Sustainable Changes to Operating Models to Support Large Scale Cost Reduction Programs: An Interview with James Allt-Graham, Partner of Trace Consultants

In today's rapidly evolving business landscape, companies are increasingly pressured to find innovative ways to reduce costs without compromising on quality or customer service. Sustainable changes to operating models have emerged as a critical strategy for achieving these goals. To shed light on this topic, we sat down with James Allt-Graham, Partner at Trace Consultants, who shared his insights on balancing customer service and cost outcomes, right-sizing fixed cost bases, reviewing network footprints and leases, optimising inventory and working capital, workforce planning, and reviewing supplier relationships.

Interviewer: James, thank you for joining us today. To start, could you give us an overview of why sustainable changes to operating models are essential for supporting large-scale cost reduction programs?

James Allt-Graham: Thank you for having me. Sustainable changes to operating models are crucial because they enable organisations to achieve cost reductions in a manner that doesn't compromise long-term business health. Instead of one-off cost-cutting measures, sustainable changes focus on transforming the underlying processes and structures of an organisation. This approach ensures that cost reductions are not only significant but also enduring, providing a solid foundation for future growth and adaptability.

Interviewer: Balancing customer service and cost outcomes can be challenging. What strategies can organisations use to achieve this balance?

James Allt-Graham: Balancing customer service with cost outcomes is indeed a delicate act. The key is to focus on value rather than cost alone. Start by understanding what aspects of your service are most valued by customers and ensure these are protected. Use data analytics to identify inefficiencies and areas where costs can be reduced without impacting the customer experience. Additionally, leveraging technology to streamline operations and improve service delivery can help achieve this balance. For instance, implementing automated customer service solutions can reduce costs while maintaining high service standards.

Interviewer: Right-sizing the fixed cost base is another critical area. What does this process involve, and how can companies effectively manage it?

James Allt-Graham: Right-sizing the fixed cost base involves aligning your fixed costs, such as rent, salaries, and utilities, with the current scale and needs of your business. This process starts with a thorough audit of all fixed costs to identify areas of excess. Companies should look at renegotiating leases, outsourcing non-core activities, and adopting flexible workforce arrangements. It's also essential to regularly review and adjust these costs as the business environment changes. The goal is to create a more agile cost structure that can quickly adapt to market conditions.

Interviewer: Reviewing network footprints and leases is an integral part of cost reduction. What steps should businesses take in this review process?

James Allt-Graham: Reviewing network footprints and leases involves evaluating the physical locations of your operations and determining if they are optimally positioned to support your business strategy. Start by analysing the performance and profitability of each location. Consider factors such as proximity to key markets, supply chain logistics, and lease terms. Businesses should look for opportunities to consolidate locations, move to lower-cost areas, or even adopt remote working models where feasible. Renegotiating lease terms can also yield significant savings, especially in a market where landlords may be more flexible.

Interviewer: Inventory optimisation and working capital management are also critical for cost reduction. How can companies optimise these areas?

James Allt-Graham: Optimising inventory and working capital involves maintaining the right balance between having enough stock to meet demand and minimising excess that ties up capital. Start with a comprehensive analysis of your inventory data to identify slow-moving or obsolete stock. Implementing just-in-time inventory practices can reduce holding costs and improve cash flow. Additionally, improving forecasting accuracy and supplier collaboration can help ensure that inventory levels are aligned with actual demand. For working capital management, focus on improving the efficiency of your accounts receivable and payable processes to enhance liquidity.

Interviewer: Workforce planning is another significant aspect. What are the best practices for effective workforce planning?

James Allt-Graham: Effective workforce planning requires a strategic approach to ensure that you have the right number of employees with the right skills at the right time. Start by analysing your current workforce and projecting future needs based on business goals and market trends. Consider flexible workforce models, such as part-time, temporary, or contract workers, to manage peaks in demand without increasing fixed costs. Invest in employee training and development to build a versatile workforce that can adapt to changing requirements. Technology can also play a crucial role in workforce planning by providing data-driven insights and automating routine tasks.

Interviewer: Lastly, reviewing supplier relationships and spend analytics is vital. What should companies focus on in this area?

James Allt-Graham: Reviewing supplier relationships and spend analytics involves a detailed examination of your procurement practices to identify cost-saving opportunities. Start by categorising your suppliers based on their strategic importance and spend levels. Conduct a spend analysis to identify trends, inefficiencies, and areas where you can negotiate better terms. Focus on building strong relationships with key suppliers to secure favourable pricing, rebates, and payment terms. Additionally, consider diversifying your supplier base to reduce dependency on a single source and increase competition. Technology can assist by providing real-time spend visibility and automating procurement processes.

