Supply chain management is the process involved in handling the operational parts of a business.
The supply chain spans from the procurement of raw materials to the production and distribution of goods and services.
If you work in the manufacturing, automobile, raw material and heavy duty industries at a large scale, supply chain management is a major concern.
From basic logistics to software and digital product and service procurement, supply chain management ensures that your products get to the customers in good shape, quality and time.
However, supply chain management is almost impossible without financial planning and forecasting.
Every part of the supply chain requires finances to work.
So, in this blog, we’ll show you the importance of financial planning and forecasting education to supply chain management.
Specifically, you’ll learn:
- What is financial planning and forecasting education
- Components of financial planning for supply chain
- 5 importance of financial planning in supply chain management
We’ll start right away.
What is financial planning and forecasting education
Financial planning and forecasting education are ways to ensure funds are well distributed in business processes.
Financial planning involves budgeting, reviewing usual expenses and income and mapping out strategies to control cost and increase income.
Forecasting is looking forward in the future to predict and evaluate business financial needs based on already existing data.
Financial planning and forecasting are important business processes in the supply chain.
Finances are involved from the first stage of production which is the idea stage. Business capital is very vital for moving on to the next stage. In the United States, supply chain operations account for about 10% of the GDP which is almost $1 trillion.
Financial planning and forecasting education involves training workers on how to plan and project financial needs. It involves equipping them with the necessary information, skills, strategies and resources to plan for present and future financial needs.
This involves exposing them to market trends, teaching them to determine short and long term forecasts and adequate resource budgeting and management.
Educating workers on financial planning and forecasting isn’t only for the supply chain workers but for all employees in your firm.
Everyone would eventually reduce costs armed with that knowledge.
However, for supply chain management, forecasting education is mandatory.
Let’s now see what this education entails.
Components of financial planning for supply chain management
In every business, there are fixed costs and variable costs. Fixed costs are costs that are constantly needed to run your business. They include bills like taxes, insurance and salaries. .
Variable costs are those that can be reduced or increased depending on the required demand and supply. This includes maintenance, repair and fuel costs.
Financial planning and forecasting education mostly focuses on reducing the variable costs to increase profit and reduce expenditure.
Here are some components of financial planning and forecasting education you should focus on:
1. Inventory management
Inventories differ for different businesses. Depending on the kind of business you run, you should find out what inventory management method is suitable for you.
Inventory management simply means the storing, ordering and selling of your goods and services. It deals with how the raw materials for your production are procured and stored. The ultimate goal is operational efficiency.
Financial planning and forecasting for inventory management involves managing all your assets both digital and physical. This will include your perishable or non-perishable raw materials, fleets, plants, operation tools and everything else involved in your process.
Your inventory can be a risk and financial education is required to mitigate any happenstance like a destroyed inventory.
Teach workers how to store raw materials properly and account for each of them. Teach them how to use the software or platforms to analyse inventory. They also need to be educated on how to deal with overstocking and shortages.
2. Transportation and logistic costs
Transportation and logistics constitute one of the largest expenses businesses face. This begins from transportation to procure raw materials. After procurement, they’re transported to the warehouses and then to the manufacturing facilities.
These logistics costs can be reduced by employing sustainable transportation options. Use the Elysia battery intelligence software which gives you the ability to manage, optimise and enhance battery performance for your vehicles.
You have to plan to reduce fuel costs and energy expenditure to save money. Fleet managers and operation managers should work with their Chief financial officers to project logistics fixed cost and recurring costs.
3. Technology and software investments
Digital businesses invest in software for their supply chain. These software include fleet management software, budget tracking software, inventory management software and even collaboration tools.
Most of these tools require a premium or paid version to meet the functions of large scale companies. These packages are usually paid monthly or yearly and these costs should be included while drafting a budget.
Supply chain workers should be educated on finding the most cost effective softwares to use.
If you run an e-commerce business, you’ll also need to factor in the website costs and the delivery software.
4. Training programs for supply chain professionals
Incorporating financial education in supply chain education is a great way to organize these training sessions without having to spend money differently.
Since many workers take courses to learn about supply chain, you can put financial planning lessons in the curriculum.
Workers should learn about supply forecasting, demand forecasting, price forecasting and how to plan for price fluctuations.
Financial planning education is both an art and a science. This education will enable workers to implement effective forecasting armed with theorital education and a wealth of experience.
The existing data about supply, demand and fixed cost must be considered and analyzed to forecast future possibilities.
These components are a must-know for every supply chain team. But why?
Keep reading to find out why you should invest in financial planning and forecasting education.
Five importance of financial planning and forecasting education in supply chain management
The general needs of financial planning and forecasting makes education very important in supply chain management and overall business operations.
Here are a few specific importance.
1. Cost management and budgeting
With financial planning and forecasting, you’ll find out how to strategically budget for your fleet, how to adjust to changing needs in relation to available resources.
Cost control is very important in the supply chain and it is only achieved with financial planning and forecasting. Educating workers can help them draw up budgets while considering existing cost needs.
2. Risk mitigation and contingency planning
Potential risks can easily be identified based on existing data, projected financial trends and proper planning.
These risks may be in various forms. Inventory risks, stocking risks, distribution and production risks can all be foreseen with proper financial planning.
When these risks are identified, financial planning and forecasting enables them to be curbed early before they materialize.
3. Capital allocation for efficient supply chain operations
Capital allocation is very important especially when you’re starting out your company. Most often, the capital may be a lot more for the first few times as you may need to buy heavy duty machinery, tools and equipment for eventual production and delivery.
Allocating adequate capital will lead to efficient supply chain operations and will control costs in the long run. This involves an understanding of the marketing needs for a particular industry and the most cost effective way to meet those needs.
Financial planning and forecasting education makes the process a lot easier as it can be decentralized and can still work.
4. Adapting financial plans to changing market
With inflation, new trends and advances in technology, the market is constantly evolving.
Financial planning and forecasting helps you to foresee these changes and adapt to them. First, the nature of the market is properly studied to understand the usual course of demand and supply at different times of the year.
This information directs forecasters for inventory management, procurement of raw materials and risk contingencies.
5. Adapting to emerging technologies in financial planning
Education exposes your team to new software and technological tools that will ease the process of supply chain management.
There are lots of software that help in various stages of the supply chain. Your team can adapt to these emerging technologies when they’re educated. They learn to use a typical interface and can easily navigate subsequent tools.
With financial planning and forecasting education, work is seamless, production is more efficient and collaboration is made more effective.
Now, it’s time to wrap things up.
Over to you
Supply chain management for your business will be a lot easier if you invest in fincnacial planning and forecasting education.
The return on investment will greatly increase your profits, cut down expenses and lead to more sustainability in your business.
Start by drawing up a budget that includes an education budget for supply chain workers.
It is ideal to train every member of the supply chain team. However, if the training resources are limited, prioritize members of the team who handle the decision-making process in the supply chain management.
It’s your time to forecast future needs, plan your projects and take your supply chain to great heights.
