, fact based and not based on someonestheory or emotional view of the industry.



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As an objective broker between different functional areas ofthe business, the CFO has an important role to play in building

stronger bridges. Consider the relationship between R&D andmanufacturing as a case in point. For a long time, manufacturinghas not had a voice in de ning a new product, and its always beenassumed that it will simply be able to translate ideas from R&D intoproducts, says Stan Brown, a Partner at EY in the US. But bygiving manufacturing a voice, you can enable decisions that affectthe ef ciency with which products are made, creating equal orgreater consumer bene t at a reduced cost point. CFOs can playan active role in creating an internal structure that enables and

promotes this more collaborative behavior.At the pharmaceuticals company P zer, a strong relationshipbetween the commercial and operational sides of the businesshelps to create a careful balance between ef ciency andresponsiveness in the supply chain. The supply chain is a largepart of the nancial structure of the company because weare responsible for both product supply and inventory, whichrepresent a signi cant portion of both the Pro t & Loss (P&L)

statement and the balance sheet, says Anthony Maddaluna,President of Global Supply at P zer . Our focus is on deliveringproducts to satisfy customer demand that meet our exactingquality standards at the best cost of goods, and doing so whilebalancing required product supply and inventory. We strive toensure we are not consuming excess cash in inventory and, at thesame time, ensure we have the right inventory in our supply chainto ful ll orders and drive revenue.

Better integration between the commercial and operations teamsalso means that objectives can be aligned more closely. If you

have accountability and management in one place, then you canalso drive one P&L and one set of numbers, says Mr. Dingemans,CFO at GlaxoSmithKline. That can be very effective in making thecommercial business more responsive and more understanding ofthe consequences of their actions.

A partnership between nance and key functions within thesupply chain, such as procurement, helps to ensure that the rightobjectives are being met. Procurement reports into the CFO,but we have a dedicated procurement team focused on the globalsupply chain, explains Mr. Maddaluna. Purchased materials andgoods represent a signi cant portion of cost of goods sold, sothey play a key role. Regardless of reporting relationship, theprocurement team is integral to our success and the workingrelationship is seamless. It is a true partnership in terms of whatwe need to deliver and how we deliver it. Cost is important;however, quality and compliance are essential. Procurement fullyunderstands this.

An effective sales and operations planning (S&OP) process isvital to ensure alignment and minimize debate between differentfunctional areas. If the company has too much stock, for example,the CFO and supply chain leader need to understand why itmay be due to over-forecasting, underselling, change in themarket or the wrong price. The S&OP process can help to revealthe drivers of performance in the supply chain and facilitate astronger partnership between nance and the supply chain.Although CFOs have not traditionally been at the heart of S&OPplanning, they have the opportunity through business partneringrelationships to play a more central role.



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Misaligned incentives in the supply chain

An integrated planning model that links nance, sales and operations in a transparent and accountable way helps to overcomesome of the misaligned incentives between different parts of the business. Below are some examples of actions that can resultin misalignment, along with their unfortunate implications:

Implication

Operations plan for less capacity and, when the realdemand hits, they are unable to meet it.

Inventory builds up, increasing working capital andreducing visibility and overall ef ciency.

Servicing the product lines, some of which are likelyto be unpro table, increases cost and inventorycomplexity and reduces pro tability.

Poor-quality parts cause problems in manufacturingwhen they fail.

The supply chain reduces production and trimsinventory levels, which leads to stock-outs and poorservice levels.

ActionThe sales team underestimates demand in forecastsso that it can demonstrate that it has beatenits targets.

Operations pushes as many products throughthe supply chain as it can reduce unit cost ofproducts manufactured.

Sales and marketing maintain a high number ofproduct lines to increase customer choice.

Cost-reduction incentives drive procurement topurchase low-cost parts.

The nance team puts the supply chain underpressure to reduce working capital to improve

nancial performance.



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2. Supporting and challenging investment choices

Investments in the supply chain are among the largest andmost important that any business makes, and the CFOs role insupporting and challenging these decisions is vital. Companiesmust invest in and maintain manufacturing capacity, distributionnetworks, inventory and the raw materials that are used in themanufacture of products. An effective supply chain also needssigni cant investment in people, technology and processesto ensure that it runs smoothly and can serve as a source ofcompetitive advantage.

