Financial Leadership in Manufacturing: Five things a CFO should be thinking about

A recent report by Sage, CFO 3.0 – digital transformation beyond financial management on the evolving role of the finance function, highlights that 93% of finance professionals believe their role has changed in the past five years, with 67% stating they now perceive themselves as strategic advisers rather than leaders responsible for compliance and accounting. Over half attributed this change to the digitalisation of the industry creating a new era of customer expectations.

The report found that while cloud adoption is high in Australia, CFOs are not fully leveraging the capabilities of financial management technology. As CFOs face a more automated future, they have a new opportunity to propel digital transformation into the wider business.

Becoming an agent of change is a big leap from the traditional role of the CFO. But as the world becomes smaller and customer demands become bigger, becoming the CEO’s strategic partner isn’t a bad place to be. Here are five things I think we need to bear in mind:

Impact of globalisation

Globalisation has brought many benefits to manufacturers. From access to new markets to the ability to scout for the best resources and components from across the world. Free-trade agreements allow companies in different nations to establish lucrative deals with each other without government interference. However, as good as these benefits are for manufacturers, they pose interesting challenges when it comes to financial reporting standards.

There are, of course, universally recognised processes such as the International Financial Reporting Standards and International Standards on Auditing, but these are not mandated across the world – notably in the US. As a result, CFOs and their teams are challenged to understand not only the regulations in their own countries but those of every country they do business with, or at least make provision for the differences.

Working with affiliates in local markets who have a native understanding of regulation will help mitigate against these risks. These affiliates can take the burden of managing regulation to identify differences, freeing the CFO to focus on providing advice and positioning the business for growth.

Driving investments

It can be easy to get distracted by vanity projects that add little value to the manufacturing process and the bottom line, but the CFO’s knowledge and pragmatism can be an effective guard against this. CFOs can use their insight into operating spend to guide investments in a way that boosts profits. As gatekeepers to investment, CFOs can use their position to make sure manufacturers prioritise opportunities that provide tangible benefits to the business. Not only will this bring the value added by the CFO to the fore, it will also foster an environment of mutually beneficial work and foster collaboration across the business.

Improving processes

While chief operating officers might be seen as the standard bearers for a company’s process management, CFOs also have a lot to contribute to improving processes. It is here that having access to data and a knowledge of cross-company processes will help dramatically.

For example, time to market is critical for manufacturers because of its impact on profitability and customer satisfaction. Any support CFOs can provide to remove production bottlenecks will go a long way to reducing costs and improving return on investment. Of course, there is a short-term impact of removing bottlenecks but in the longer term it will mean a healthier profit, loyal customers and wider job security.

The real value of going digital

From improving compliance and reducing red tape to addressing customer demands, moving from disparate legacy systems to digital services not only saves money but also ensures systems are up to date and secure.

In compliance, ‘going digital’ allows the CFO to turn their discipline into a competitive advantage. Traditionally, compliance is often seen as a matter of defensive discipline, but going digital allows CFOs to handle compliance on the front foot. It puts them in a better position to prioritise based on the level of work involved in addressing each issue, as well as emphasising aspects that provide the biggest advantage. Digitalisation also enables every department to share the same information at the same time, so they can leverage each other’s insights.

A tiered approach is probably the best way to embrace digital transformation. This will enable CFOs to balance CAPEX against OPEX, while ensuring new systems up for procurement are most suitable for the company.

To automate or not to automate

Automation is nothing new in manufacturing. But the rise of smart software and AI means future automation is likely to be as disruptive to the industry as the robotic assembly line was.

While the idea of fully autonomous factories might be appealing to productivity-oriented CEOs, the reality is that AI systems and robots still need significant human input, oversight and maintenance, which requires the right skills.

Balancing the cost saving and productivity gains against ethics is a challenge we will see gaining prevalence, as the temptation to replace humans with robotic colleagues increases. Although tempting, when reviewed against the bottom line, there are costs associated that aren’t always financial. Finding this equilibrium will be the role of the CFO and their peers.

Brining AI into the CFO’s office can offer huge benefits, working in the background to help identify and flag anomalies that might otherwise go undetected. Imagine if your finance system could send you a workflow message as you were about to accidentally pay a supplier twice, or if an employee was spending outside their remit. Having this support from a machine can free up the CFO and their team to get more involved in becoming agents for change – using the time saved to steer the business towards profit, efficiency and the future.

Automation might be viewed as something that threatens manufacturing jobs, but CFOs should be mindful of its potential to augment the work of human staff rather than replace them.

The manufacturing industry is constantly evolving and the pressures on CFOs in this space will only increase over time. Viewing change as an opportunity will provide CFOs with a competitive advantage. Being proactive and moving the business towards longer-term challenges will not only ensure their department is viewed as an agent of change but can also help their company hits the high notes in a challenging and competitive industry.

Gary Katzeff is General Manager – ERP for Sage Australia and New Zealand

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