CFOs Tackle Supply Chain
Thomas C Schleifer, Ph.D.
Welcome to 2023. The turning of the calendar page is an artifice that has taken on unrealistic significance. We’re all happy 2022 is over and believe that 2023 will be a “new year”. In business, that of course is nonsense. Life unfolds in a continuum of cause and effect from one day to the next. What happens in 2023 will be a result of what we did in 2022; no more, no less.
2022 Challenges Persist in 2023
Double digit cost inflation, supply chain problems, and a shortage of skilled labor will still haunt the construction industry in 2023. It only remains to be seen if an industry recession will develop to compound the felony. Construction industry leaders have not yet found solutions to these problems. Most consider all three to be macro-economic developments that they are powerless to change. If a recession materializes as well, contractors put it down to the Fed raising interest rates and are resigned to “grin and bear it.” Therefore, the four major threats to profitability that loom over our industry in 2023 (Inflation, Recession, Labor Shortage, and Supply Shortages due to snags in the supply chain) will continue to threaten the health of our balance sheets by seriously diminishing cash flow, and there’s little we can do to prevent it.
Supply Chain Risk
It’s no secret that supply chains have taken a beating over the past couple of years, a problem which has affected the finances of many companies. What people don’t understand is that if you take any producer of parts or materials (let’s say it has a 10-day delay) it can take over a year to get out of low inventory levels. Delays that last more than 30 days could mean years of low inventory, which in turn could cost our industry billions of dollars every time we can’t complete construction projects because we can’t get materials, parts, or tools and equipment. Even Congress is trying to address the problem in the new year, as US Sen. Marco Rubio and US Rep. Ro Khanna proposed new regulations that would make federal agencies identify the risks in US supply chains that could hurt domestic supply and national security.
Supply Chain Risk Mitigation
Supply-chain delays could change the way that construction company CFOs work with operations teams, bringing both closer than ever. Although CFOs can’t prevent supply shortages at the source or untangle the snags in the chain as supplies move from the producer to the end user, their training in data analytics does enable them to map the supply route and identify the potential snags that interrupt the supply of parts and materials.
Modern supply chain mapping is the process of engaging with companies and suppliers to document the exact source of every material, every process and every shipment involved in acquiring the goods necessary to build out a project. Accurate supply chain mapping only became possible with the rise of online maps and the social web. The first online supply chain mapping platform was developed at the Massachusetts Institute of Technology in 2008. From the beginning it was clear that online supply chain mapping had several key advantages.
- Find out what your supply chain looks like using visualizations designed to give your team rapid insights into your end-to-end supply chain.
- Identify the suppliers you didn’t know you had by mapping your sub-tier supply chain using the most powerful, secure, easy-to-use supplier discovery software.
- Measure risk using advanced geo-analytics to automatically assess supply chain risk exposure using best-available heat maps and built-in GIS processing.
Note: Many readers may not be familiar with these new processes. Supply Chain Mapping is only possible when using software that accomplishes the complex task as the user simply plugs and plays canned software that is now available.
- Manage continuous improvement for direct and indirect suppliers through automated data collection, scoring and interactive dashboards.
- Trace every product from raw material to finished good by tracking and tracing every transaction from farm to factory using available secure mobile and cloud technology.
- Enable design specification alterations to comply with available parts and materials before final plans are executed.
Although construction companies were caught off guard in 2022, the good news is that if CFOs embrace supply-chain technology, risk management could be significantly improved and save costs throughout 2023.
- Onshoring, or bringing supply chains closer to home, is another tactic some companies have turned to as a way to get around closed ports or factories in other countries. (Apple, for example, announced that it would be moving chip production from China to Arizona to a new $40 billion TSMC plant.)
- Construction company CFOs are also considering building redundancy into their supply chains in 2023—which basically means having a warehouse of product in case one link in its supply chain goes offline or is disrupted. A survey by global consulting firm Protiviti found that 45% of CFOs surveyed are moving away from “low-cost, just in time” supply-chain models.
CFOs and Operations
I am not suggesting that this is the complete answer to the supply chain problems that will continue to haunt the construction industry in 2023. I am, however, suggesting that the construction industry needs to see the role of the CFO in an entirely new light. If the CFO works more closely with operations, we should be able to address the complex problem of parts and material shortages that threaten profitability in 2023.
For a deeper look into The many roles of a Chief Financial Officer , read more here: CFO
For a broader view into risk management read more here: RISK MANAGEMENT
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