A conversation between Gibraltar Equipment Finance President Jeffry Pfeffer and PwC Partner Cort Jacoby on how supply chain optimization creates opportunities for growth and ROI. This is the final installment in a 3-part series.
In an environment where supply chains are complex, global, and more competitive than ever, most business leaders are aware of the need to prioritize supply chain performance optimizations and to focus on building supply resilience. However, many questions exist about how to build plans that deliver real returns.
We began chipping away at these big questions in the first two installments of our Supply Chain Expert Insights Series. In the first installment, Jeffry Pfeffer and Cort Jacoby, a Partner at PwC, discussed how companies can apply three strategies to get ahead of supply chain challenges: combat rising costs while addressing limited buying power, secure access to talent and support training, and prioritize investments that generate faster payback.
In the second installment, Pfeffer and Jacoby gave their top action plan recommendations to optimize business operations, including embracing data-driven processes and digitization, focusing on supply chain diversification and specialization, and investing in training and retraining a talented labor pool.
Our third installment provides insights into how middle-market companies can put those strategies into action, identify where operational efficiencies exist, and build an ROI plan for immediate returns and long-term growth.
Delivering ROI on Supply Chain Optimizations
When evaluating current operations, particularly in today’s interest rate environment, Jacoby and Pfeffer advise companies to carefully evaluate investments to ensure short-term ROI exists.
Pfeffer emphasized there’s value in targeting shorter cycles to drive faster returns while evaluating longer-term investments that are required for more significant transformation in the long term. The key is determining where value exists on the investment horizon, how to maximize investment in a Capex cycle, and what financing vehicle best supports the business’ growth goals, Pfeffer said.
“If you’re looking at a Capex for capacity or efficiency and not getting payback within 18 months, you need to rethink whether that’s a mission-critical project you need to put in place today,” Pfeffer said. “A good equipment financing partner will not just look at your investments in terms of collateral value, but also in terms of operating value and return to the business.”
Jacoby agreed companies must prioritize investments that can fund new initiatives to reinvest in the next business case. Middle-market companies must also determine where their greatest competency exists and where the highest impact actions exist in their own industry.
For instance, if the company’s core competency is manufacturing, it’s worth evaluating the value of tech add-ons that track equipment performance or replacement opportunities. Similarly, where distribution is the core competency, companies might consider how to reduce distribution center labor costs or monitor the progress of shipments via GPS investments and identify improvement opportunities in the shipping process.
“If you don’t know where to start, investing in technology that increases visibility should be the first priority,” Jacoby said. “Invest in technology that enables greater visibility or automates routine processes (such as analytics or RPA).”
Having full operational visibility doesn’t mean companies must tackle each initiative at once. Instead, as companies build their ROI plan, Jacoby and Pfeffer advise organizations to start with one node of visibility and expand the vision into a larger, long-term plan. By analyzing one business area at a time, creating an action plan on how to improve it, and applying the outcome more broadly across the organization, companies can quickly scale improvement.
Insights from Successful Implementations
Success stories and examples can help bring these strategies to life and provide practical value to business leaders contemplating change. Experts Jacoby and Pfeffer shared compelling examples of company actions that they’ve observed and participated in that align with these recommendations. These examples showcase how implementing these actions can lead to tangible returns.
“I commonly see companies in aggressive acquisition cycles take a zoom-out perspective and realize that investments in equipment across the acquired businesses could reduce labor costs,” Jacoby said.
Jacoby gave an example of a middle-market company that acquired a number of small companies that were labor-heavy. In their analysis, the company realized they could scale the business, reduce labor costs, and reinvest the cost savings into the business for more scale and efficiency.
Pfeffer has witnessed similar scenarios, suggesting “there are often opportunities to aggregate jobs or tasks so higher-value employees can leverage technology for more production value.”
Pfeffer gave two examples that resulted in companies realizing ROI through technology investments. The first was a middle-market company that replaced traditional in-line machinery processes with technology-enabled operations that allowed them to reduce headcount. The second instance was a middle-market company that saw ROI through technology investments that enabled the recapture of lost margins from challenging labor costs.
The Role of Equipment Financing in Optimizing Supply Chain Performance
Regardless of industry, for middle-market companies with mission-critical machinery and equipment, optimizing supply chain performance directly intersects with equipment investments and financing.
Equipment financing helps middle-market companies by providing adaptable financing products for machinery and equipment loans and leases to stabilize supply chain operations, fuel growth, and keep up with market demand. Equipment financing also helps middle-market companies drive supply chain efficiency and growth through five core capabilities.
- Improving operational efficiency through equipment acquisition.
- Enhancing production capabilities to build resilience.
- Streamlining processes through technological advancement.
- Achieving long-term cost savings to spur growth.
- Delivering scalability, flexibility, and adaptability.
“Equipment finance is front and center in the important problem-solving in the deployment of capital to get equipment in place to make supply chains more real-time, dynamic, and reliable,” Pfeffer said.
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