Max HenryFounder & Executive Director, Global Supply Chain Council (GSCC) · Founder & Executive Director at Global Supply Chain Council (GSCC)

Supply Chain Decisions: Cost of Capital Impact #shorts

30 Dec 2025 · 1 min

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1:22

In this short, the speaker argues that large organizations often have siloed supply‑chain and finance functions, leaving a gap in understanding the financial consequences of supply‑chain choices. He highlights the role of business managers and finance/treasury teams as bridges that translate the cost‑of‑capital implications of actions such as offering special payment terms or supplier financing. He cites Caterpillar’s practice of applying a cost‑of‑capital charge to every business unit, ensuring profitability is measured after accounting for capital costs, which drives more disciplined decision‑making. The speaker concludes that for global purchasing and supply‑chain teams to align with suppliers, they must fully grasp the cost implications of their financing decisions.

Chapters

In my opinion, I kind of diverge a little bit here from the panel. What I've seen is that in larger organizations, the work is so siloed that supply chain doesn't necessarily talk to finance, you know, and it's usually the bridge that is addressing some of these challenges is usually the business manager or the finance group that works with the operations, the supply chain people, and with the treasury teams. to make sure that they understand the importance of, you know, if they want to offer special terms to suppliers or they want to offer supplier financing, what it'll, you know, what will be the impact of those decisions to the business. And one of the things that Caterpillar did very well was to include a cost of capital charge to all businesses. So at the end of the day, that any profitability was determined post the cost of capital that the business utilized. And that drove a lot of decision-making. So I think in order to ensure that the global purchasing organizations or the supply chain organizations understand the importance of the decision-making that they're taking on supporting their suppliers, they must also understand the cost involved with it. And that element needs to be understood very well in order to bring them all on the same table and understanding.