ThinkTWENTY20

According to an article on FAC’s Knowledge Gateway, posted April 29, we are “at a critical moment for the climate agenda, the current business environment is characterized by high inflation and supply chain challenges and geopolitical and macroeconomic uncertainty.” At its March meeting, the IFAC Professional Accountants in Business Advisory Group shared insights on the implications of these realities for CFOs and finance functions.

Inflation rates and inflationary pressures in most major economies have reached levels not seen in 40 years or more. Once in a generation challenges present new market realities with risks and opportunities arising from:

• Legacy supply chain and capacity issues from the pandemic and systematic lack of investment in many commodity and supply chains;
• Inflation leading to an increase in prices of goods, services and assets in many economies. Price pressure is driven by:
  • De-globalization shifts arising from war in Ukraine and its impact on global supply chains including the effects of recent sanctions;
  • Energy security, independence, and transition to low-carbon economies; and
  • Significantly rising input (materials, commodities) prices and employee costs.

“These trends and issues,” says the article, “are greatly impacting market dynamics on the demand and supply side and are likely to be sustained for the short to medium-term at least.”

For CFOs and finance teams, responding to inflation and current market challenges is a priority that requires connecting different parts of organizations and providing insights that enable a business to continue to create and protect value.  Their co-pilot and value partner role can be captured in four key areas.

1. Understanding and keeping track of market dynamics: A great deal of external data is needed for planning and forecasting to provide predictive insights that support strategic and operational decisions.

2. Relationship management and collaboration: Being seen as a trusted value partner involves building relationships with relevant teams and external stakeholders.

3. Managing the impact of volatility: The CFO and finance team provides information and predictive insights to allow flexibility and agility. There is a heightened focus on improving forecasting and using predictive modeling analysis.

4. Procurement and supply chain challenges and reconfiguration: CFOs must work closely with their procurement and supply chain teams on targeted changes, reviewing existing contracts, and ensuring involvement in opex and capex decisions early in the process.

For the detailed action plan, see Accountants at the Center of Responding to Inflation and the Supply Chain Crunch | IFAC.