In traditional nancial management, the CFO and their team serveas the gatekeeper for investment and resource allocation. They setbudgets, determine appropriate returns for investment and capitalexpenditure, and manage trade-offs between resource allocationacross different functional areas of the business.

Business partner CFOs retain these responsibilities, but also playa much more active role in supporting investment choices. Theyget involved across the entire investment cycle, from formulatingthe idea through to managing an assets performance, retiringit or reinvesting in it.

Every function is trying to maximize its investment allocation,and the CFO needs to act as the business integrator by combiningand balancing these different requirements to nd a solution thatis strategically correct for the company, thereby maximizing thevalue creation, says Giangaddo Prati, CFO of Barilla , a foodmanufacturer. By having clear and shared strategic priorities,using a common language and xing precise rules at the outsetaround the ratios and paybacks we need to approve investment,we minimize tension and help to focus attention on execution.

In a traditional nance relationship, discussions around investmentand capital expenditure can frequently be sources of tension. Butin a business partnering relationship, the supply chain is moreclosely aligned with corporate strategy, and the projects theyrequest usually are too. When the supply chain has a realunderstanding of and alignment with corporate strategy, greatervalue is generated from capital investment decisions, saysMr. Caveney, Global Supply Chain and Operations Leader at EY.The supply chain is in a better position to know what the

organization needs to produce, and can start to direct capitalinvestment to building the right capabilities in line with thatstrategy. That conversation becomes much more ef cient,because all the key constituents are participating.

Data analytics are a catalyst for betterbusiness partneringAn overwhelming 83% of nance business partners and 87%

of supply chain business partners agree that data and analyticspresent CFOs with an unprecedented opportunity to drivea more collaborative, business partnering relationship withthe supply chain.

There is a tremendous opportunity for CFOs to take ownershipof analytics, because there is no one in the organization withcomplete responsibility for it, says Andy Rusnak, AmericasEnterprise Intelligence Practice Leader at EY . Finance leadersneed to think differently about the data over which they havecontrol. There is no reason why you wouldnt apply the samerigor, control and analytical capability across all of the datathat the organization produces and view your role as somebodywho sits down and pushes value from that data into the rest ofthe organization.



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But the sheer proliferation of data raises its own challenges.One is how to narrow down the datasets that the companyconsiders important and convert it into useful information fordecision-making. For Mr. Rusnak, the key is to take a driver-basedperformance approach. CFOs need to really understand whatdrives value for the organization and focus on that, he says.That makes the CFOs challenge not one of how do I aggregateevery little piece of data that ever existed? but how do I get theorganization to understand whats important?

Make-versus-buy decisionsWhen a company is considering investment in thesupply chain, the CFO can bring a risk perspective to thatconversation and force a transparent discussion aboutinvestment choices. Consider a make-versus-buy decision,in which the company is deciding whether to buildmanufacturing capacity or buy it in through a contractmanufacturing (CM) arrangement. Working with theirsupply chain partners, CFOs need to ask themselves the

following questions:What does our future demand look like? If it is volatile, wouldCM help us to access capacity and meet unexpected demand?

If demand looks as if it is declining in a particular market,can CM act as a downside hedge to enable volumes to bereduced without having to retire xed capacity or leave it idle?

Where are our existing manufacturing assets? If they are in a

high-risk area, can CM capacity in another location help us tomanage the risk of supply chain disruption?

If input prices are volatile, could a xed price arrangementwith a CM help us to mitigate some of our risk exposures?



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3. Monitoring and enhancing performance

Business partner CFOs go beyond monitoring performance to playan important role in de ning and driving the behaviors that willsupport organizational goals. One way they do this is by helping tostandardize the language, measurement, tools and KPIs across theorganization. CFOs have a unique skill to bring together differentparts of the organization that may be at odds with each otheror may not have a great mechanism for open communication,says Mr. Brown, Partner at EY in the US. They provide asingle point of reality and, when you combine that with a more

collaborative relationship, you can start to have transparent,high-value conversations.

Business partners see room for improvement in setting KPIs andtargets to drive the right behaviors in the supply chain, with 57%of those in nance and 27% of those in the supply chain saying thatthey need to do more here (see Chart 13). Technology and thesupply chain are the two main drivers to support the growth of ourbusiness, says Philippe Pdone, CFO of Galeries Lafayette . This

means we need to have the best KPIs in order to be more ef cienton these two aspects that support the business.

