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Our Guide for Supply Chain Cost Assurance

Research by: Ekjot Sodhi & Valeria Bustamante Papa

 

Cost assurance professional

 

Supply chain Overview


The supply chain includes the company-wide systems, activities and steps involved in the supply of goods or services to businesses and customers. This may involve strategic procurement, a company-wide process that entails sourcing goods and services from selected supply chain channels or a competitive shortlist list of suppliers at the lowest possible total cost to achieve organisational goals.


For today's marketplace, sophisticated supply chains are necessary to ensure that final products and services reach consumers on time and sometimes this means in minutes. An effective supply chain can be developed by building strategic relationships with suppliers. This will help ensure that businesses are proactive in identifying and managing emerging risks, and are more adaptive and transparent for supply chain assurance and resilience.


Furthermore, there are complex risks that business ecosystems must now capture and mitigate such as net-zero targets, carbon cost reporting, how sustainable and ethical the supply chain is, modern day slavery, money laundering and compliance with import-export and financial regulations by jurisdiction.


"There is a need to improve supply chain resilience to minimise risks that are disruptive, that can result in reputational damage to businesses and significantly impact cost assurance".


Supply Chain

 

Key Risks


Supply chains are expanding at local national and international levels, which comes with a variety of challenges, risks and rising consumer costs. Many businesses reported supply chain problems at the end of summer 2021. In a survey from the Confederation of British Industry, business stock levels were at their lowest levels since 1983. An Office of National Statistics (ONS) survey also reported that 23% of UK firms could not obtain goods and services from the EU and 15% could not obtain goods from the UK. As a result, various supply chain costs can be mitigated when issues are detected at the early stages and where intelligence is shared in such a way that mitigating measures can be undertaken.


Examples of risks that can be mitigated include:

  • Preventing malicious cyber attacks

  • Building financial resilience

  • Impact of economic changes

  • Ownership of costs from regulatory compliance issues

  • Weather and natural disasters

  • Logistics transportation and cargo

  • Sustainability and ESG Governance

  • Environmental regulations to address climate change

  • Scarcity and increasing cost of raw materials

  • Contractual disputes

  • Ownership of unforeseen risks and costs

  • Damaged reputation



 

Emerging Risks


In today’s competitive business environment, strategic partnerships and alliances across the supply chain are key to success. Businesses benefit from better coordination and integration of operations with suppliers, and improved understanding of the client and consumer requirements. Complex markets mean that businesses are competing, seeking to reduce costs while also raising quality to meet demand. As a result customer satisfaction is increasingly a top priority for businesses and an effective supply chain is one way to attain this. Rising expectations of delivery to cost, quality and time remain key project challenges.

Today, sector competitiveness, increasing raw material costs and consumer demand for sustainability and ESG (environment, social and governance) factors are new sources of risk and uncertainty that are negatively impacting businesses These can be mitigated by strategic collaboration and alliances with key suppliers. To remain cost-efficient, businesses require innovative strategies and protocols for risks that will arise across the supply chain.


"Understanding actual cost across the supply chain is crucial, but how many businesses are confident that costs are incurred sustainably, contractually accurate, captured correctly with records and accurately reported for improved commercial and financial decisions."



 

Evidence 1

Weaknesses in managing supply chain risks

Evidence 1 from Mckinsey shows how a company manifests vulnerabilities in the business ecosystem. There are two risk factors that can escalate to supply chain risks. First is the vulnerabilities that are seen in processes like financial resilience, logistics and complexity of a business' suppliers network. The second is the level of unforeseen events that can further escalate the first risk factors as shown above. From the graph financial resilience is one of the key factors that can be considered as a weakness in measuring the vulnerabilities of the supply chain process. This is due to poor financial planning maturity and capability of the supply chain network. It can be stated that financial resilience is of primary importance because where this is eroded then naturally the impact of all other risks will be magnified.


"Other areas of vulnerability in the supply chain include natural disasters, economic shocks, malicious cyberattacks and other suppliers that are lacking in resilience. An example is the Covid-19 pandemic that affected the global supply and demand for goods at all levels".

 

Evidence 2


According to evidence from Statista, A survey conducted in 2021 revealed that over half of supply chain professionals have complained about how supply chain disruptions and shortages were highly challenging for them.


"From a recent 2021 survey, demand-side challenges, such as faster response times (a USP of Amazon), were cited among the most difficult challenges that supply chain companies face".

Supply chain disruptions in COVID-19 pandemic

 

Evidence 3


In a 2020 survey by Statista, the respondents identified a range of catastrophic, serious, major, limited or no impact effects on their supply chain as a result of the global coronavirus (COVID-19) pandemic. The results indicate that 35% of respondents with more mature national and local supply chain structures confirmed that delays as a result of cross border transportation or supplier risks had a limited impact on their businesses.


"Businesses must evaluate the extent to which a global or local disruption like COVID-19 would negatively impact their supply chain. If so there are strategic decisions to be made to diversify the supply chain and mitigate such risk in future".