Interviewer: That's incredibly insightful, James. To wrap up, could you summarise the key takeaways for organisations looking to implement sustainable changes to their operating models?

James Allt-Graham: Certainly. The key takeaways for implementing sustainable changes to operating models are:

1. Focus on Value: Prioritise changes that enhance customer value and drive long-term sustainability.
2. Data-Driven Decisions: Use data analytics to identify inefficiencies and guide decision-making.
3. Flexibility: Adopt flexible cost structures and workforce models to adapt quickly to changing market conditions.
4. Technology Integration: Leverage technology to streamline operations and improve efficiency.
5. Continuous Review: Regularly review and adjust your strategies to stay aligned with business goals and market trends.

By taking a strategic and data-driven approach, organisations can achieve significant cost reductions while maintaining or even enhancing their service levels.

Interviewer: Thank you, James, for sharing your expertise with us today. Your insights will undoubtedly help many businesses navigate the complexities of cost reduction and operational efficiency.

James Allt-Graham: It was my pleasure. I hope these insights will help organisations achieve their cost reduction goals sustainably and effectively.

In conclusion, sustainable changes to operating models are essential for supporting large-scale cost reduction programs. By focusing on value, leveraging data and technology, and maintaining flexibility, businesses can achieve significant cost savings without compromising on quality or customer service. The insights shared by James Allt-Graham provide a valuable roadmap for organisations looking to navigate this challenging but crucial aspect of business management.

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Supply Chain Sustainability Reporting Series by Emma Woodberry

Part 1 - Sustainability Reporting

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New Sustainability Reporting requirements are being introduced for Australian businesses and organisations

In June 2023, the ISSB released the inaugural global sustainability standards, which were an exercise in global baselining and alignment – in other words, getting everyone singing from the same song sheet when it comes to sustainability reporting. In March this year, a Treasury Bill was introduced into parliament which outlines the reporting obligations for Australian organisations, with commencement dates from 1 January 2025 – which is expected to be passed sometime this year. Organisations are encouraged to start preparing for what this means for their reporting requirements.

The reporting requirements will cover governance, strategy and risk management processes and controls in place for identifying and mitigating material sustainability related risks, including performance against sustainability metrics. These reporting obligations will have significant impacts on supply chain operations, as it will drive greater transparency, accountability and sustainability across entire value chains both locally and globally. Supply Chain leaders and managers may be called upon to report on or start measuring metrics against specific sustainability or climate related targets. Additional reporting requirements will be linked with existing financial reporting obligations at year end, so organisations will need to provide sustainability inputs to financial statements.

Reporting will need to address opportunities and risks as they relate to sustainability, for example, how climate change related disruption could impact an organisation’s ability to meet customer needs.

Reporting requirements will cover two key areas: Emissions and Climate related risk

Understand your Emissions

Measuring Scope 1 and 2 carbon emissions can be simple – mapping out your supply chain and determining the carbon footprint of your owned and controlled operations. Scope 3 is where the complexity begins – upstream activities can include the carbon footprint of all purchased goods and services, employee travel and waste generation for example, and downstream activities includes how sold products are used and disposed of. Do you know what happens to your products once they are in the customer’s hands?

Supply chain mapping is useful to understand where your value chain starts and ends, from processing of raw materials through to disposal of goods produced in your supply chain. This introduces the first layer of visibility of the extent of your Scope 3 emissions. From here it is important to understand what your suppliers and customers are doing to measure, manage and reduce their emissions, and how you are measuring, managing and mitigating your own emissions.

Risk and Resilience in your Supply Chain

Supply chain mapping provides a good overview of where emissions are generated across your value chain and will also provide a baseline for assessing climate change disruption risk. Conducting a risk and resilience assessment across your supply chain will identify areas of weakness or risk due to climate change related disruption. Areas such as critical infrastructure or vulnerability to disruption will be explored and assessed, identifying risk mitigating actions that need to be taken.

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Moving Forward

Baselining your Scope 1, 2 and 3 emissions is the minimum, setting targets and management plans is the next step. This will involve operational initiatives that encourage efficiency within the organisation, as well as working with suppliers to increase transparency and visibility of upstream operations. Best practice then involves setting Science Based Targets (SBTs) that are ambitious and reporting progress against these targets.

Proactive risk mitigation steps for your supply chain extends to core supply chain efficiency activities such as network optimisation, supplier relationship management and lean inventory practices. Understanding your emissions and building a resilient supply chain will drive sustainable practice.

