Extreme fluctuation and uncertainty in the market over the past few years threw supply chains into disarray, but for many executives, the instability of the recent past must seem like child’s play compared to the challenges they now confront. The war in Ukraine is turning supply chains on their heads, and now, another element of an economic Axis of Evil has emerged: inflation.

The Consumer Price Index rose at an annualized rate of well over 8% in each of the months of May through July of 2022, the highest rates seen in over 40 years. Besides dealing with increases in the costs of products and materials, businesses must also confront worker shortages and wage increases — which moved along at a 5.2% annual clip in July — all of which negatively impact company profitability. A recent Gartner survey showed that 74% of chief financial officers ranked profitability as their top concern, the highest of any of the negative impacts of inflation.

The first instinct of many a chief financial officer in an environment of compromised corporate earnings is to look for areas to scale back spending. That may be the right move when it comes to some business expenses, but reducing spending on technology doesn’t fall into that category. In fact, increasing technology spending could help companies reduce costs and increase competitiveness as they face the scourge of inflation.

Making technology investments part of the effort to reduce costs goes way beyond replacing production and logistics personnel with robots. Companies can achieve even more dramatic results by becoming data-centric and digitalizing business processes — which, besides reducing personnel costs, can help improve business performance. It’s an emerging phenomenon dubbed “digital deflation.”

“It may seem logical to cut costs during inflationary times,” says Glenn Goulding, director at Alithya, a digital strategy and technologies services company with 3,900 employees. “But it’s the counterintuitive conversation that will deliver value. Companies should invest in IT because that's where they can realize returns in the form of lower costs and increased visibility.”

Why should companies resist the temptation to reduce IT spending when inflation is raging? “Because business is changing,” explains Dominic Telaro, another director at Alithya. “If you don't have technology systems that are flexible and can adapt to how businesses operate at any given moment, you'll miss the opportunities each moment brings.” Manual processes, including those facilitated by Excel spreadsheets, still in widespread use in many companies, don’t fit that bill because they don’t provide the flexibility or visibility companies require to make real-time decisions.

Procurement is one area to think about when it comes to digital deflation. Customers want immediate responses to questions and want to be able to place orders electronically. “They will complain if you can't respond with answers quickly enough or if you are hard to do business with,” says Telaro. “If they have to send emails or text messages to place an order or if an online portal isn’t fully functional, you are going to lose their business.”

Manual procurement processes also consume high levels of human resources. With labor in short supply, even those companies inclined to hire more people won’t necessarily find them, and with the concurrent increase in wage and labor rates, it’s a resource that is costing more every day. Digitizing processes like procurement and using data to make better business decisions can help reduce costs, increase speed and boost customer satisfaction.

The improved processes and performance that come with digitization are hardly limited to procurement—they can help companies achieve lower costs with greater speed and efficiencies across the board. Digital platforms increase the accuracy and availability of data, enabling every area of a company to access the same source of truth so that everyone is on the same page when it comes to making decisions. Companies with dozens of departments, each considering data from separate Excel spreadsheets, can’t achieve that kind of visibility and accuracy.

“With Excel, everyone will get different answers depending on whom they ask,” says Telaro. “If your data is not right, you cannot run a business,” he adds, “so your technology platform must not only capture and manage data, but foster collaboration based on that data. That way, if there's a problem, everyone can see it right away and fix it.”

When it comes to procurement, digital platforms help ensure that companies fulfill orders quickly and accurately. The accuracy of the data allows confidence that inventory is on hand to be shipped in a timely manner and the process requires little or no human intervention.

“With technology, information can be placed simultaneously at the fingertips of both the seller and the customer,” says Telaro. “And by doing that, you don't need lots of eyes on the transaction. The system ensures that the product is available and that it is being shipped correctly.” Manufacturers across all sectors are leveraging digital platforms to promote customer and vendor self-service and reap the benefits of reduced personnel costs and more reliable operations.

E-commerce is a key element in a digital strategy for manufacturing companies. They are deploying customer portals, making it easier for customers to place product orders online. “You don’t need 35 people taking and processing orders,” says Goulding. “You can minimize your human resources expenses and repurpose people to other areas of the business.”

On manufacturing floors, companies are moving away from circulating written production orders, instead having production personnel receive their tasks from electronic kiosks. “By automating this piece of the business,” says Goulding, “manufacturers are replacing the three or four people previously required for data entry or processing production information with just one.”

Artificial Intelligence (AI) and Machine Learning (ML), combined with internet of things (IoT) devices, are playing important roles in areas such as equipment maintenance. “Instead of 20 individuals checking manufacturing lines to see where attention is required,” says Goulding, “IoT sensors provide data, and AI predicts when and where maintenance or parts replacements are needed.” IoT, AI, and ML are also used with quality control processes for temperature-sensitive products and general manufactured goods.

When it comes to moving products, digital technologies provide real-time visibility that can’t be achieved with phone calls, emails, and text messages. “Leveraging digital tools to automate the movements of inventory and raw materials also carries forward to the readiness of the production floor,” explains Goulding.  

To successfully invest in digital technologies as part of a strategy to fight inflation, it’s worth keeping in mind a few key considerations. “First, the company has to be clear on the desired business outcomes,” says Telaro. Saving money is the obvious first choice. Agility, flexibility, competitiveness and enhancing customer satisfaction often round out the list.

“Pick two or three of these desired outcomes and make them corporate goals,” says Telaro. “Keep in mind that the CEO must make the final call and drive the decisions across the organization.”

It’s also important to remember that adopting digital deflation strategies involves investing in technology with the goal of reducing business costs in the long term. “Making it a long-term goal gives companies more leeway,” says Telaro. “And the beautiful part is that it doesn't have to be done all at once. You can roll things out, celebrate each win, and move to the next area of the digital plan.”

After the fact, user adoption reviews are important to understand whether personnel are using the digital tools effectively. “After the company made a multi-million-dollar digital technology investment, you don’t want employees sliding back to Excel spreadsheets,” says Telaro.

Working with an appropriate partner is another key to the successful deployment of digital technologies. First of all, be aware that forging a true partnership means that a search for the lowest-cost provider is off the table. “When you’re beating down a vendor on price, they are going to give you the bare minimum,” says Goulding. “That doesn’t make for a true partnership, nor will it lead to a successful implementation.

“Look for a partner that has expertise in the industry and has helped companies similar to yours succeed with a digital transformation,” says Goulding. “The partner should also be a good cultural fit.”

Cultural compatibility between two organizations includes attitudes towards empowering employees and making the lives of vendors and customers easier. The two organizations should commit in advance to finding common ground when the inevitable rough patches arise (and they will) during technology implementations.

So, how do digital implementations help manufacturers beat inflation? “To sum it up, they promote lower labor costs, lower material costs and lower manufacturing costs,” says Telaro. “You can also expect higher customer satisfaction, higher vendor satisfaction and better control over your supply chain.

“Having visibility into vendors’ production lets you know when supplies and materials are coming,” he adds. “It's like going from flying blind to, all of a sudden, being able to see the world. With the right technology platform, everyone has access to the same information and can work as a team.”

For larger companies, even small percentages in savings and improved performance can be quantified in tens of millions of dollars in benefits. Companies that miss these opportunities will need to gain all that much more ground when the business environment improves.

“Companies that take advantage of digital deflation now by investing in emerging technologies, with a compatible partner, are being wise and proactive,” says Goulding. “It gives them visibility into costs, enables them to buy better and to sell more creatively. It also allows them to satisfy their existing customers in these difficult times and even expand their customer list as well.”

Resource Link: www.alithya.com