COVID-19 impact on supply chain

 

Independent Assurance


Supply chain risks can be devastating for businesses. This is often due to the ineffectiveness of controls in implementing strategy and operating activities. According to Mckinsey, at least one out of twenty companies suffer supply chain disruption that costs them at least $100 million on a global scale. For effectiveness in collaborating, partnering, and alliancing across a supply chain or ecosystem, it is important to align strategic business values like sustainability, digital adoption, profitability and risk appetite. One challenge is the differing levels of maturity and capability with commercial and financial controls that drive cost assurance. Supply chain weaknesses when compounded are extremely costly, and this has been worsened by the pandemic and recent global events. One way to ensure compliance with regulations and legal contractual cost requirements is to have an independent cost assurance team. CFBL Consulting has been responsible for developing and implementing a programme of effective audits to systematically review the supply chain and identify weaknesses and costly risks that can be mitigated early on.


Cost assurance on screen

 

Role of Cost Assurance


The risks above could lead to instabilities in the supply chain and uncontrolled escalating costs where no proactive action is taken on time. Supplier relationship is key to sharing data and intelligence that is critical for managing risks. Developing solid supply chain relationships is intrinsically related to supply chain management because it results in improved information sharing amongst suppliers and customers. However, it is vital that goals and values are aligned for strategic alliances to effectively drive cost assurance, information exchange, risk-sharing, and successful project or operational delivery. Businesses must identify the actual cost of supply chain operations. The challenge is the different levels of maturity and capability for cost assurance. This means that cost risks persist for investors, funders, and clients across the supply chain. For effectiveness, cost assurance must run smoothly and without complexity through the entire supply chain.


"Businesses no longer operate in silos but are complicated by supply chains and ecosystems with different levels of maturity of people, processes, systems and commercial or financial controls that drive cost assurance. This means that risks persist for investors, funders and clients. CFBL consulting helps manage cost risks across the supply chain"



Different currencies

 

References


 

What CFBL Consulting does?

CFBL consulting offers cost assurance audits and sustainable strategy consulting services. This includes an initial ESG assessment, X-ray view of actual costs to prevent or evidence greenwashing, impact reporting, payroll audit to safeguard equal pay and practical training on how to embed ESG KPIs into finance, commercial and project investment decisions. We identify, resolve, and follow through. By establishing ourselves as strategic partners, we govern and help implement sustainable strategies. Our roadmaps ensure that project plans are successful, as a result, we measure our success by yours.

 

Who We Work With and What We Do

Sustainability & ESG Strategy Tips - How can CFBL Consulting help

  • Developing and implementing sustainable business strategy for SME growth/scaling

  • Sustainability/ESG strategy: implementing, carbon measurement and benchmarking

  • HR/Payroll audit: Independent HR, payroll cost, pay-gap gender balance auditing

  • Sustainability & ESG: strategy implementation, carbon cost auditing/impact reporting

  • ESG Finance training: upskilling staff/supply chain on ESG KPIs in decision making

  • ESG protocols: training & designing controls, tools, and templates for ESG reporting

Infrastructure Projects - Tips & How can CFBL Consulting help

  • Cost assurance: implementing capex people, process, systems & controls

  • Protocols: training & designing project/contracts process, tools, templates

  • Independent cost audits: verifying actual/ defined cost on cost/open book contracts

  • Systems auditor: examining financial records, controls, and cost systems for integrity

  • Pre-audit diagnostic: identifying risks on cost-based/open book alliance contracts

  • Independent contract auditor role: Undertaking internal project/contract auditor role

  • Legal records: facilitating records for legal compliance on cost/open book contracts

  • Payroll audit: Independent HR, payroll, carbon cost, gender pay-gap/balance audit

  • Business case: Implementing capex strategy/developing investment business cases

  • ESG Finance training: upskilling staff/supply chain on ESG KPIs in decision making

  • ESG protocols: training & designing controls, tools, and templates for ESG reporting


SME Business Strategy -Tips & How can CFBL Consulting help

  • Scale-up investor funding pitch diagnostic assessment and recommendations

  • Developing a sustainable business plan for scaling-up, funding, and advisory

  • Developing/implementing strategy: sustainable business strategy for growth/scaling

  • 5-Yr Strategic business planning: financial statements, analysis for funding & grants

  • People training & upskilling: business and supply chain engagement and training

  • Independent Fintech/Transformation Advisory: minimising risk and optimising ROI

  • Capex Investments: optimising grants, funding R&D tax credits & capital allowances

  • Financial management: tax, planning & implementing financial controls for resilience

  • Finance business partnering providing strategic advice in financial decision making


Fintech & Digital Transformation Advisory - How can CFBL Consulting help

  • Commercial systems: advisory on commercial, contract, cost, audits & projects

  • Financial systems: advisory on financial, HR, management, and reporting systems

  • ESG KPI reporting: Insight and benchmarking for reporting and competitive edge

  • Independent advisory on payroll, project, contract, cost, audit and reporting software

  • Independent advisory on technology that best aligns to strategic goals benefit

  • Training: delivering case-based training, for buy-in to technology & staff upskilling


Steering Group (CSR) Outputs: Tips - How our Steering Group Experts help

 

Click to download our Reports


ESG metrics. KPI's. ESG reporting concept

A guide to building a more resilient business

 

Capital expenditures (CapEx) spending and investing

 

Past Blogs


ESG consultant reporting audit

Audit and Assurance of ESG KPIs


 


 

Governance & Assurance of Capex Spending

 

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