Beware of pricing pressures ahead
Sales continue to be strong going into the final quarter of 2005, but inflation and price increases are pushing hard down through the channel. Take your pick for a reason: Katrina, energy, raw material shortages. Oil certainly factors into everyone's equation, but raw material availability and production throughput will continue to be issues across most distribution product sectors. That's what we're hearing from many distributors about some of their key concerns ahead.
Pricing issues stand out as a major concern. Distributors that don't fight these pricing pressures will get caught playing catch up, and lose profitability on the year. Most customers were open to last year's round of price increase pass-throughs; there had been either flat or downward pressure for the ...
Sales continue to be strong going into the final quarter of 2005, but inflation and price increases are pushing hard down through the channel. Take your pick for a reason: Katrina, energy, raw material shortages. Oil certainly factors into everyone's equation, but raw material availability and production throughput will continue to be issues across most distribution product sectors. That's what we're hearing from many distributors about some of their key concerns ahead.
Pricing issues stand out as a major concern. Distributors that don't fight these pricing pressures will get caught playing catch up, and lose profitability on the year. Most customers were open to last year's round of price increase pass-throughs; there had been either flat or downward pressure for the previous few years through the recession.
This time, we are hearing about manufacturers pushing hard. This is well in advance of the end-of-year round. If you aren't planning now how to manage the squeeze play coming up, you might consider putting it more to the front of the agenda.
This isn't new or even rocket science. But the strong sales environment makes it easy to not pay attention to the back door. Create a few scenarios in the budget to factor in if a few major suppliers surprise you. Trim back the cost creep that inevitably starts rebuilding when sales increase. And prepare your team and customers for how to manage an inflationary cycle.
Sound alarmist? It's not. The more communication about how your company is focusing to reduce costs and anticipate potential negatives ahead can't hurt your position. Back that up with documented details on cost containment and productivity improvement - at the customer, inside your own walls and with your suppliers.
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