2022 CFO Outlook: Addressing inflation, supply and workforce

As a volatile year ended with a new COVID-19 variant spiking another wave of infections, three challenges emerged to dominate the attention of CFOs heading into 2022.

Finance leaders are most concerned with workforce issues, supply chain concerns and inflation, according to data from Grant Thornton LLP’s quarterly CFO surveys from 2021.

Addressing these issues won’t be easy in the tumultuous year ahead, but following the right strategies can help CFOs prepare their organizations for success.

Workforce

Given the significant leverage workers have in this economy, employers are facing upward pressure on wages and benefits and are scrambling to retain the workers they have and attract the workers they need. Following are four things CFOs can do to compete in the intensifying competition for talent.

Emphasize flexibility and embrace remote and hybrid work. In Grant Thornton’s February 2022 survey, 75% of workers said that working from home improved their work-life balance. “Companies are starting to accept that remote and hybrid work are no longer just pandemic response strategies, they are a permanent part of the employment landscape” says Angela Nalwa, Grant Thornton Managing Director and HR Transformation Leader. “At the beginning of the pandemic, most executives envisioned a return to the in-office status quo, but employees have not only maintained, but have increased, productivity over the past two years, proving they don’t have to be in the office full-time to do their jobs.”

Listen to and communicate with your people. Old HR models based on standard, one-size-fits-all policy models won’t work for today’s employees. “Companies need to aggressively seek employee input and adapt to what their people want and the needs of the business,” says Nalwa.

Re-examine training and career paths. Workers, especially younger millennials, are worried about training and career paths—but the kind of in-person mentoring that many workers have traditionally taken advantage of early in their careers will have to be approached differently in a hybrid work environment. “The good news is that, just as employers are no longer bound by geography in hiring, they are also no longer bound by geography in mentoring and coaching,” says Nalwa. “Organizations can build mentoring and training relationships across locations and functions, giving employees new opportunities to explore a variety of options and relationships.”

Embrace technology. Technology should also play a key role in your HR strategy. “All you have to do is look at the dropping labor force participation rate and workforce demographic trends to understand that part of the labor shortage is a people shortage,” says Nalwa. “Looking for the right opportunities to automate is one of the solutions.”

Supply chain

In our Q4 CFO survey, supply chain took over from cybersecurity risks as CFOs’ top concern. Following are four steps CFOs can take now to improve supply chain performance, boost resilience and mitigate risk.

Review your contracts with suppliers and providers and consider taking them out to bid. Businesses looking to improve their supply chains are taking a close look at their contracts with suppliers and providers. “Supply chains aren’t just stuff,” says Ben YoKell, Managing Director and National Sourcing and Supply Chain Transformation Practice Leader for Grant Thornton. “Yes, look at your materials contracts, but look at everything else, too. Legal, engineering, consulting, other services — look at all of them.”

Automate middle-of-business processes. Workforce shortages are big part of supply chain problems. Not only are there not enough truck drivers, longshore workers and warehouse workers to keep goods moving, but the professionals within your company who do your forecasting, procurement and spend management are also in short supply. By using intelligent automation, visualization, robotic process automation and other tools to automate these functions, you can scale up those functions without scaling up headcount. Better data management and digitization practices can also help you to better segment supply chain costs and needs across product lines and customers, helping to ensure you make better decisions about which customers get what in the case of shortages.

From just-in-time to just-in-case: Re-examine inventory. For years, companies have focused on minimizing carrying costs by having as little inventory as possible. Now, with the pandemic still roiling supply chains, companies are often struggling to keep inventory in stock and have sometimes had to slow down or even shut down operations while waiting for supplies to catch up. “Many companies are moving toward a just-in-case model, keeping more stock on hand to control risk and build some resiliency into their supply chains,” says YoKell.

Use the latest supply chain technologies. ERP, APS, Control Tower/SC Visibility and contract lifecycle management (CLM) tools can help CFOs better monitor supply chain needs and providers in real time and respond with the agility that today’s often chaotic business conditions demand.

Inflation

In our Q4 survey, more than half (53%) of CFOs expect inflation to continue to impact their businesses for at least six months, while 33% expect it to persist for more than a year. With inflation now running at a level not seen in a generation, most CFOs and other executives are having to manage it for the first time in their careers. Following are four strategies that can help.

Be aggressive on pricing. Traditionally, most businesses have been reluctant to increase prices in response to inflation or most other motivators out of fear that other businesses would undercut them, and customers would switch to lower cost options. “We’re seeing very high demand right now, and that’s across the board in all industries,” says Enzo Santilli, Grant Thornton’s Chief Transformation Officer. “Businesses do have the power right now to be aggressive.”

Boost your budget on wages. Inflation isn’t just a top-of-mind concern for CFOs, it’s a major issue for their employees. The Department of Labor reported that the average worker saw a wage increase of 4.7% last year, but many of them still lost ground to inflation. “CFOs will need to budget more for wages, but that shouldn’t be an across-the-board strategy,” says Santilli. “Yes, general pay increases will have to go up, but given the competitive labor market, it’s more important than ever to ensure adequate rewards for your best performers.”

Be ready for rate hikes. The Fed is likely to move aggressively against inflation, and soon. Most expect the first rate hike to come in March, with experts predicting anywhere between four and seven rate hikes this year. That’s going to drive up borrowing costs after years of almost free money. If you know you will need capital or if you have a refinancing coming up, act on that now to help keep your borrowing costs down.

Strengthen your forecasting and analytics capabilities. Inflation has gone from under 2% a year ago to more than 7% in December. With the Fed likely to target that aggressively, it’s hard to predict how quickly that will come down. Supply chains and workforces are still very challenging. “Financial costs could swing quite a bit, both top line and bottom line,” says Santilli. “The elasticities of what’s going on with supply chain, with workforce, and potentially with demand will make nimble and agile forecasting more important than ever.”