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  • Writer's picturePaula Waggoner-Aguilar

How CFO Services Can Help Mitigate Supply Chain Risks

Updated: Feb 4

One of the key lessons learned from the Covid pandemic and the subsequent economic, geopolitical, and labor uncertainties is the importance for organizations to establish more resilient supply chains. Many supply chain managers are actively seeking ways to mitigate supply chain risks by prioritizing the expansion of their company's supplier and service contractor network. However, locating reliable suppliers and service contractors in close proximity to operations can be a daunting task, especially when compared to larger, well-established "single sourced" counterparts. This presents an opportunity for supply chain managers to contribute to the enhancement of supplier resilience, which serves as the inspiration for this blog.


Supply Chain Management Ideas for Boosting Supplier Resilience
How CFO Services Can Help Boost Supplier Resilience

If you are involved in supply chain management, procurement, working with service contractors, or part of the accounts payable team, chances are that you have encountered some of the challenges that underscore the need to bolster supplier resilience:


  • Has your supplier or service contractor requested an earlier payment than the agreed terms and conditions? Perhaps their reasoning is that they are a smaller private company or a family-owned business with limited cash flow?

  • Have you received any complaints from your suppliers or service contractors stating that your company is slow in making payments, even though your payment terms are well within the average for your industry peers?

  • Has your supplier or service contractor expressed to you that they would be willing to takin on more of your business, BUT their working capital is too tight and your payment terms and conditions are just excessively long?


These situations are becoming increasingly common. Whether it’s a plea for early payment, a general grievance, or an explicit rejection of additional business due to your practices it places a significant amount of stress on your accounts payable team, procurement department, supply chain representatives, and the organization making these requests or declining further business opportunities.


Instead of becoming frustrated (which is completely understandable) and potentially jeopardizing future opportunities or harming your current supplier relationship, why not consider a fresh proposal to get you and your supplier back on the right path? In terms of costs, it should not require anything more than a small investment of time and effort. In terms of supply chain advantages, it has the potential to not only be highly effective in resolving the current issue, but more importantly, it can help enhance your supplier's resilience and elevate your supply chain relationship to a new level of collaboration.


CFO Services: Tools for Building Supplier Resilience

What is it? If they don't already have it, you can suggest introducing them to an experienced CFO Services firm that focuses on operational finance, risk management, cash management, and cash forecasting for small to medium private companies in your industry vertical (i.e. energy, oil and gas, renewables, chemicals, etc.). How can you find out if your supplier or service contractor has an experienced financial leader without directly asking? Most companies have a list of their officers on their website or on LinkedIn, so you can check if they have a CFO listed. If they don't, it might be worth considering offering to introduce them to a well-established CFO services provider. Why? Because you want them to have access to experienced financial leadership that can assist them in improving and developing their financial management capabilities, making them more adaptable and resilient when faced with challenging business environments. Your company relies on them, and you want them to thrive.


Perhaps you are not at ease with this proposal due to the fact that CFO services are not within your primary focus. That is perfectly fine. Why not seek assistance from your financial management team (as they are your business partners) in compiling a roster of three reputable and experienced CFO companies that provide Fractional CFO services? This list can then be shared with your vendors as a potential resource. This approach opens up an opportunity for collaboration, allowing them to work together with you to find ways to alleviate any difficulties and achieve great success for their own company (while the CFO companies may also benefit from being introduced to a prospective client).


The Energy CFO, for your information, has been operating for more than a decade and provides assistance to private companies in energy manufacturing, energy technology, and other related sectors.


How to Help Your Suppliers And Build Strong Supplier Relationships

How can you present this proposal? Maybe your discussion could sound something like this, “In our business, we frequently come across professional CFO services firms that specialize in providing services to companies like yours. Many businesses similar to yours choose to outsource their CFO services. These CFO firms often offer complimentary initial consultations, which could potentially lead to innovative solutions for shortening your cash business cycle, accelerating your collections, or enhancing your working capital, enabling us to expand our business relationship.


Would you be open to receiving three recommended contacts or scheduling a meeting, either in person or via Zoom, where I can introduce you? From there, you can conduct your own due diligence and evaluate them independently." Although it may seem a bit indirect, this approach is generally well-received and appreciated compared to a more direct approach. Finance is a sensitive topic for some individuals, which is why an indirect approach is preferred. A Fractional CFO can take charge from that point onward.


