This article originally appeared on Forbes.com
In a topsy-turvy economic environment that continues to send mixed signals, many companies are finding novel ways to reduce costs while continuing to invest in long-term business transformation initiatives.
Before we get into how companies are managing to walk this tightrope, it’s worth talking about who the corporate leaders are that are guiding their companies across the highwire. At the forefront of the movement, you’ll find companies’ chief supply chain officers (CSCOs) and chief financial officers (CFOs). Increasingly, these C-suite execs are forming powerful partnerships to break down organizational silos and find new ways of doing business.
The timing couldn’t be better. Deloitte’s recent 2Q 2023 CFO Signals survey notes that only 34% of CFOs rated the current North American economy favorably, down from 40% in the prior quarter. They also have lower expectations of economic conditions improving within the next year.
It’s a strange time. The Fed continues to tinker with raising interest rates to control inflation while fears of a possible recession linger. And yet, despite everything, consumer spending is remarkably strong. Talk about a balancing act. How much do you tighten the belt? How much is too much?
More than half of the CFOs surveyed by Deloitte said their CEOs are asking them to focus on cost reduction. More than one-third said their CEOs want them focused on strategy/transformation, performance management, revenue growth, investment and capital/financing. And more than one-quarter noted their CEOs are asking them to focus on working capital efficiency and risk management.
In other words, walk the tightrope.
In this climate, CSCOs and CFOs working together is a great formula for achieving equilibrium. Why?
CSCOs are, by necessity, adept at operations. (In fact, in many companies the roles of COO and CSCO are merging.) Also, many CSCOs now wield greater organizational power and influence after being elevated as direct reports to the CEO in the wake of recent historic supply chain disruptions.
Pairing the CSCO skillset and remit with the financial savvy of CFOs makes for a powerful combination when it comes to balancing judicious spending with smart investments. Here are some of the changes underway:
A laser focus on ROI (in shorter timeframes). CFOs have stepped in to make decisions that used to be made by procurement departments. Together with CSCOs, CFOs are actively monitoring the ROI of every investment. That ROI doesn’t have to be astronomical, but it does need to be achievable in a relatively short timeframe, with an eye on cost reductions and operational efficiencies.
Restructuring contracts. This focus on near-term ROI is driving the restructuring of contracts away from long-term commitments. If the expected returns are realized, companies want out.
Manufacturing under the microscope. Companies are increasing their focus on making high-quality products while reducing waste in the manufacturing process. Working together, CFOs and CSCOs can optimize upstream suppliers and leverage logistics technology to keep manufacturing lines and labor operating at peak efficiency.
Breaking down the silos to find cross-functional efficiencies. Historically, the major component parts of supply chains — demand, supply, manufacturing, inventory, logistics — were managed in silos. Supply concerned itself with how to source products in the most cost-efficient manner. Manufacturing focused on efficiency, output and safety. Logistics mapped out how to get products to the right customer at the right time at the right place in the most cost-efficient way. There was precious little focus on the interconnectivity between these different functions and how inefficiency in one can impact another.
That’s changing. In the automotive and high-tech manufacturing sectors, for example, planners are analyzing commonalities in product lines in order to consolidate upstream processes and drive efficiencies in downstream product customization. Similarly, a greater focus on upstream supply pays dividends downstream in manufacturing and logistics by way of fewer defective products, reduced returns, etc.
And perhaps the most impactful opportunity of all might result from the tight coordination between supply planning and demand to optimize inventory carrying costs. Case-in-point: reducing the safety stock of top CPG companies by one percentage point would mean billions of dollars in savings.
It’s also critical to emphasize that achieving these kinds of cost reductions and efficiencies is only achievable by investing in supply chain technologies and sharing high-quality, free-flowing data across every company department (and with trusted external partners).
Ultimately, success in today’s volatile business environment is all about balance — a combination of cost optimization and smart investments that enable companies to do more with less. It’s a balancing act that more CSCOs and CFOs are navigating together, with aplomb.