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Supply Chain Pressures Ease Somewhat in Q1

Supply Chain Pressures Ease Somewhat in Q1

April 20, 2023
A Grant Thornton survey found 68% of CFOs expect higher net profits over the next years.

Optimism is still in the air. That's according to a new survey, 2023 Q1 CFO Survey from Grant Thornton, which revealed that CFOs remained optimistic about the economy, even as indicators of a potential recession continue to loom.

The survey found that 54% of CFOs reported being optimistic or very optimistic about the economy. To add to that optimism, more than two-thirds (68%) of CFOs projected a rise in net profits for their organization over the next 12 months, with a quarter predicting growth in the 6-10% range.

However, companies are still struggling with controlling costs.  For the fourth straight quarter, CFOs ranked cost optimization as their top near-term focus. In fact, those who feel confident in their ability to meet organizational goals of controlling costs fell 9 percentage points from the previous quarter to just 50%.

“Many companies are reviewing their contracts and relationships to see where they might have opportunities to reduce costs,” said Sean Denham, national Audit Growth leader for Grant Thornton, in a statement. “CFOs are expecting a bumpy ride as the year develops, but they’re buckling in and driving forward with the idea that the road will get smoother later in the year.”

 Additionally, CFOs are eyeing a range of areas where they can cut costs — with 44% of them identifying vendor and supplier costs as a top area for potential cuts. Further, material costs saw a double-digit rise as an area for cost cuts compared to six months ago, with 40% of CEOs now identifying material costs as a top target for cuts. Technology spending also experienced a double-digit increase as an area for possible cuts, from 33% in Q2 2022 to 43% this quarter.

“The economy is up and down, and people are probably trying to hedge a bit to make sure that they're not going to overspend,” said Lisa Heacock, a Finance Transformation partner at Grant Thornton. in a statement. “It's hard to get that balance. It’s a combination of the environment as well as just being proactive in looking at expenses.”

Supply chain and labor pressures ease for some

The latest CFO Survey also shows that supply chain challenges are easing slightly. For the first time since the second quarter of 2022, finance leaders did not rate supply chain as their biggest challenge. Instead, 33% of CFOs ranked the future workforce as their top challenge. The CFOs that ranked supply chain as their biggest challenge fell from 35% in Q4 2022 to 32% in the latest quarter.

 That slight decrease was also met by 55% of CFOs saying they are confident in their ability to meet supply chain needs — the highest percentage since Grant Thornton began asking the question in the fourth quarter of 2021.

 At the same time, the portion of CFOs who are not confident that they can meet their labor needs plummeted to just 7%, an all-time low in the survey. Forty-nine percent felt confident in meeting their labor needs, while 13% of those CFOs felt extremely confident.

 “The optimism reflected in the Q1 survey shows that CFOs have confidence in their ability to push their organizations forward in the present conditions,” concluded Denham, in a statement.. “But in order to be successful, they must continue to partner with the rest of the leadership team and the board to find the balance between cost-cutting and investing for short-term gains and long-term growth.”

Emphasis on ESG and the value of reputation

 Grant Thornton’s 2023 Q1 CFO Survey also asked how CFOs are handling environmental ESG topics, given that the Securities and Exchange Commission is expected to issue its long-awaited climate disclosure requirements in the first half of 2023.

 The survey data show that more than half of CFOs (57%) have clearly defined ESG goals and already report progress against ESG key performance indicators, while more than one-fourth (27%) of CFO said ESG disclosures will be one of the biggest challenges their business will face over the next six months. That’s more than double the percentage from the 2022 Q3 survey (13%).

 While it may be a stretch to say that ESG is top-of-mind for most companies, ESG nonetheless is a significant factor in strategic discussions for many CFOs. Seventy-three percent of CFOs said they give at least moderate consideration to ESG when making decisions. Of that 73%, more than one-quarter (29%) said ESG is a fundamental consideration in their decisions. Overall, just 9% of CFOs said they do not consider ESG at all.

 Meanwhile, regulatory compliance is not the only factor causing CFOs to act on ESG initiatives. They also see substantial benefits from implementing ESG considerations into their operations. One of the biggest benefits is an enhanced reputation. More than half (56%) of CFOs said improving the reputation of their brand is a benefit of an enhanced ESG program.

 “There’s clear research that shows the value of reputation for a publicly-traded company is more than its financial and physical assets combined,” said John Friedman, an ESG & Sustainability Services managing director at Grant Thornton, in a statement. “That’s a flip since the 1970s. Now it’s understood just how much your reputation affects your valuation.”

 There is also an increasing perception that ESG is an important topic to a company’s customers. In the third quarter of 2021, 28% of CFOs cited customers among the stakeholder groups that are motivating them to enhance their ESG programs. That figure rose to 39% in the current survey.