With supply chains being destroyed and inflation continuing, many CFOs continue to hold the most pressing challenges of today, managing rising input costs while meeting customer price sensitivity.
Many companies are caught up in these opposing forces and can't raise prices without risking customer churn, says Neil Markani, Managing Director of Main Points, managing director of private equity and industrial. The key to navigating this complex environment is to increase operational productivity across the board.
Due to supply chain disruptions affecting all industries, implementing results-based pricing models tailored to customer demand and inventory levels can help improve margins and maintain operational productivity even in times of uncertainty. However, optimizing the supply chain is also essential by increasing network resilience and strengthening supplier relationships.
Malkani shared his ideas on how CFOs can effectively deal with this multifaceted challenge.
In which areas can companies be the most important Economic impact?
CFOs can drive significant economic impacts by improving operational productivity in areas such as pricing strategies, procurement and the overall supply chain.
In the case of procurement, companies that employ a data-driven approach to procurement and optimizing their supplier network can streamline costs, identify inefficiencies, and improve the final line. In the supply chain, analyzing the total cost of ownership allows CFOs to make more informed decisions about which suppliers are involved, ultimately leading to cost savings.
Optimizing your pricing strategy gives you immediate benefits. By shifting from traditional cost-plus pricing to a more refined, data-backed model, businesses can better understand their customer motivation and adjust pricing accordingly.
For example, the steel manufacturer we worked with could save $15 million a year, improving EBITDA by 6.7% in the first year by implementing index-based pricing and strategic sourcing.
This approach to pricing, procurement and supply chain management allows organizations to move beyond reactive cost-cutting measures to proactive value creation, driving long-term economic success.
Can you share real-world examples of these strategies dramatically improving efficiency and profitability?
A powerful, real-world example of how increasing operational productivity drives profitability is engagement with chemical manufacturing portfolio companies.
The organization focused on increasing exit assessments, but faced significant inefficiencies in procurement, logistics, and overall management of the entire supply chain. Data fragmentation across incompatible systems made it difficult to identify cost-saving opportunities, resulting in the company losing money from inefficiency.
We have been able to significantly reduce logistics costs by implementing a comprehensive strategy that integrates integrated suppliers, centralized warehouse operations and streamlined SKUs. Over just three months, the company achieved sustainable savings of 15% in over 20 categories.
These improvements resulted in an impressive ROI of 4:1 or higher. Once the company finally left, the ROI reached 20:1 based on a typical exit rating.
What is the most important way for a CFO to measure operational benefits?
CFOs should focus on often overlooked metrics that provide deeper insight into operational efficiency and long-term productivity.
These include metrics that track the direct impact of a particular strategic initiative.
- Operational efficiency ratio. They assess the relationship between cost reductions and productivity improvements, and clearly see how efficiently resources are being used to drive results.
- Real-time supply chain visibility. Leverage AI-driven analytics to provide the latest insights into inventory, demand and supplier performance.
- Supplier Performance. Monitoring the reliability and cost-effectiveness of suppliers ensures that companies are engaged with the best suppliers.
- Automation and AI Usage. Measuring the extent to which digital tools are used can help CFOs understand the direct impact of automation on productivity gains.
- Labor productivity analysis. Understanding labor efficiency and output allows CFOs to identify areas of improvement in labor management and operational processes.
How can CFOs maintain future businesses in the future against ongoing labor and supply chain disruptions?
Workforce shortages and ongoing supply chain disruption are enduring challenges that all CFOs must address to make their organization the future. While these challenges may seem insurmountable, CFOs are free to use a variety of strategies to create a more resilient business model that can withstand such disruptions.
The first strategy is supplier-based diversification. By reducing reliance on a single source and identifying alternative suppliers in different regions, CFOs can reduce the risk poses from local disruption.
Another important strategy is to invest in workforce development. CFOs need to focus on enhancing their employees with automation and digital tools, making their workforce more efficient and adaptable in the face of a labor shortage.
Additionally, distribution network optimization via simulation models allows the evaluation of various footprint scenarios, allowing companies to make informed decisions about logistics and inventory delivery.
Finally, strengthening supplier relationships through long-term partnerships will ensure that key suppliers meet the company's needs, provide better negotiation leverage and ensure supply continuity.
