What Every CFO Needs to Know About Supply Chains

(Originally published on DiCentral, March 9, 2021.)

In 2020,Center for Supply Chain Research at Lehigh University teamed with DiCentral to conduct a research study about supply chain digitization and its impact on financial performance. Zach Zacharia, executive director of the Lehigh Center for Supply Chain Research lead the effort surveying 125 CEOs and CFOs to dive deeper into how physical and financial supply chains affect corporate performance.

Download the Full Study Results.

WEBINAR: What Every CFO Needs to Know About Supply Chains (Watch it on demand.)

This research explores five key areas: 

     1. Revenue Recognition
     2. Digitization and Collaboration with Customers
     3. Digitization and Collaboration with Suppliers
     4. Electronic Payments
     5. Corporate to Bank Integration
 

Revenue Recognition

Companies have largely adopted one of three supply chain events to trigger revenue recognition in their ERP systems: Internally Estimated, Customer Initiated, or Carrier Initiated. 

• Internally Estimated: use the “pickup date and time” of goods from their shipping facility as the event that triggers revenue recognition.
• Customer Initiated: incorporates a supply chain signal from the customer as the event that triggers revenue recognition.
• Carrier Initiated: uses supply chain signals digitally received from transportation carriers as the event that triggers revenue recognition.

Each one of these methods holds its own set of advantages and disadvantages.  

Digitization and Collaboration with Customers

In this section of the study, we examined various supply chain segments that would be affected if further digitization and collaboration with customers were to occur. These include:

• Reducing the manual expense of paper transactions
• Improving DSO (Days Sales Outstanding)
• Improving cash collection

Digitization and Collaboration with Suppliers

We also explored the benefits of expanded digitization with suppliers. It greatly resembles the digitization and collaboration efforts with customers, with the primary difference being the strong correlation between orders and invoices. 

Electronic Payments

A large part of the digitization movement is the ability to send and accept electronic payments.  Jim Kaitz, president and chief executive officer of the Association of Financial Professionals (AFP), noted that “Treasury and finance professionals tend to stick with what works for them and their vendors,” but we have seen a decline in check usage, largely due to its inefficiency and high risk for fraud. Even those organizations that continue to write checks have implemented positive pay, an automated cash-management service used by financial institutions to deter check fraud.

Corporate to Bank Integration

For any organization looking to digitize its order-to-cash processes, digital integration with corporate banks plays a crucial role. The labor expense to manually enter data from bank portals into ERP systems is substantial and a relatively error-prone process. By improving internal processes and data integration with corporate banks, organizations can reduce this expense and improve data accuracy. 

Increasing cash forecast frequency directly correlates with the ease and efficiency by which organizations can reconcile internal data with external data maintained by the bank. 

The conclusions drawn from this study offer valuable industry benchmarks and insights into supply chain processes and their financial impact on an organization, benefiting those in the early stages of their supply chain collaboration journey as well as those in the late stages towards becoming fully digitized. Download the full research study to view all of the statistics that further support digitization as a means towards enhancing cash flow and overall financial position.

Dowload the full study now: What Every CFO Needs to Know About Chains. To hear more from Dr. Zach Zacharia, follow us on social and watch the webinar to learn more about this research study.