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Where we can help

At Trace, we have tried and tested frameworks that support emissions baselining and measurement, as well as risk and resilience assessment.

Carbon Emissions Measurement

We can support you in understanding your emissions, identifying opportunities to reduce your footprint and improve your overall sustainability through the following high level 4-step approach:

1. Map your supply chain including your nodes, upstream supply chains, and downstream product lifecycles

2. Measure emissions using Greenhouse Gas (GHG) Protocol data (Scope 1, 2 and 3)

3. Set targets that are ambitious, measurable and supportive of strategic goals

4. Define and implement a set of initiatives that will support efficiency and emissions reduction activities

Our risk and resilience framework

Our Supply Chain Risk & Resilience Assessment Model aligns with the framework adopted by the Federal Office of Supply Chain Resilience and the Australian Productivity Commission, which are used to assess supply chain risks to critical products and services. Our model covers three stages:

1. Inputs Stage: identifies the qualitative and quantitative inputs to a resilience assessment including supply chain mapping, disruption scenarios, stakeholder engagement and existing plans and policies

2. Assessment Stage: measures the level of resilience, residual risks and sustainability impact through understanding the criticality and vulnerability of the supply chain

3. Actions Stage: identifies the key actions required to update and implement plans and policies that will secure future resilience and mitigate risks identified in Stage 2

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Understanding vulnerability to climate change disruption, and the actions being taken to overcome this vulnerability will be key requirements for future reporting regulations.

Get in touch today to see how we can help your supply chain sustainability journey.

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Emma Woodberry

Senior Manager

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Supply Chain Sustainability Reporting Series by Emma Woodberry

Part 3 – Modern Slavery in the supply chain and reporting obligations

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What is Modern Slavery?

Modern slavery describes a workforce that is exploited during their employment, without an option to leave or refuse due to threats, violence, coercion, deception or abuse of power. It comes in many forms including human trafficking, forced labour, child labour, and debt bondage.

Due to the nature of the work involved in production, processing, packaging and transport of goods, there is a high risk of modern slavery in most supply chains in Australia – these risks vary by industry and are heightened in imported food produce and textiles.

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Modern Slavery Reporting

Modern Slavery reporting helps to hold organisations accountable for their actions and policies, ensuring they are taking steps to prevent and address modern slavery within their operations and supply chains. Australia’s Modern Slavery Act 2018 has encouraged transparency and ethical practices for Australian organisations to help identify patterns and hotspots, which can be targeted for prevention efforts. A recent independent review of the Act has identified key changes that will impact organisations existing reporting, including:

Increased modern slavery due diligence requirements

Requiring organisations to have due diligence processes in place to effectively identify risks in their supply chains through supplier assessment

New mandatory reporting criteria

The threshold for reporting on Modern Slavery risks in the supply chain via a published Modern Slavery statement has been reduced from $100m to $50m annual consolidated revenue

New penalties for non-compliance

Financial penalties are likely to be introduced for failure to comply to with any of The Acts requirements, such as failing to publish a modern slavery statement or failing at having an appropriate due diligence process in place.

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Understanding your supply chain’s risk of Modern Slavery

When looking to understand the level of risk in your supply chain, it’s important to understand the inherent risk based on your industry and types of goods and services you offer. For most Australian operations, the risk is focused on supplier’s supply chains, and depending on where operations are based, transport and logistics processes.

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Given the need for increased due diligence coming into legislation, trace. takes a two-way approach to modern slavery risk assessments:

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1: Assess current maturity in supplier due diligence and risk assessment

- Review internal processes, systems and data used when selecting and onboarding suppliers

- Assess existing risk assessment processes and outcomes to determine effectiveness

- Identify opportunity to uplift and improve due diligence and risk management

2: Identify and assess modern slavery risks within the value chain

Map out the value chain in providing goods and services, including supplier’s supply chains

Assess modern slavery risk by each supplier and identify actions taken to date

Identify improvement opportunities and develop an implementation plan

Develop / update modern slavery statement and publish in line with The Modern Slavery Act 2018

Determine adequate reporting required to ensure ongoing transparency and risk management

Modern Slavery is one element of sustainability reporting for organisations, feeding into broader ESG objectives. You can read more about supply chain sustainability reporting in our first article, and Scope 3 carbon emissions in our second.

Get in touch today to see how we can help you identify the effectiveness of your due diligence processes, or assess your risk for Modern Slavery in the supply chain.

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Emma Woodberry

Senior Manager

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