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Is Finance Ready for the Demands of Digital Supply Chains?

May 12, 2015
Emerging digital supply networks have the potential to drive massive value creation and generate new revenue. There is no question that CFOs should start focusing on this area.

Over the last 20 years, we have seen the globalization of supply chains in nearly every industry. Where once the U.S. automotive supply chain had followed a simple path from Detroit to Cleveland, it can now extend through Germany to Thailand, on to China and then back to the U.S. through Brazil.

This transformation has fundamentally changed the economics of doing business and has driven finance teams to define and adopt new accounting, control, risk management, planning and reporting processes that satisfy the regulations and requirements of today’s global world.

Central to this supply chain evolution is the power of digital. Put simply, technology has enabled the creation of extended global supply chains and also provided the tools, including e-commerce applications, enterprise resource planning (ERP) and sales and operational planning (S&OP) systems, to manage them effectively.

This transformation was not without risk: Companies operating in a global landscape were required to adapt to supply disruptions for all types of reasons—tsunamis, war, politics, nuclear accidents and even piracy. But the ability to increase productivity and drive down costs has made many companies assume these uncertainties in the hopes of improving performance.

Digital Supply Networks: Ushering in a New Era

Now, we are embarking on a new era of supply chain transformation that is giving rise to digital supply networks. From robots filling orders in Amazon’s distribution centers to 3-D printing allowing for the onsite production of spare parts, this new wave of supply chain evolution is likely to be at least equal to, if not more profound than, the changes brought about by globalization.

As companies consider the integration of digital supply networks to help realize their vision for a digital business, the transformation also serves as a catalyst for reconsidering what supply chain management can achieve. Specifically: How can supply chain management add value to the bottom line, given the possibilities with analytics, social media, cloud, 3-D printing and sensors?

The opportunities are great in these collaborative ecosystems that contain plug-and-play capacity for greater scalability, and let companies rapidly adjust their shipping, sourcing and other aspects of their supply chain.

Recent Accenture research indicates that the industrial Internet of Things (IoT)—one of the key elements of the digital supply chain—could drive $6.1 trillion of economic gains for the U.S. by 2030, equivalent to an additional 2.3% of GDP.

In fact, digital supply networks can help drive the revenue opportunity presented by the IoT as a result of improved connectivity, visibility and real-time information.

Digital Supply Networks Enter the CFO Agenda

So what does this mean for the CFO and the finance team? We see three major effects:

1. Release of working capital. The digital supply network promises to redefine the traditional measures of working capital efficiency. Each of the three main elements of working capital—payables, inventory and receivables—could be transformed as a result of digital supply networks as their connected nature delivers access to data that can be used to maintain a more efficient, effective and intelligent supply chain that responds rapidly to change. For example, 3-D printing can eliminate inventory; collaborative order processing can eliminate order, billing and shipping errors; and the digital supply network can eliminate payables disputes as a result of increased visibility at a centralized supply chain control tower which tracks all aspects of the supply chain.

2. Improved forecasting. Digital supply networks provide vastly superior insights as compared to the traditional supply chain because their connectivity helps them interact more fully across the business and with its ecosystems of suppliers, partners, delivery channels and customers. These vast new sources of rich, real-time data can dramatically improve forecasting, cash management and profitability analysis, even as the networks enable the supply chain scale operations up and down in response to changing market requirements.

3. New control philosophy. The digital supply network will make traditional back-end detective control processes obsolete as the network delivers greater transparency to analyze and track procurement, production and fulfillment. With such visibility, new digital supply networks will contribute to preventive controls and risk mitigation. The rapidity with which they will move in response to the dynamic business environment will also be a benefit to CFOs at a time when speed is becoming the currency of today’s digital businesses.

But is finance ready? Decades after the first computers appeared in the finance department, the primary tool of the finance professional is still the spreadsheet. And the average finance professional still spends the majority of his or her time assembling, organizing and validating data before even thinking about analyzing it. There is a need to digitize finance—only then can the function fully capitalize on the potential of the digital supply network.

There is no denying the power of emerging digital supply networks. They have the potential to drive massive value creation and generate new revenue. There is no question that CFOs should focus on this area—and the time to do so is now.

David Axson is managing director of Accenture Strategy, CFO & Enterprise Value. Gary Hanifan is managing director of Accenture Strategy, Operations.

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