When nance is less involved in the supply chain in a moretraditional relationship, there is a danger that it will apply targets,in areas such as working capital, that do not take the realities ofthe function into account.

You cant just dictate terms or arbitrarily put working capitalgoals in place that arent achievable, says Mr. Hilzinger, CFO of

USG. Finance can establish that working capital is important andensure that there are consistent de nitions in place, along withobjective measures to show whether or not we are achieving ourgoals. But it is then up to the supply chain to gure out what theycan do to meet those objectives.

Chart 13Do you agree that you need to do more work to ensure that theKPIs and targets set for the supply chain are driving the right behavior? (Shows agreed strongly and agreed)



57

27

0 10 20 30 40 50 60%

Ensuring that there are consistent de nitions for measures, suchas working capital and tax, across the business is central to drivingthe desired behaviors. Its extremely important that you developconsistent de nitions for KPIs, so that groups come together andset those KPIs from a leadership perspective and let them cascadedown through the organization, says Jim Muse, Head of SupplyChain at Fisher & Paykel Healthcare , a medical devices company.

The CFOs neutral position within the supply chain means thatthey can evaluate trade-offs between different targets and give aperspective on which course of action will deliver the best overallbene ts. Consider, for example, an initiative to increase servicelevels or ll rates in the supply chain. Increasing them from, say,

95% to 96% would bene t customers, but it would also requireincreasing inventory. The CFO can add a valuable perspective tothis discussion by evaluating the impact of increased service levelson other metrics, such as working capital, says Sean Ryu, SupplyChain Leader for Asia Paci c at EY .



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With the right de nitions in place, the leadership team canmake a decision about the most important metrics to drivethroughout the organization. When teams are incentivized ontoo many different metrics, the result can be confusion and lackof clarity around what the real priorities of the organization are.Over time, reporting becomes more comprehensive, everythingis being measured and what is lost is the focus on what is mostimportant. says Mr. Meadows, Americas Supply Chain andOperations Leader at EY. A great area for a CFO to build a strongworking relationship with the head of supply chain is in the areaof performance management. They can help align operational

objectives to the business strategy, in order to determine the mostcritical measures to monitor strategy execution.

More broadly, CFOs can play a pivotal role in bene ts realization the process of determining whether the intended outcomes ofa particular investment are actually achieved. CFOs can help toset the right expectations, provide a clear understanding of theresources required to achieve a particular bene t and ensure thatthe bene ts which may not always be easily quanti able arefully understood.

Tax incentives, customs, excise and trade incentivescan improve bottom-line performanceTwenty-six percent of business partner CFOs and 24% of businesspartnering supply chain executives see improving organizationaldesign to aid tax effectiveness as one of the top three opportunitiesfor the CFO to play a more active role in the supply chain(see Chart 14).

Chart 14In which of the following areas do you see the key opportunities for theCFO to play a more active role in the supply chain? Select up to three.

0 10 20 30 40 50 60 %

Optimization of exciseand trade incentives

Better understanding of working capital

Strengthening analytical support around supply chain data

Improving understanding ofthe cost of inventory

Improving organizational design to aid tax effectiveness

Better understanding of total delivered costs

Better understanding ofmanufacturing cost and ef ciency

Improved compliancewith contracts

More rigorous procurement assessments



48

48

3931

33

51

47

33

26

2644

24

2622

17

1324

7

Joost Vreeswijk, Tax Effective Supply Chain ManagementLeader, at EY for Europe, Middle East, India and Africa (EMEIA) ,says, When a company is designing its supply chain and operatingmodel, the CFO can make sure tax is brought into the equationearly. If tax is left as an afterthought, the consequences can besevere. We have seen instances where make-versus-buy decisionsand location choices have had to be completely revised due to thelate inclusion of customs and indirect tax effects.



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At a strategic level, the CFO also plays a fundamental role inensuring integration between the different elements of theoperating model. Mr. Vreeswijk adds, Traditional operatingmodels encompass business processes, transactional ows,organizational structure and cost-effective location choices. Butthe CFO can also ensure that the direct tax, indirect tax, transferpricing and legal entity layers are also integrated to the model.This helps improves the alignment between tax and the business,and can also signi cantly boost shareholder value. These days,competition between peers ultimately comes down to oneoperating model versus another, and the CFOs role in getting that

operating model right is crucial.

