"We are living in extraordinary times. The events that have roiled the global economy in recent months will have a real and lasting impact on every business in every industry," says Timothy P. Flynn, Chairman, KPMG International. "The economic crisis gives every organization permission to examine every aspect of their business model and lay the foundation for sustainable growth and improved competitive advantage."
As companies worldwide develop their plans to manage through these turbulent times, many CEOs are preparing for the worst. For distressed companies that are intent upon survival, their primary focus is on conserving cash — usually by slashing discretionary spending and aggressively reducing headcount.
"This approach is certainly understandable, but cost-cutting alone is not likely to deliver lasting results, "Flynn cautions.
"Organizations must think beyond short-term issues and look more broadly at cost optimization and cash management."
Even well-managed companies can benefit from a working capital improvement exercise across the business. And, Flynn says, it’s critical to include both finance and operations, which typically approach the issue from a different angle.
"The most successful companies will also re-examine the ways they develop, sell, market and deliver their products and services to optimize their cost structures and better serve their customers," Flynn says. He suggests three key areas of focus:
- To drive change, companies need to reduce complexity and consider alternative business models. Consolidating functions into shared services can promote standardization and consolidation, but not necessarily optimization across processes and tasks. To realize savings that are truly sustainable, organizations should take an enterprise-wide view, redesigning processes within a service center, ensuring connectivity with core business processes, and continually evolving their model. Process optimization is the objective, with sustainable cost savings the result.
- The evolution to an international economy has led to increasingly complex global supply chains. Strategic supply chain management means re-evaluating end-to-end processes, and redesigning processes to deliver improved working capital, increased efficiencies and reduced taxes.
- Environmental and sustainability programs are not just about good citizenship. ‘Green’ programs can yield real cost savings through supply chain improvements that require less materials and energy to produce and ship products; effective use of energy, particularly around data centers and IT management; recycling benefits; and operations improvements that reduce the carbon footprint and enhance efficiencies.