There may actually be a fairly simple solution to a common problem and it speaks volumes about how much you do care about the supplier, contractor, or vendor and demonstrates to them that you really do value the relationship. Likewise, you are also creating goodwill with professional firms you might not otherwise come in contact with. For those in procurement and the supply chain, you might also benefit in developing a relationship with industry experts who have local or domestic networks with small and middle market oilfield and drilling services, midstream and infrastructure, equipment, engineering, and construction companies that you don’t already know. Surprisingly many of these private companies don’t advertise and have been operating for many years via small closed networks of word-of-mouth referrals.


How CFO Services Benefits Suppliers And You

The Energy CFO team possesses a great deal of experience assisting energy product and service companies in enhancing their operational financial processes, cash management strategies, cash forecasting, planning and budgeting, and risk management. These aspects are crucial to running a profitable and competitive business. You want your supplier to have a healthy business and strong balance sheet so that they are more resilient in the face of uncertainty and change. A rising tide lifts all boats.


Business owners and executives seek our assistance for various reasons, including liquidity concerns. They may also require financial support to shift their focus towards sales or operations, or they may sense that something is amiss in their business without identifying the exact issue. Additionally, leadership teams often lack relevant and impactful information that can be translated into actionable insights or aid in decision-making. These challenges are common "growing pains" that we specialize in addressing.


Cash Management, Cash Forecasting, and Risk Mitigation

For instance, we assisted a large family-owned company involved in pipeline construction and maintenance, employing over 1,000 individuals. Our aim was to enhance their working capital and optimize their cash management and receivables practices. This was crucial in order to eliminate situations where the company faced difficulties in paying suppliers and service contractors and other vendors while waiting for payments from its customers for infrastructure projects. Such scenarios can place significant strain on a company's liquidity and the individual arbitrarily selecting who to pay first. We introduced tools and best practices for managing cash and working capital. We recommended changes to customer payment terms and project practices, introduced new contract vendor terms, improved the banking relationship and secured a 50% increase in the line of credit, and recommend guidelines and prioritization for situations when individuals have to make difficult payment decisions.   


Furthermore, we revamped their bid pricing model to include omitted costs that should be factored into bids and updated existing cost data (used as a basis for markup) that was more than two years old. This enabled us to address project losses and associated cash shortfalls, enhance the accuracy of pricing and related profitability projections for new projects, and facilitate more frequent updates to their cost structure by the project accountants. In all, the changes improved our client’s profitability on bid projects by more than 2% of the company’s gross revenues. Consequently, the company now operates with increased agility and resilience, thanks to the changes and tools we implemented.


Cash Forecasting and Bottom-Up Budgeting

Recently, we provided assistance to an upstream services company that was facing obstacles to growth and feeling frustrated by their inability to make progress. We promptly devised a plan to address their cash flow situation, as having access to cash was essential for their expansion plans. We introduced a 13-week cash forecast, which enabled the Controller and the company's leadership to accurately predict their sources of cash and how it would be utilized over the next three months. A 13-week cash flow forecast is a valuable tool utilized by many companies to facilitate discussions about cash planning with their leadership team. It enables them to anticipate potential shortfalls in cash flow from operations and take proactive measures to mitigate any financial pressure before it negatively impacts their operations. By using this forecast, they are able to avoid unexpected disruptions and maintain smooth business operations.

 

We also implemented a new approaching to budgeting called bottom-up budgeting. This involves analyzing key business drivers and using them to create a detailed proforma profit and loss statement and balance sheet in just a few days. By utilizing this method, we have significantly improved the accuracy of the client’s budgeting process, as well as enhanced their forecasting capabilities and financial visibility. As a result, we identified cost savings of approximately 2% of budgeted sales for the owners that could be redeployed to other areas of the business in support of meeting their growth targets for the year. These new tools along with the improved accuracy in cash and financial forecasting will aid in overcoming any obstacles and ultimately make better-informed decisions.


FRACTIONAL CFO BIO

Paula Waggoner-Aguilar is a a highly experienced CFO in both private company and corporate settings. She is also a Texas CPA and the founder and Managing CFO of The Energy CFO and its subsidiary, The Healthcare CFO. With an impressive career spanning more than 25 years in the oil and gas, energy, and industrial sectors, she has played a pivotal role in steering companies through various stages of development, growth, maturation, and transformation.


CFO Services Firm

The Energy CFO is a CFO services firm that specializes in helping private companies and family enterprises involved in all aspects of the energy, oil and gas, chemical, mining value chain. Our CFO team understands the unique challenges businesses in this industry face and is committed to providing tailored solutions designed to take companies to the next level.

 

Learn more about how our CFO Services can help boost your supplier’s resilience and mitigate risks in your supply chain. A rising tide lifts all boats. Contact us today for a free consultation. We offer affordable fractional CFO services and our client’s results speak for themselves!




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