Although tax should never be the ultimate driver of operationaldecisions, it can be an important in uencer that can yieldsigni cant bottom-line bene ts. One CFO we spoke to said,Finance should not lead the charge in terms of operationaldecisions, but if there is a choice between one country andanother that both work operationally, then we need to be involvedin that decision and make sure that tax considerations are takeninto account. Of course, we have a clear responsibility to ourshareholders to try to maximize returns for them, but that alsohas to be done in the context of risk.

Creating value through a centralized procurement operating model

The role of procurement within organizations is shiftingfrom one of cost reduction to a broader goal of value creation.In addition to maintaining a low-cost base, procurementfunctions are tasked with achieving operational excellence,managing key risks, sourcing sustainably and collaborating

across the value chain.Achieving these varied goals requires the right procurementoperating model. For a growing number of companies, thismeans a more centralized approach in which they can leverageskill and scale, build new capabilities, manage risk and makebetter decisions. This helps to deliver demonstrably enhanced,measurable procurement value propositions and relatedvalue outcomes for the business.

Diageo, for example, has taken steps to centralize procurementto drive economies of scale and consistency across thebusiness. Although we have local procurement teams, theynow form part of a centralized group, says Mr. Gosnell. Wehave category managers at the center who set strategies andmanage contracts globally. So if an executive wants to buya ight locally, they can do that through a portal, but it rolls upinto the central procurement model.

The centralization of procurement can also have importanttax bene ts, in terms of reduced direct and indirect tax costsand improved free cash ow. Companies need to factor taxinto the decision-making process. Tax-effective procurementoperating models have a proven track record of being exible,

business-driven solutions. They can also lead to reductionsin the effective tax rate that may be as high as 2%.

More broadly, companies can also start to think about howthe centralization of procurement forms part of a broaderapproach to shared services implementation. A growingnumber of companies are re-thinking their approach to sharedservices, moving from a narrow, function-speci c approachto a multifunctional model, as EY explored in its recent report

Delivering tomorrows companies today.4

To add value andoptimize costs, these companies are developing a single,uni ed global business services organization that is capableof managing end-to-end processes across different businessfunctions, including not just procurement, but also humanresources (HR), nance and a range of other activities.

4 Delivering tomorrows companies today , EY, 2013



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4. Managing risk and business continuity

Business partners and supply chain business partners agreethat mitigating risk is one of the biggest contributions thatCFOs can make to the supply chain. But in a complex global supplychain, identifying key risks is a signi cant challenge. Most largecompanies rely not only on primary suppliers, but on secondaryand tertiary layers as well. With operations happening at severallayers removed from a companys direct control, it can bechallenging to understand exposures and ensure that these risksare mitigated.

CFOs and heads of supply chain have different perspectives onsupply chain risks. While both are concerned about labor risks,business partner CFOs other preoccupations are about currencyrisk and overinvestment in capacity. Business partner heads ofsupply chain, however, are most concerned about lack of visibilityinto outsourcing relationships and the potential for unexpecteddisruption from natural events (see Chart 15).

Chart 15Which of the following do you see as the biggest risks to thesupply chain? Select up to three.



0 10 20 30 40 50 60%

41

37

33

30

30

26

24

22

20

15

20

33

31

18

38

11

51

27

13

22

Currency risk

Labor disputes

Overinvestment in capacity

Fraud and corruption

Potential for unexpected disruptionfrom natural events

Unethical practices by supplychain partners

Lack of visibility into outsourcingrelationships, particularly amongsecondary and tertiary suppliers

Concentration of manufacturingactivity in speci c geographical areas

Abrupt regulatory change

Underinvestment in capacity



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To some extent, it helps that nance and supply chain executivesare thinking about risk in different ways, because it ensures thatthere is better coverage of the key exposures that the company islikely to face. Paul van Kessel, Global Risk Leader at EY , arguesthat companies need to conduct more frequent monitoring ofhigh-risk indicators, and ensure that they have the ability torespond quickly when the unexpected happens. By executingmore quickly, they can reduce their nancial loss, minimize theimpact and perhaps come out of some of the situations in astronger position than their competitors, he says.

