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CFOs across sectors are expected to step up their oversight of supply chain management in the coming months as they seek to gain more control over spending and prevent cost slippages, writes Raja Sahulhameed of engineering consultancy Hatch.
The Australian Consumer Price Index (CPI) in mining, manufacturing, construction and services rose by 5.6 percent from June 2021 to June 2022. This is the largest increase since 2008 in the wake of the global financial crisis.
Constraints in the supply of construction materials and metals, declines in global oil supplies, high transportation costs and labor shortages are contributing to uncertainty in the planning and delivery of megaprojects. As a result, I believe CFOs will become more involved in supply chain management out of necessity in today’s volatile, inflated cost market.
CFOs have traditionally provided the market with a fixed cost of capital when calculating project value. But they must begin to normalize the concept of communicating variable project costs to stakeholders—and they will need to manage ongoing cost expectations by overseeing supply chain management.
The costs of megaprojects are increasingly difficult to estimate, causing budget shortfalls. Analysis by the Grattan Institute shows that governments in Australia have spent $34 billion more on transport infrastructure than originally estimated, and that there has been a 21% shortfall in the total cost of projects over $20 million over the past 20 years.
This is a clear example of the need for CFOs to be involved in managing the cost of inflation through better communication with stakeholders across supply channels.
Decarbonisation will have another driving influence on the role of the CFO. As sustainability and net zero targets are at the forefront of the mining and minerals industry’s key priorities, CFOs are becoming more actively involved in their supply chains to also gain more control over production processes and materials.
Export earnings from Australian lithium concentrate exports increased by 1,189 per cent in the year to June 2022. These astronomical price increases lead to CFOs directly engaging with their suppliers and customers.
For example, Elon Musk recently announced the possibility of Tesla getting directly involved in mining and refining lithium because the cost of the metal – a key component in battery production – is so high. Similarly, Liontown Resources, an emerging producer of battery minerals in Western Australia, recently signed deals to supply lithium concentrate to Tesla and Ford.
The long-term trend I foresee is the involvement of CFOs throughout the entire project value chain. This will include purchasing and supply chain policies. It will be a strategic advantage for organizations to ensure that cost expectations are met and the entire supply chain is green or carbon neutral.
At Hatch, we help C-suite executives of leading public and private organizations solve the complex business and technical challenges facing the metals and mining, energy and infrastructure sectors. Our multidisciplinary team of consultants, industry experts and operations leaders work with clients to develop strategy, prioritize and optimize capital investments, execute large-scale growth and energy transformation projects, and improve supply chain and operations.
About the author
Raja Sahulhameed is the West Australian Director of Hatch Consulting, an award-winning firm specializing in the delivery of engineering, operations and development projects in the metals, energy and infrastructure industries. Sahulhameed has more than 10 years of experience in management consulting firms, including McKinsey & Company in the United Arab Emirates, United States and Australia.
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