CFOs preparing for a possible recession are seeking ways to cut supply chain costs as a tight labor market, material shortages and other challenges push up expenses.
Outsourcing supply chains could be one way for financial leaders to trim costs and free up funds as they confront “huge escalations in cost structure across the board,” Baris Oran, CFO for contract logistics firm GXO Logistics, said in an interview.
GXO — formerly the contract logistics segment of XPO Logistics — completed its spin-off from the freight transportation company on Aug. 2, 2021, when it became a publicly traded separate entity. Before moving to the logistics company in May 2021, Oran served as Group CFO for Sabanci Holding, a financial and industrial conglomerate based in Istanbul, Turkey, according to his LinkedIn profile.
Cutting costs to foster growth
Reducing expenses is a critical concern for many financial leaders, especially in today’s environment where global supply chains have yet to clear pandemic-induced bottlenecks, Oran noted. This, combined with a still tight labor market and shrinking warehouse space, puts huge cost pressures on CFOs.
The tight labor market is among the challenges GXO itself is facing — approximately 1,000 of its beer delivery workers in the United Kingdom signalled their intent to strike at the end of the month as part of a wage dispute, according to a Bloomberg report on Tuesday.
The logistics provider is also in the middle of a global hiring push, announcing its intent to hire 22,000 new workers — including 11,000 in the U.K. — on Oct. 13.
A company spokesperson, in an emailed statement sent to CFO Dive, wrote that GXO’s proposal for the U.K. workers is “highly competitive and follows an above-inflation annual pay raise of 4% last year,” and that the company has “business continuity plans” in place for its customers should a strike occur.
CFOs in today’s environment need to balance labor and other cost pressures while attempting to foster growth and shareholder value, Oran said.
“Value creation is a balance of productivity, cost-cutting, but more importantly, growth,” Oran said. “People don’t want to invest in the company that’s cutting costs all the time.”
Building a coalition
While many companies have successfully passed along pricing increases to their consumers, CFOs are questioning whether they will be able to do so over the long term, Oran said. CFOs are, fundamentally, “the stewards of capital” at their organizations, he said, and driving productivity as well as value creation “requires tough decisions [or] uncomfortable decisions to be taken and to be executed.”
CFOs need to build a “coalition” within the C-suite to ensure tough decisions can be analyzed and properly executed, Oran said, citing the outsourcing of a supply chain as one such high-stakes decision.
“At the end of the day, CFOs are catalysts in our organization for change,” he said, noting that financial leaders play a key role in communicating strategic decisions to the company board.
CFOs can also trim expenses by harnessing technologies such as automation, Oran said. GXO facilities are currently about 30% automated, he said, and improving that percentage is an “ongoing effort.”
“I’m in a privileged position, because I have a huge team that is testing new technologies every day,” he said, noting that GXO uses technology to support and complement its workforce, including a reduction in employee training time.
Capital markets remain volatile and interest rates are increasing rapidly, so "you need to think about where you are going to put your resources very carefully in this environment," Oran said. Spending on automation and other steps to reduce supply chain costs will therefore likely grow more critical.
“There will be more volatility moving forward in global markets,” Oran said. “It's very important to keep teams motivated, and I don't mean only the finance team but the entire organization. CFOs need to facilitate the execution of the strategic plan and make sure we are going to work in line with our long-term goals.”
Editor’s Note: This story was updated to include a statement from a GXO Logistics company spokesperson regarding the U.K. labor dispute.