Regulatory risks will be high on the CFOs agenda. In 2012, forexample, the US Securities and Exchange Commission (SEC)issued a rule to implement disclosure requirements regardingcon ict minerals as part of the Dodd-Frank Act. Con ict mineralsrefer to those that originate from the Democratic Republic of theCongo, where armed groups are using the proceeds of the sale ofthese minerals to nance regional con icts. This affects any SECissuer, including foreign issuers, that manufactures or contracts tomanufacture products where con ict minerals are used. Industrieslikely to be affected include electronics and communications,aerospace, automotive, jewelry and industrial products. 6

Tax risk is another important and increasingly severe risk category. Disagreements between taxpayers and taxauthorities, as well as between tax authorities in different

jurisdictions, as to the appropriate tax treatment of the supplychain operating model can have serious nancial consequencesif not managed carefully.

6 Con ict minerals: What you need to know about the new disclosure and reportingrequirements and how EY can help , EY, 2013.

Risk exposure should align with risk appetiteAs the board-level sponsor of risk management, the CFO alsoplays a vital role in ensuring that risks taken by the business are inline with the companys overall risk appetite. This should includeensuring that there is a careful balance between having a leansupply chain and one that is resilient and can withstand shocks.Although ef cient, lean supply chains are more susceptible todisruption, and this can have severe nancial, as well as business,impacts. The balance between lean and resilient is a dif cult oneto strike, says Alistair Davidson, Head of Staff at IKEA . Whenyou overfocus on keeping costs low, then you might not invest

enough in making sure you have a stable environment in whichto work. And if you go completely over the top on stabilizing theenvironment, you are probably going to be giving up on part of thecost feature. So its a permanent struggle to strike that balance.

Working together helps to mitigate risksBy becoming more engaged in the supply chain, business partnerCFOs can look more deeply at exposures and assess how they arebeing managed. When asked about their key risk management

priorities, business partners highlight risks in the secondary andtertiary supply chain as a key area of focus. This is also the numberone area of focus for heads of supply chain in business partneringrelationships (see Chart 16).



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Chart 16What do you see as the key priorities to ensure that supply chain risksare appropriately managed in your business? Select up to three.



0 10 20 30 40 50 60%

Conducting frequent audits ofsuppliers to ensure that key

standards are met and risks managed

3947

4831

Use of scenario-planning techniquesto examine the impact of changes to

key supply chain performance drivers

4429

Applying analytical informationto identify and mitigate

risks across the supply chain

3144

Modeling the impact of supplychain disruption in the secondary

and tertiary supply chain

4440

Increased use of insurance to providecoverage for supply chain risks

5060

Increasing the degree of focuson risks in the secondary and

tertiary supply chain

Gaining visibility and control over secondary and tertiary suppliersrequires signi cant levels of time and investment. Althoughcompanies will always nd it dif cult to get the same degree ofcontrol over their external suppliers as they do over the internalnetwork, they can put processes in place to get as close to thatas possible. This involves having quality indicators in place andtracking them carefully so that, when issues do come up, thecompany is able to deal with them quickly.

Take a holistic view of risk, with clarity over whoowns whatCompanies also need to adopt an enterprise-wide view of riskand ensure that a gap does not emerge between accountabilityfor operational and nancial risks. Risk is a global topic, and youcant chop it up into different functional pieces because it doesntwork, says Mr. Davidson, Head of Staff at IKEA. It has to be builtaround an overview that youre going to look at as a team ofhow those risks emerge. Clearly, Im going to take a higher levelof responsibility for the foreign exchange risk and the purchasinghead is going to take a higher level of responsibility for the

purchasing prices. But we all sit together and look at it in aholistic way.

Owning risk, rather than pushing it down the chain,can be a safer long-term strateg yLeading companies are also looking to gain greater visibilityand control over nancial risks in the supply chain. Prior to the

nancial crisis, many companies would have been happy to pushthe management of risks, such as commodity price volatility,

onto their suppliers. They would negotiate xed contracts withtheir supplier base and, if the price of raw materials increasedor currency rates changed, it would be the responsibility of thesupplier to absorb the consequences.

More recently, however, some companies have recognized that,rather than mitigating risk, this approach simply transfers itelsewhere in the supply chain. In addition, it is often then borneby smaller companies that are less able to manage the riskseffectively. The effects of this approach became painfully clearin 2010 and 2011, when a signi cant spike in commodity pricesmeant that many smaller suppliers could no longer absorb theincreases under their xed contracts and fell into bankruptcy.



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With the supply of components or products abruptly cut off,many companies suffered severe nancial damage as a result.

