10/26/2022 0 Comments Stefan kaiser essntia![]() ![]() Work with sales to pass on price increases.For example, one building-products manufacturer revised its packaging and reduced its packaging materials costs by 30 percent-completely offsetting higher wood and plastic prices. Now is also the time to push through qualifications that, in the past, were untouchable: in an inflationary market, the argument of sharing benefits with customers can easily be countered by price stability and certainty. The walls frustrating agile buyers can finally be toppled. Now is the time to push through alternative specifications or supplier qualifications. When prices are high, the impact of a yield improvement, waste reduction, or substitution is amplified. Prioritize cross-functional initiatives.For example, one specialty-chemical company found that while prices for some smaller materials had not decreased much during 2020 (when prices were generally down), suppliers asked for significant price increases for the same materials this year. One effective tactic is to review the size of price decreases when the market shows an opposite trend. This mechanism, partly psychological in nature, is very effective in dealing with stickiness of price increases because it shifts the burden of proof to the supplier. View unavoidable price increases as temporary surcharges, not the new future state.The company reduced the increase to less than 10 percent by demonstrating that the share of raw materials was substantially lower in the final cost price, and by showing that the market reference used by the supplier was incorrect. For example, a consumer-goods company was faced with a 30 percent price increase for a specialty chemical. Using cleansheet methodology to identify and challenge these situations is key. In times of upward price pressure, sellers often overstate the share of raw materials in input costs, taking the opportunity to inflate their margins. Ensure suppliers can clearly articulate the impact of price increases in the market on suppliers’ prices. #STEFAN KAISER ESSNTIA DRIVERS#Category managers should understand and track the elements that trigger price increases and rescind these increases once those drivers are no longer applicable. Price increases should be attributable to a limited number of clearly articulated causes, not to arguments such as “the market is just crazy” or vague and anecdotal supply-and-demand issues that happen far away. #STEFAN KAISER ESSNTIA FULL#
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