4 Strategies for Dealing with Cost Inflation
4 Strategies for Dealing with Cost Inflation
Copyright © 2011 Marketwerks, Inc.
Rising Input Costs - the Squeeze is On
“The ISM’s prices-paid index jumped to 81.5 in January, the highest level in more than two years, reflecting climbing costs for metals, chemicals and even soybean oil, the Tempe, Arizona-based group said today.
“The challenge is going to be to offset the increase in commodity prices through increased productivity, expanding volumes or price recovery,” said Norbert Ore, ISM chairman. “You try to work all three of those levers.”
Bloomberg, 2/1/2011
Materials Cost Pressures
Source: International Monetary Fund
People Cost Pressures: Employee Benefits
$3,515
$3,354
$2,713
$1,619
$1,543
$9,773
$8,824
$4,247
$3,997*
$3,281*
$2,973*
$2,661*
$2,412*
$2,137*
$1,787*
$9,860*
$9,325*
$8,508*
$8,167*
$7,289*
$6,657*
$5,866*
$5,269*
$4,819*
$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999 Worker Contribution
Employer Contribution
Average Annual Worker and Employer Contributions to Premiums and Total Premiums for Family Coverage, 1999-2010
* Estimate is statistically different from estimate for the previous year shown (p<.05). Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2010.
$5,791
$6,438*
$7,061*
$8,003*
$9,068*
$9,950*
$10,880*
$11,480*
$12,106*
$12,680*
$13,375*
$13,770*
4 Strategies to Offset Cost Pressures
Find Productivity in Your
Product/Service Lineup
Optimize Pricing
Find Productivity in Commercial Processes
Efficiently Find New Customers &
Markets
To hit desired price points while protecting margins• Can you redesign
products?• Adjust the scope of
your services?
More Productivity from your Product/Service Lineup
Redo Value BundlesRedo Value Bundles Rationalize SKUsRationalize SKUs
• Expanded product variety often doesn’t pay
• Have seen SKUs that represented the last 5% of sales generate negative margin, while tying up $2 million in working capital
Find Productivity in Commercial Processes• Examine the entire
work flow, from info on customer requirements, through fulfillment, invoicing and collection.
• What changes could the customer make to their buying process that would lower your cost to serve?
• What about changes in how your people do the work of selling and serving customers?
Carefully Designed and Executed Price increases• Analytically find pricing
moves in the near-term that carry a manageable, appropriate level of risk of losing desirable business.
• Manage price increases as a project… implement plan
• For more thoughts on how to increase prices while minimizing the risk of losing business you want to keep, click here and here.
Price & Volume
0
0.2
0.4
0.6
0.8
1
1.2
1.4
0 0.5 1 1.5 2 2.5 3 3.5
Annual Purchases
Re
lati
ve
Pri
ce
Efficiently Find New Customers & Markets• It’s common that the
search for new accounts and new markets is loosely organized.
• A simple, integrated program produces a stronger sales pipeline than “winging it.”
• For how to become more systematic about going after new customers and markets to improve volume and help offset cost pressures, click here.
For free additional information on this subject, click here
Or contact:Bob Sherlock
PresidentMarketwerks, Inc.
1900 E. Golf Rd. – Suite 950
Schaumburg, IL 60173-5034 847-382-6210, x.
802www.marketwerks.com
Mitigate cost/price squeeze with decisive action now
MMAARRGGIINN
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