Craig Kennedy, Partner at EY in the UK argues that, rather thanpassing on hedging risks to suppliers, large multinationals shouldassume that risk themselves because they are better placed tomanage it. To take on more risk is not a bad thing if you canmanage it in a more ef cient way, he says. If companies canhand responsibility of these risks to their treasury or procurementfunctions, not only is that team better resourced and moreknowledgeable about how to manage these risks, they can alsomake the process more cost-ef cient by aggregating trades and

bene ting from economies of scale.

Knowledge of your suppliers risks is power to manage itMore broadly, better ows of information and improvedcollaboration with third-party suppliers can help to identify risksearly and avert the possibility of supplier failure. In addition torelying on backward-looking credit ratings and other nancialinformation, companies need to be more proactive and put in placeprocesses to identify the risks of supplier failure and ensure thatmitigation plans are in place. By sitting down with their suppliersand discussing the planning process in a more collaborative way,companies can build stronger relationships, reduce risks andensure a smoother ow of inventory through the supply chain,says Mr. Morris, EMEIA Working Capital Advisory Leader at EY.

Better risk management through hedge optimizationFor several years, the International Accounting StandardsBoard has been working on a new standard on general hedgeaccounting, which forms part of Phase III of IFRS 9. The aim ofthe standard is to give companies the ability to form strongerlinks between their risk management activities, the rationalefor hedging and the impact of hedging on nancialstatements. But with a nal standard yet to be issued,it seems likely that the effective date for that standard islikely to be pushed back until 2018.

For now, companies need to adhere to the current accountingrules. But the way they are written means that there aresigni cant penalties associated with certain derivatives.In essence, these derivative contracts are seen as tradingpositions, rather than legitimate risk management tools.Given that the penalties associated with these positions canintroduce signi cant P&L volatility, many treasurers chooseto avoid more complex derivatives altogether or take outaccounting hedges to offset the impact caused by theireconomic hedges. Either way, the result is that they tend toselect derivatives on the basis that they work favorably froman accounting perspective, rather than provide an optimal riskmanagement solution.

Hedge optimization aims to resolve this dilemma by assessinga companys current exposures and derivative positions, andthen determining an appropriate set of contracts that willminimize P&L volatility. This might involve decomposing

trades into two or more synthetics, or exploring other optionsto optimize hedging portfolios and ensure that they arecorrectly designated for accounting purposes.


Ten steps for CFOs toward a business


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Ten steps for CFOs toward a businesspartnering relationship with the supply chainTake the pulse of your relationship with the supply chain. How collaborative is it? Is nance perceived asa gatekeeper or policeman? If so, these steps will help you to put the relationship on a more collaborativefooting to drive higher performance.

1 Make time for the supply chain . Business partner CFOsspend an average of one day a week working with thesupply chain or on supply chain issues.

2 Allocate nance resources to the supply chain .Determine whether the right nance resources arein the right places to enable a business partneringrelationship. This may require a combinationof embedding nance executives within thesupply chain function and closer collaborationwith the main nance function.

3Review the S&OP process . Your involvement can help

to build stronger bridges between the commercial andoperational sides of the business, and ensure that theirobjectives are aligned.

4 Ensure business decisions are driven by a data-based single version of the truth. Discourage multipleinterpretations of master data by different functionalareas. Position nance as the owners of the data.

5 Support investment decisions. Business partnerCFOs are involved throughout the investment life cycle,from choosing an asset for investment through tomanaging its performance, retiring it or reinvesting in it.

Help drive supply chain performance throughan integrated operating model. Ensure thatdirect taxes, indirect taxes, transfer pricing andthe legal entity are integrated to the model.

Focus the supply chain on the metrics that matter. KPIs should consistently encourage the behaviorsand outcomes that drive value.

Identify performance incentive misalignment. Performance incentives across functional areasshould be consistent and should support the broaderbusiness strategy.

Consider centralizing business functions. Centralization of functions, such as procurement,can reduce costs, enhance risk management,streamline processes and increase tax ef ciency.

Look deep in the supply chain for risks. Risks that liein secondary or tertiary layers are more dif cult tomanage, but they can be just as damaging.

6

7

8

9

10



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Survey respondent demographics


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y p g pThe following charts show the pro le of the 423 CFOs and heads of supply chain we surveyed and the organizations they represent.

