Invest or die

Why companies need to invest in cost optimisation and emerging technologies to ensure long-term viability

In contrast to the previous decade of cheap access to capital and a grow-at-any-cost mentality, the next decade will be defined by businesses’ ability to invest wisely across two key areas to enable cost efficiencies. Access to quality data and the ability to leverage this successfully is the first of these areas. The second is the ability to adapt to a changing labour environment, with a reduced pool of talent but an increase in automation and AI tools available. Our senior partners in Australia and New Zealand discussed these two themes recently, providing some practical advice on what actions businesses can take.

Current landscape

The problem with data for most businesses currently is centred around a lack of access to quality data. Data that is available is often too poor to be useful, or too poorly connected to other parts of the business to drive meaningful insights. This is having both known and unknown consequences as businesses try to plan for the next five to ten years and beyond, with disjointed data often evidenced by a disjointed approach to investment decisions across the supply chain. To find large-scale cost efficiencies, businesses will need an end-to-end investment approach across the supply chain, that is aligned to and endorsed by internal and external stakeholders and backed up by reliable and attainable data.

Therefore, a key project for a business to undertake within the next 12 months to help solve this is a data accuracy and reliability program. This is down to the fact that productivity tools will increasingly lean towards AI and machine learning and, therefore, if the inputs are not correct, the final outcome will not provide an accurate picture of a business’ strengths and weaknesses.

How you can leverage data to find cost efficiencies

Another way improved data can be useful is when looking at procurement. If you can produce clear and accurate data points around your contracts, it is much easier to understand where you have room to find efficiencies across both direct and indirect spend. This can be managed through strategic supplier selection, substitution of services, terms, rebates and improved contract management, but this is only possible if your data is of a sufficient quality to assess these aspects.

Similarly, this will be essential to a trend we expect to see emerging over the next few years of businesses moving out of their old, inefficient offices in central city locations into new facilities that will help enable an automation revolution. For example, by aligning manufacturing and warehousing to the same location, a business can drive efficiencies across their property investments and operating costs. Again, these major strategic projects will only be possible if a business has an overarching view of its operations, with data to provide insights into what automation tools and facilities will best suit those specific parameters.

A further trend we are already starting to see is changes to planning rhythms. A combination of increased supply chain disruption, and improvements in advanced planning capabilities and inventory strategies has forced businesses to find a balance between just in case and just in time. Businesses now need to be flexible in their approach to optimise safety stock levels and standard inventory holdings. This emphasises the need for businesses to be lean and data-driven, as these enhancements to the supply chain require accurate and available data to be successful.

How to succeed in a tight labour market

The second area businesses will have to focus investment on is labour. It is increasingly difficult to attract new talent into the industry, while the great resignation saw a large amount of employees leave the industry, taking highly specialised knowledge with them. This creates a problem for businesses, as they will now have to continue increasing output with fewer employees to help drive this.

Fortunately, there are a number of ways a business can attempt to solve this problem. For example, a business may be facing a skill shortage in a certain area, such as planning. Previously, they may have had to retrain or upskill current employees, or even look to upskill prospective employees if they couldn’t find the talent in the market. However, thanks to advancements in automation and machine learning, it may now be possible to replace the vast majority of this skill set through investing in technology.

This does then cause a potential issue if businesses are moving at speed from relatively manual processes to a heavy reliance on automation. This may mean having to invest in training programs to improve the digital literacy of their workforce. In addition, it may also mean rethinking the requirements and skill sets required for future roles to ensure that future transitions or periods of change can be adopted more quickly. This offers the added advantage of a role transitioning from a skill set that is hard to find in the market to a skill set that is in relative abundance, with the clear demand from the labour market to work in technology-focused roles. This is particularly important when viewed alongside the current trends of onshoring and reshoring manufacturing locally – this becomes much more realistic if the labour pool you are looking to recruit from is a lot larger than currently appears to be the case for many roles.

Ultimately, the businesses that succeed over the next five to ten years will be those that are able to make the best investment decisions in these two key areas, in which there is clear overlap between. For most businesses, this journey will start with a data program to use as a starting point for further decisions, while people and culture teams can play a key part in identifying where skill sets may crossover to other industries as roles transition. The most important factor will be the ability to make decisions that are aligned across the business, where there are clear metrics to support these decisions.