In their recent report, “Recession: How will you play to win?“, Deloitte identified the challenges facing CFOs in the current economic climate and created solution “playbooks” full of strategies for each area. The authors broke out the threats in a logical, largely chronological, way that includes sections on the credit crisis,  downturn, recovery and ongoing risk management.

The interesting twist to the report is the overall tone, which paints the recession as an opportunity for companies to clean up their processes and relationships in order to better prepare themselves for the post-recession environment. In other words, it’s a “buyer’s market” for those willing and able to act, and spend management strategies will help companies survive now and prosper in the (imminent?) rebound.

Where do Deloitte’s experts see the challenges…and more importantly…how do they propose CFOs minimize the risk?

• “Monitor & manage receivables” - Identifying and utilizing the cash often locked in receivables is obviously something we feel pretty strongly about. If liquidity is a problem for your company, you need to explore your supply chain finance options before turning to more drastic cost cutting measures, many of which, such as layoffs, can put you in a bind when the economy picks up again. But, this segment of the report fails to mention the danger that simply “extending terms of payments to suppliers” can pose to your key suppliers, an odd omission given that the next point in their playbook is…
• “Work closely with suppliers” - Citing Ford as an example, Deloitte reminds CFOs how fragile a supply chain can be if the weakest link fails (an increasing threat at this point, particularly in the auto industry, where the OESA says 92% of Tier 1 suppliers believe one or more of their direct suppliers will declare bankruptcy in the next 6 months). As with your own company’s liquidity, your key suppliers’ cash flow can be a make or break issue right now. So work with them to identify and correct potential problems before it’s too late. And although Deloitte didn’t mention it, working with your suppliers to nurture their costs savings innovations - as Tata Motors did with the Nano - can be a great way to strengthen relationships, improve products and cut costs.
• “Procurement” - Citing market conditions across indirect and direct categories, Deloitte urges CFOs to empower their procurement team to “buy options and forward contracts at low prices.” Notably, they also encourage the use of reverse auctions as “a particularly useful tool for commodity sectors.” Great news for procurement professionals, their visibility in the organization and, possibly even, career prospects.
• “Currency fluctuations” - Among the many risks CFOs must protect their organizations from is fluctuations in currency, a danger that is largely out of their control, yet poses massive financial risk to global companies. One strategy that is gaining adoption is hedging against fluctuations by sharing the risk with your suppliers. Typically this involves building triggers into pricing contacts so that adjustments are made when exchange rates go above/below certain thresholds.

CFOs and procurement have been thrust into the spotlight. But as Deloitte showed, it’s an opportunity to prepare the company for the future, and there are many tools and strategies that can help.

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.