Supply Chain and Finance share the same vision

In most Dutch enterprises’ supply chains, there is some kind of relationship between corporate strategy and inventory level targets. The supply chain and finance departments generally tend to agree on who should be determining optimum stock levels. Yet while these two departments consult regularly on this matter within most companies, only forty percent of them have formalised this in a Sales & Operations Planning (S&OP) process. Such are the most significant conclusions from a study of S&OP implementation among a total of 82 supply-chain and finance professionals in The Netherlands, which was initiated by S&V Management Consultants and ConQuaestor in collaboration with Supply Chain Movement magazine. The research has provided valuable insights into how both finance and supply chain departments view working capital management in relation to S&OP.

Financial performance
The study has shown that Key Performance Indicators for supply chain and financial performance are to some extent interlinked. With scores of 65 and 61 percent respectively, stock levels and delivery reliability (On Time In Full) score the highest as KPIs on which supply chain managers’ bonuses are based; 50 percent of the respondents said their bonus was based on achieving logistics costs targets.
Factors such as the reliability of sales forecasts or stock levels are not usually included in bonus targets for the sales department. Since many companies assign the specific supply chain costs either incorrectly or not at all, there is insufficient motivation for the sales department to become involved in the S&OP process.
According to this research, it is often unclear which management information is considered essential, and that its reliability cannot always be guaranteed. Twelve percent of the respondents said that the information requirements had not been defined and 36 percent indicated that this topic resulted in frequent discussions which were usually resolved by consensus. Only 11 percent of the companies has a formalised department that safeguards the quality of management information.

Determining optimal stock levels

Jointly, but led by the Supply Chain department  62%
Jointly, but led by the Finance department  17%
Supply Chain department has carte blanche  15%
Finance department determines maximum levels  6%

Source: S&V, ConQuaestor & Supply Chain Movement (2011)