Accomplishing more with less
For senior executives, reining in costs during the downturn requires some novel strategies
Inflation promises to persist for most of 2023, and recession remains a possibility for the latter half of the year. And, despite conventional wisdom that inflationary conditions should lessen staffing and wage pressures in some industries, talent shortages seem to be a long-term challenge as well. In this environment, C-suite executives tell KPMG they are looking at a variety of strategies to protect their margins. These include getting more efficiencies from the existing workforce, integrating digital tools to realize efficiencies, renegotiating supply contracts, and rethinking capital expenses.
C-suite strategies to navigate in the current environment
- Train and upskill the current workers
- Pursue advanced technology projects with rapid returns
- Digitalize and onshore select supply chain functions
- Prioritize capital expenditures
Finding balance in staffing strategies
C-suite executives are looking at everything from automation to workforce transformation to upskilling to enhance productivity without increasing staffing costs. “Although we are already down six percent on headcount, we need to try to do more with less. Our current staff now does more vendor management, handles inventory management, and takes on extra shifts,” says one Chief Supply Chain Officer (CSCO).
Despite extensive job cuts in Big Tech, some senior executives in other industries are trying to take a more judicious approach to layoffs. They are reluctant to lose employees who were so difficult to find in the first place. According to one life sciences CFO, “Given shortages, we are trying to hold off on layoffs and are looking at hiring freezes instead.” A hospital CFO echoed this sentiment: “As a nonprofit, we are not a big fan of layoffs. Instead, we are using digital automation strategically to reduce the need for non-clinical labor. And, ultimately, we are using organic attrition and turnover to rightsize our organization.”
Letting technology do the work
When talent isn’t available for certain positions, some companies are looking at automation and digitalization for more cost-effective solutions to certain needs. For example, life sciences companies are discovering they can conduct remote clinical trials using digital technologies at a fraction of the cost of in-person trials. And some companies are using Cloud computing to gain real-time visibility into inventory levels and delivery times, so they don’t contract for more product than is currently needed.
Results vary from the subtle to the dramatic. According to one food industry CFO: “We are instituting more robotic process automation within certain areas, like finance. The savings aren’t huge, but we can eliminate or repurpose five or 10 positions.” Others are seeing more significant cost savings. For example, one healthcare CFO said: “We are taking great pains to match demand signals with patients coming in. This should help us blunt the impact of inflation to the organization until better times are here.”
Carl Carande, KPMG Advisory Vice Chair and International Global Head of Advisory, validated these approaches: “Since belt tightening is the name of the game, companies need to look at rapid wins on value realization. You don’t need to build a five-year technology transformation program if you can get value realization in 18 months.”
In the face of the economic downturn, there are opportunities to use out-of-the box thinking to improve margins and accomplish more with less.
Reimagining the supply chain
In the face of continuing supply chain disruption and uncertainty, many senior executives said they are getting more aggressive about reining in supply chain costs. “Transportation, warehousing, distribution. We are looking at all of it now,” said one food industry CFO. “We have to prepare for the fact that, while inflation may slow, it’s not going away any time soon.” Another CFO echoed these concerns: “Even though we’ve been on a growth trajectory as an essential business during COVID, we are now amazed to see how many aspects of the supply chain are impacted by inflation. We are aggressively renegotiating contracts with our existing suppliers.”
Kenneth Kim of KPMG Economics advised senior executives struggling with elevated supply chain costs to consider reshoring and nearshoring in response to rising manufacturing prices in China and Southeast Asia. “For many companies, sourcing supplies nearer to home may be a viable financial decision, as well as a way to circumvent some of the current supply chain disruptions and delays.”
Tom Griffin, KPMG healthcare supply chain leader, advises companies to take a strategic approach to matching inventory levels with demand: “The cost of capital is coming back into the conversation. For a long time, cash was cheap. You could buy inventory and keep it on the shelf. Now, it is important to decide how much cash to lock up in supplies and for how long.”
Reining in capital expenses
Many senior executives have had to cancel or reprioritize planned CapEx investments, such as upgrading aging physical plants, making ERP upgrades, and adding cutting-edge CRM systems. In the meantime, it is critical to take stock of the CapEx investments a company already has in play. According to Bill Timmins, managing director, KPMG C&O health and government practice: “Tracking equipment lifecycles with enterprise asset management can result in the elimination of millions of dollars in costs. It’s also important to analyze workflows to minimize lease costs, leverage automation for repeatable tasks, and explore joint ventures and commercialization of capabilities as part of a comprehensive cost-containment strategy.”
A food industry CFO summed up the cost concerns that are shared across industries and throughout the C-suite in the current economic environment: “Inflation helps our top line, but it’s not coming through on margins. We need to find new ways to cut expenses.”
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