Inflation, labor shortages and financial concerns are at the top of the list of things that keep CFOs up at night. by Grant Thornton reveals a continual decline in optimism as finance leaders work to combat inflation.
Since 2021, the percentage of optimistic finance leaders about the U.S. economy has fallen 20 percentage points. In addition to fallen optimism, 80% of survey respondents also noted the increasing costs of goods and services as one of their top reasons for having a negative outlook.
Nearly half (46%) of CFOs expect inflation to hurt their profits in 2022. With this in mind, we recently connected with Douglas Roof Jr., CPA, MBA, Director of Finance at Valtronic Technologies (USA) Inc, a global full-service electronic medical device contract manufacturer in Solon, Ohio.
Together we look at strategies finance leaders can implement to alleviate inflation and ensure their company remains profitable and competitive.
Leverage technology
According to Gartner, while most CFOs indicate they are planning cost reductions if inflation persists this year, 78% plan to maintain or increase enterprise-wide digital investments in the next two years.
"Technology is certainly a strategic tool for combating inflation. Wages have increased tremendously and technology, like automation, offers a way to maintain a high level of productivity while operating within the constraints of limited headcount. One thing to consider is how the technology is implemented. A proper implementation drives operational efficiency and effectiveness. When done right, it is an effective tool for saving money,” Doug said.
Streamline AP processes
"Ensuring invoices are accurate before payment is critical. In one of my previous organizations, while transitioning payables personnel, the prior staff member used a shortcut to label the invoice from a trucking company with whom we did a large volume of business. As a result, there was some confusion and our company paid duplicate invoices. This example is why we do not take shortcuts and have controls in place to avoid this type of error. “
Wasting resources on lengthy disputes with vendors slows cash flow and minimizes the accounting team’s capacity to make an impact elsewhere. Controlling costs and beating inflation starts internally. By leveraging OpenEnvoy AP automation solution to identify invoice discrepancies in real-time, one of our customers was able to capture 32x ROI on duplicate billings and 34x on invoice discrepancies in just 3 months.
Digitize payments
“With regards to receivables, we stay on top of our cash, invoicing, and ensure we bill our customers correctly to avoid payment delays. We moved the majority of our customers to pay via ACH, allowing us to eliminate the high cost of a lockbox account. In the past year, we've taken steps to digitize and streamline accounts payable by converting to ACH which has reduced the cost of remitting payments. With less paper, postage, checks, and manual time it takes to process checks, we are much more optimized. We worked with our technology vendor and internal programming to set up ACH and now we can control our cash better. As a result, our vendors get their payments more quickly while we can extend our terms. "
Negotiate to control costs externally
"Cost reduction is all about negotiation and being competitive. Currently, I am negotiating with all our business partners to find savings for anything we purchase, whether it's services for the company, benefits for our employees, or miscellaneous expenses. I always get multiple quotes and use those as leverage, for example, when working with office supplies,shop supplies, or waste management. On large purchases, we negotiate our best deal and then outsource it to a company that usually gets us an additional 5% to 10% reduction. In addition, we have chosen to lock in longer-term agreements with some vendors in exchange for lower pricing.
“Our purchasing manager is leveraging payables data to support negotiation for some of our ongoing contracts. He is using the data to negotiate moving more business to a few, well-performing vendors in exchange for better terms like lower prices, inventory management, and possible discounts, all of which help improve our cash flow."
Implement strategic sourcing and reduce the supply chain
"We are combating inflation by negotiating with our vendors whenever possible and being more strategic in our procurement strategy. In some instances, we are buying larger quantities to obtain volume discounts and reducing our supply chain with regional vendors. This strategy allows us to reduce freight costs from purchasing globally. Tariffs, especially from China, are impacting us; so we are working to implement more strategic sourcing techniques.
We now work with one consolidated shipper; we no longer have to deal with various carriers and variable invoices. In almost all cases with our vendors, we ship “Collect” to avoid any markup by the supplier. This also increases our volume with our current carrier. For international shipments, we have had real success working with a specific logistics company. This provider allows us to capture discounts without maintaining the volume required by some of the larger carriers."
Communicate with customers about increased prices
"In today's market with inflation, we inevitably have to pass some increases on to our customers, but it is important to approach that delicately. We communicate with customers that we are facing increases in labor costs and in prices from all of our vendors, and we are working to find ways to minimize our costs to control price hikes."
About Doug
Doug currently serves as the Director of Finance at Valtronic, having over 25 years of experience in various financial leadership positions, including acting as a chief financial officer for many years. He progressively moved throughout his career by taking on challenging roles. He has worked to streamline many accounting and financial operations while leading significant corporate cost reduction initiatives. He enjoys coaching people, finding cost savings, and helping his organization drive the bottom line.
Want to learn more about getting ahead of inflation and safeguarding your company’s financial future? Schedule a demo with an OpenEnvoy expert today.
Serious about protecting your cashflow?
