The supply chain: The CFO’s crystal ball

GeneraTinG SUPPLY CHain imPaCT

Whitepaper

DESIGN • TRANSFORM • RUN

Broader expectations from the role of a CFO requires finance leadership in the organization to look beyond the traditional finance, comptrollership, accounts processes and information flows. This is especially true as companies increasingly rely on the CFO to shape, refine, and implement their strategic plans. With these market realities in mind, there may be a secret weapon in the CFO’s battle to stay ahead of globalization and a fast-evolving marketplace filled with complexity and risk.

Data-to-Action Analytics SM can help CFOs align their business processes with targeted business outcomes by embedding industrialized analytics into reimagined processes.

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Today’s CFOs are faced with dynamic challenges that require them to possess a clear line of sight into the dynamics of their operating environmentCFOs today are faced with multiple challenges that require them to look both within and outside the organization for support to enable better business performance:

• Managingvolatility: The top challenge of CFOs today is handling market volatility with respect to their supply chain, which has a direct impact on the volatility in their overall financial and market performance.

• Navigatingcomplianceandregulations: With global supply chains comes the increasing regulatory criteria that can expose a company to significant financial and reputation risk if not managed properly. This is especially true for industries such as life sciences, healthcare, and capital equipment manufacturing.

• Enablinggrowth,ensuringprofitability: While profitability from cost take-out and disciplined drive for operational efficiency is a key priority for the CFO, strategic reinvestment decisions that can maximize revenue growth is also an area that needs continued attention, considering the dynamic nature of the industry.

Greater visibility into the supply chain, coupled with insight-generating analytics, can enable the CFO to impact transformation across the organization in real timeThe supply chain is a key function whose efficiency and effectiveness has significant impact on all the challenges and responsibilities that the CFO faces today.

• As increasing raw material supply and finished goods demand volatility, the supply chain directly impacts the free cash flow of the organization, impacting financial performance and market metrics, such as valuations.

• Ensuring timely supply chain compliance to regulations at both the product and process level is critical to minimizing the financial and reputation risk carried by companies, which directly impacts overall brand perception and regulatory liabilities.

• Increasingly fickle and dynamic customer demand cycles have led to the supply chain becoming the key driver of growth and revenues, while also having a strong say in the costs incurred, by ensuring that the right product is made available to customers at the right time, reducing replacement risks and costs.

Supply chain insights can enable a CFO to improve forecasting results, reduce working capital requirements, and boost cash flows, while mitigating risks typical to global business operationsThe data gleaned from examining the supply chain can be a primary source of information that can help forecast a company’s revenue outlook. Understanding what factors affect products as they move through a supply chain, and how those factors impact pricing, costs, compliance, and customer sat isfaction, provides a near real-time model a CFO can use to gain a more accurate idea of market factors affecting the company, and holds the key to improving working capital, cash flow, and better understanding risk. It can even predict revenue and profitability with a far greater degree of certainty than previously assumed.

Staying ahead of market volatility by better forecasting of commodity pricesWith volatility a recurring characteristic of markets currently, CFOs can overcome the challenge of balancing inventory investment and procurement cost by developing analytical models that scrutinize macroeconomic factors affecting key commodities, and provides a price driver analysis of the factors that cause price variations. The model can also provide fundamental analysis of the demand

supply gap in critical commodities and a technical analysis of historical and current movements of primary price and volume. This ability to factor in variations and adjust analysis in near real time significantly enhances the organization’s ability to adjust to changing market conditions and seize opportunities. The better the CFO is able to sift through complex data sets and form a clear picture, the better the supply chain team can forecast and set targets that drive better results.

enhancing cash flows and profits through lower inventory turnsAs the global foreign exchange scenario continues to remain volatile, prudent fiscal management of working capital has become the acute need of the hour. Improving inventory turns is a major concern within the supply chain and an obvious focus for any CFO concerned with optimizing working capital. CFOs need in-depth understanding of the composition of their inventory investments and the ability to transform the inventory base into its most productive and profitable form through multi-criteria inventory classification and optimization of safety stock and service-level requirements.

Optimizing carrying and transaction costs by an end-to-end value chain analysis, followed by reviews of assigned inventory targets with the concerned teams, followed by demand pull system

and a web-based inventory analysis tool, can establish tighter controls and more timely and accurate understanding of inventory levels.

minimizing risk and volatility through insight-driven decisionsVolatility impacts the end-to-end supply chain, which in today’s global supply base can be quite deep and extended. The supply chain is prone to controllership risks because of its multiple physical and transactional hand-offs. The CFO who clearly understands the entire procurement and fulfillment process and the workings of the physical supply chain is much better positioned to understand the cascading effect of risk. Clear insight into the drivers of supply and demand, costs, and the end-to-end process can enhance the CFO’s role in guiding policies that mitigate risk and drive better results overall. Start with a thorough financial evaluation and peer benchmarking of the company’s supplier base.

