With inflation at its highest level in 40 years, few executives and leadership teams have navigated an entire enterprise through an inflationary environment. Amidst massive shifts in digitization, cloud computing, the workforce, capital formation, and globalization–not to mention pandemic and war-related disruptions–yesterday’s playbooks won’t serve tomorrow’s economy.
Key actions resilient leaders are taking today to address inflation
Finely tune supply chains
Market disruptions lead to changes in transactional flows, functional profile, geographical footprint, digitization, changes to existing models and costs.
It has become necessary to identify supply chain risks and potential disruptions, and fine tune your third-party supply chain resiliency to ensure continued execution with timeliness and quality.
Organizations need to improve operational costs, process efficiencies, and organizational agility associated with their third-party relationships—all while gaining greater control over related risks.
It has thus become imperative to fortify your enterprise against disruption by identifying supply chain exposures and developing corrective actions.
It is vital to develop inventory strategies to buffer volatility and risk. Look at establishing multi-tier supplier network visibility to risks.
Deloitte’s range of services in supply chain optimization enables organizations become resilient in the wake of change by bypassing market disruptions
Supply chain & network operations
Third-party risk management
Finely tune working capital
During volatile times, it is particularly important for organizations to identify and release cash tied up in working capital.
In a time of rapid change, shorter-term cash forecasting (e.g. 13-week cash-flow) become more important, especially to and test/ challenge assumptions to be prepared in case of a disruption.
It is important to evaluate and possibly expand lending arrangements in preparation for a downturn in the form of line of credit, interest rates, length/term of loans
How can you restructure (e.g., capital planning) or suspend certain practices (e.g. dividend distribution) in the face of a downturn?
Optimizing the portfolio along with use of dynamic risk-modeling tools have become important as they can provide risk-resilient guidance to crisis response capital allocation decisions
Deloitte’s range of services and strategies to manage capital can help protect its clients against cash shortfalls, and finely tune its working capital to effortlessly function in case of a disruption
Capital Management, Liquidity and Treasury Risk
Engage in comprehensive assessment of operating costs
During periods of financial difficulty, it is essential to reduce costs and enhance operating performance
It is important for an organization to perform an operational assessment, resulting in cost reductions, productivity improvement opportunities, and workforce realignment strategies. This provides for increased optionality in reducing costs.
Collaboration with customers and suppliers can help to further synchronize operations to priorities
What considerations are you making when it comes to your cost structure?
Providing flexibility and agility in the supply chain whilst controlling cost and working capital is needed to thrive
Deloitte’s range of services and strategies can help in assessing and reducing costs without impacting customer experience and competitive advantage
Strategic Cost Transformation
Take advantage of purchasing distressed assets
Disruption in the marketplace can create an opportunity for businesses to purchase distressed assets
Traditional M&A processes and time-tables may not maximize value when acquiring businesses that have stress or other situational challenges
It is important for an organization to manage uncertainty and complexity associated with purchasing of distressed assets. This is often difficult and uncharted territory for businesses.
Time becomes a critical factor when negotiating distressed acquisitions and disposals in a limited market. Businesses are often part of such exchanges potentially delivered via an insolvency mechanism.
Deloitte’s range of services and strategies in the area of M&A can maximize value for organizations in challenging and time critical situations
Bankruptcy, insolvency and corporate restructuring
Mergers & Acquisitions
Divest underperforming assets
Uncertainty in the marketplace can sometimes lead businesses to exit a certain area, divesting the underperforming assets, to limit disruption to the existing business, and manage risks involved, and generate cash
The process of divesting the business can lead to unnecessary tax exposures and tax leakage. Bringing an outside-in perspective in such situations can help identify potential opportunities
It becomes very important to identify the right assets to sell, depending on the long-term growth aspirations of the businesses. It is important for businesses to become a prepared seller from a financial, tax, operational, and commercial perspective.
Companies should always review which of their businesses would be worth more in another firm’s portfolio, and then divest accordingly. Our findings suggest that divestments can create greater shareholder returns for both buyers and sellers.
Deloitte can provide support in divestiture planning and execution by bringing in an outside-in perspective
Mergers & Acquisitions
Refinance existing credit lines
To mitigate inflation volatility impact, it is crucial to have a medium and long-term approach to support variable cash needs. This may include debt and funding, as well as assets disposal or acquisition.
Debt restructuring require analyzing liquidity headroom and debt-servicing ability, including reviewing short-term cashflow forecast, reviewing existing loan agreements and analyzing balance sheet
Cashflow forecasting is needed to understand debt-servicing ability and to perform recovery analysis under different scenarios.
Businesses need help to formulate a debt restructuring plan (rescheduling repayment, reducing interest payments, debt-to-equity swap, etc.), together with plans on operational turnaround, asset disposal and capital injection.
Significant technical, model driven process and planning is necessary for identifying alternatives, communicating impacts and optimizing tax results for debt restructuring transactions
Deloitte can refinance existing credit lines and provide debt restructuring for businesses to reduce volatility during disruption
Turnaround & Restructuring
Outsource any processes which are not core competencies
At times of heavy financial volatility, it makes sense for businesses to achieve operational efficiency and cost reduction by outsourcing processes which are not core competencies
Businesses need to determine whether in-house services are performed at a fair-price, to ensure the processes are carried out in the most cost-effective way.
Setting the right foundation during the outsourcing strategy, negotiations, and transition can impact the outcome greatly in terms of price and service delivery.
Aligning elements at every phase of the strategy, negotiation, transition, and vendor management can help deliver the services effectively at a price that is both advantageous to the buyer and remain profitable for the vendor
Deloitte works with many outsourcing vendors worldwide and stay current with their capabilities and performance, thus helping clients outsource processes to these vendors ensuring cost effectiveness
Restructuring business functions and outsourcing
Third party risk management
Accelerate the digitization of core business
Digitizing the core business can strengthen overall business processes, reduce legacy costs, and help businesses perform efficiently and in a cost-effective manner
Legacy applications are difficult to integrate with technologies like cloud, analytics, and mobility, which can impede digital transformation initiatives. Modernization helps organizations overcome these barriers by updating legacy code and adopting modern technologies and Cloud Native applications.
Businesses today need to develop plans to attain technology resilience. It is important to redefine digital data, analytics and experience applications
It has become essential to safely transition to digital models to support your business, capture appropriate information on employee and business health and regulatory requirements
Deloitte can help businesses accelerate digital capabilities to enable growth, decrease costs, and progress further as an insights-driven organization