Job title (in %)

CFO (including Group,Deputy and Divisional)

Heads of supply chain(including logistics, transport, eet,

operations, production, manufacturing,purchasing, procurement)

50

50

Location in which respondent is based (in %)

Australia 3

3UAE

3Nordics

3Italy

3Germany

3Benelux

3France

3Russia

3South Africa

3Spain

4Canada

6India

5UK

5Hong Kong

6South Korea

6Singapore

7Argentina

8Brazil

9China

16USA

Company revenue (in %)

Between US$250m and US$500m

Between US$500m and US$1b

Between US$1b and US$5b



Greater than US$20b 3

7

17

23

23

18

Primary industry (in %)

Telecoms 12

Technology 14

Retail, distribution and transport 4

Oil and gas 14

Mining and metals 12

Life sciences 12

Manufacturing 6

Consumer products 13

Automotive 12

Aerospace and defense 1


Other titles for CFOs


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This is one of a series of studies from our CFO program, which provides insight and guidance on aspects of personal interest to theCFO as they seek to develop themselves, their teams and learn from others within their community. Other publications from theprogram include:

The DNA of the CFO seriesEMEIA

The DNA of the CFOA study of what makesa chief nancial of cer

Americas

Views. Vision. Insights.The evolving role oftodays CFO

Asia Paci c

The DNA of the CFOShifting up a gear: fromcore nance to corporatestrategy

Finance forteThe future of nanceleadership

CFO and beyondThe possibilities and pathwaysoutside nance

The Master CFO Collection

Back seat or center stage? Vol. 1CFOs and the media

What lies beneath? Vol. 2 The hidden cost of enteringrapid-growth markets

A tale of two markets Vol. 3Telling the story of investmentacross developed andrapid-growth markets

Drought or drowning? Vol. 4Cash challenges for CFOs at both endsof the liquidity spectrum

For further information on these titles and our program of investment in CFOs, please visit www.ey.com/cfo or contactKatherine Brinkley on [email protected] or + 33 1 46 93 56 12.


Contacts


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For further information, please contact:

CFO program

Katherine BrinkleySenior Manager, EMEIATel: + 33 1 46 93 56 12 Email: [email protected]

Robert BrandDirector, Americas Tel: + 1 201 872 5692 Email: [email protected]

Gregory GruzMarketing Program Director, Asia Paci c Tel: + 852 2849 9413 Email: [email protected]

Supply Chain and

Operations Advisory

Andrew CaveneyLeader, GlobalTel: + 44 20 795 18571Email: [email protected]

Brian MeadowsLeader, AmericasTel: + 1 703 747 0681Email: [email protected]

Sean RyuLeader, Asia Paci cTel: + 82 2 3787 4125Email: [email protected]

Frank ThewihsenLeader, EMEIA

Tel: + 49 211 9352 16805Email: [email protected]

Tax Effective Supply Chain Management

Matthew AndrewLeader, Asia Paci cTel: + 65 6309 8038Email: [email protected]

Lisa LimLeader, AmericasTel: + 1 212 773 4756Email: [email protected]

Joost VreeswijkLeader, EMEIATel: + 41 58 286 2409Email: [email protected]



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Finance Transformation Advisory

Tony KlimasLeader, GlobalTel: + 1 212 773 5949Email: [email protected]

Tom CucuzzaLeader, AmericasTel: + 1 216 583 4381Email: [email protected]

Christian MertinLeader, EMEIATel: + 49 89 14331 13590Email: [email protected]

Paul MitchellLeader, Asia Paci cTel: + 61 29 2485 110

Email: [email protected]



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About EY

EY is a global leader in assurance tax transaction and advisory services

EY | Assurance | Tax | Transactions | Advisory


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working world for our people, for our clients and for our communities.EY refers to the global organization, and may refer to one or more, ofthe member firms of Ernst & Young Global Limited, each of which is aseparate legal entity. Ernst & Young Global Limited, a UK company limitedby guarantee, does not provide services to clients. For more informationabout our organization, please visit ey.com.

2013 EYGM Limited.All Rights Reserved.

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This material has been prepared for general informational purposes only and is not intended tobe relied upon as accounting, tax or other professional advice. Please refer to your advisors forspecific advice.

The views of third parties set out in this publication are not necessarily the views of the global EY

organization or its member firms. Moreover, they should be seen in the context of the time theywere made.

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Documents

EY Partnering for Performance the CFO and the Supply Chain