Material Cost Inflation - Productivity - Pricing 2 25 11

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

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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

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