Harnessing data requires Data-to-action analytics Sm at scaleBut for an enterprise to truly leverage value from data, it must integrate and then operationalize process, analytics, and technology at scale, under an advanced organizational model, to drive discontinuous improvements in revenue, productivity, and competitiveness.

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Run Data-to-Insight2Apply analytics to enable real time control, visibility and transparency over the supply chain process, and reduce free cash flow requirements

Improve execution practices3Remap supply chain processes to facilitate the data infrastructure, and identify governance metrics and practices to embed intelligence into the supply chain

Simplify the design process by optimizing and standardizing the siloed processes

Subject matter intervention to ensure transference of best in class practices across the organization and value chain

4 Continuous learningImprove communication across the value chain through dashboards and face-to-face interactions, that feed information back for overall process improvementRevise standard operating procedures

1 Identify target outcome: Optimize working capital levels to enhance free cash flow and valuations for the firm

Identify metrics:Free cash flow %Valuation metrics

EXECU

TEAC

TION

S

Operate

MeasureImplement

Gather feedback

Consolidate, report

Analyze

2

4

Correctstrategy and

targets

Intelligent OperationsSM to enhance visibility into core processes, and aid decision making and transparency

A global pharma company improved supplier relationship by implementing analytics to compare key supplier financial performance factors, building a benchmarked profile, categorizing suppliers to various risk profiles, and enabling bankruptcy indicators.

Operationalizing Data-to-action analyticsSm in the supply chain: a win–win for the CFO and the supply chainProgressive organizations are leveraging technology to provide the CFO with a clear, real-time view of the supply chain organization, using reimagined business processes that embed analytics and technology into the decision-making process, allowing the CFO to extract data that aids in timely decision-making.

Such an entwined operation benefits both functions. The CFO is better able to forecast revenue and profitability, decreasing risk and increasing cash flow. The supply chain team is better able to create and deliver on plans that mirror the organization’s operational capabilities and goals.

This close integration has resulted in some organizations giving the CFO direct responsibility for the supply chain function. Companies seeking a way to get control of working capital and see further into the future would do well to take a close look at their supply chain. It just might provide the secret weapon they need to stay ahead of both the competition and the market.

This can be enabled by combining analytics capabilities with industry expertise, operations design capability, and technology to drive “industrialized” analytics that enables the foundation for Data-to-Action AnalyticsSM driven business processes, and make them the cornerstone of Intelligent OperationsSM. This can be achieved by a three-pronged approach to:

• Enable companies to re-think their business processes with analytics in mind, driving an intelligent process insights engine

• Create a practical foundation for the information and advanced organizational structures, efficiently harness resources

• Orchestrate intelligent operations end-to-end for maximum effectiveness.

How better supply chain decisions can generate impact across the organizationReal-world challenges that our clients have resolved:

A global wind turbine manufacturer in India lowered its purchase price by 8% through analytical models that enabled better forecasting of the raw material costs to drive better sourcing decisions.

A major aviation company reduced raw materials inventory by 48% (from $60 million to $31 million) in seven months by utilizing analytics to optimize carrying and transaction costs.

about Genpact

Genpact (NYSE: G) stands for “generating business impact.” We design, transform, and run intelligent business operations including those that are complex and specific to a set of chosen industries. The result is advanced operating models that support growth and manage cost, risk, and compliance across a range of functions such as finance and procurement, financial services account servicing, claims management, regulatory affairs, and industrial asset optimization. Our Smart Enterprise Processes (SEPSM) proprietary framework helps companies reimagine how they operate by integrating effective Systems of EngagementTM, core IT, and Data-to-Action AnalyticsSM. Our hundreds of long-term clients include more than one-fourth of the Fortune Global 500. We have grown to over 68,000 people in 25 countries with key management and a corporate office in New York City. Behind our passion for process and operational excellence is the Lean and Six Sigma heritage of a former General Electric division that has served GE businesses for more than 16 years.

For more information, contact, analytics.marketing@genpact.com and visit www.genpact.com/home/solutions/analytics-research/industrial-

manufacturing-and-technical-services/supply-chain-decision-services

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