Finance- Moving Logistics Forward
by Mr. P. S. Kasi Viswanathan, Chief Financial Officer.
Traditionally, Finance and Logistics have been two distinct and independent roles. While Logistics would like to hold inventory to serve customers better, finance would want to unlock cash stuck in inventory holding.
In today’s VUCA world, logistics has broadened to encompass supply chain management and is seen as complete delivery of goods from one end to the other. Finance too has a more difficult task of cash flow management.
Therefore, Finance and Logistics are inter-dependent and Accounting & Finance department is an enabling function more so in Logistics Industry. While the integration of material and information flows within the supply chain is widely practiced, Supply chain management should also bear in mind cash flows as well as the implications of the financial side of business activities.
Realizing unused opportunities for cost reductions
Supply chain and logistics costs can impact the company’s bottom line in a big way which can be both positive and negative. Whether it is auditing freight bills and discovering billing errors, involving accounting in supply chain is important. Budgeting, costing, negotiating contracts with carriers and other service providers, and managing parcel shipping to include service failure refunds all typically involve accounting and finance personnel. In addition, many companies struggle allocating freight and transportation costs accurately to the right locations, department, or general ledger code.
Finance can play a big advisory role on how logistics costs could be lowered and make supply chain cost-effective, yet again establishing how finance and logistics complement each other. Considerable cost reductions can also be achieved through optimally designed financial flows within the chain. Finance can effectively support any E&O and Inventory reduction initiatives by creating provisions for dead inventory, identify cost elements which impact or even stock accuracy. Savings due to minimized stock levels may easily be offset by the costs to finance the remaining inventory. Inventory carrying costs do not only comprise of financing costs but also of costs associated with taking credit risks upon sale and taking out insurance. Finance and accounting should provide simple and timely information which can empower supply chain managers to take better decisions.
A mutual understanding between finance manager and supply chain manager can lead to an improved performance in both the functions. If the SOP process is running smoothly then the data provided by SCM can lead to better profit planning by finance team. The finance team can be a great help during budgeting process, guiding on how to use input data and validate the same for creating forward budget.
The role of the financial professional is moving away from being a bookkeeper to becoming a strategic partner with supply chain managers.
ProConnect believes this philosophy and brings out the value proposition to its customers by efficiently managing their logistics requirement.