![]() Often customers do not understand the questions of lag and mix. This is an important component to calculate an eventual lower cost pass-through lag.Ģ. Analyze your costs in detail: Make sure you estimate your cost situation based on point number one. Deeply understand your supply chain and go deeply in your raw materials mix: You need to assemble a tiger team with procurement, R&D, supply chain and finance to take a serious inventory of your current stock levels, expected raw materials in transit and committed purchases so that you can establish a situation of the quantities and value of all current stock. They will demand price concessions based on very public cost reductions.Īre you equipped to handle the potential collapse of your costs and your prices? Are you ready for the potential tsunami of pricing decrease requests? Chances are you are not! I propose eight actions to take to prepare for a downward price spiral.ġ. And that means that customers, buyers and end-users are waiting for price relief. Commodity, raw materials, and labor costs never stay too high for too long. It has been front and center for the past 12 months.īut with the good news comes bad news. Pricing was also a fairly taboo subject in the past. Companies have taken advantage of the scarcity of supplies to adjust prices, restructure their product portfolio, and make some of the structural changes they never dared make in the past. It is also true that corporate profits have never been so high. And sometimes it does not come down slowly: It crashes. In general, though, what comes up must come down. Now, I am not a fortune teller or an economist. I anticipate that with both a slowdown and the improvement in supply chains, we might see abrupt downwards price pressures in the next six to nine months. We can already witness this phenomenon with some of the commodity prices for oil and wood, for example. It also means that some of the bubbles created since COVID might burst quickly. This means we must brace for some downward trends across the board. While the economy is still healthy, the combination of higher interest rates, labor shortages and early signs of gross domestic output slowdown confirm this prediction. ![]() Some economists predict that it is inevitable. It is not a matter of if but when and how abrupt it might be. ![]() IndustryWeek's elite panel of regular contributors. ![]()
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