Supply chain risk moves up the CFO agenda

24 February 2012

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24 February 2012 | Adam Leach

Risk management, particularly of commodity volatility and supply chain disruption, is of increasing importance to CFOs.

Speaking on a panel at The Economist CFO Summit in London yesterday, Ed Ainsworth, managing director at 4C Associates, argued that with more companies failing as a result of the economic situation, and events such as the earthquake in Japan and the flooding in Thailand, an inability to obtain supplies is a greater risk to businesses. He also cautioned companies to think more about localised disruptions such as a fire at a supplier’s factory.

“One of the discussions I think businesses need to be having more is about the risks associated with working with other companies working in their supply base,” he said. “Typically most organisations have 60 per cent of their spend with suppliers.”

Wolfgang Kniese, CFO at T-Mobile Austria highlighted the need for companies to pay more attention to vendors further down the supply chain. “One of the things that we learnt is you have to look one step further than your own suppliers, because one of the consequences of Japan was that some of the handset manufacturers ran into problems. Of course usually we look at our vendors - not our vendor’s vendors - but if all your vendors have the same supply chain behind them then that is a huge risk,” he said.

Kniese added that as T-Mobile is more about infrastructure than cashflow, it is not necessarily as risk-exposed as companies in other sectors. But while that limits the amount of risk they have to worry about, it can put them at a disadvantage in possessing the capability to deal with it. To tackle this dilemma, he said: “I would look to get someone in from the production industry and have a procurement conversation with them about how they streamline production processes and manage procurement.”

According to Luca Zaramella, senior vice-president finance at Kraft Foods Europe, highlighted the need to have a flexible risk strategy that encompasses multiple factors.

“A corporate strategy never stands alone,” he said. “What we do is we take into consideration our commodities strategies and coverage, we take a look at our pricing ability and our competition and what they might or might not do, and we try to come up with a strategy that is flexible on all sides and minimises the risk.”

Asked by SM to reflect what the long-term impact of the disruption in Japan and Thailand would have on risk management in general, Zaramella said: “To never relax because what we have seen are commodities spiking dramatically and that is what is causing problems, so let’s make sure we keep our eye on the ball.”


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