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    Meissner Research Group

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    Meissner Research Group — Operations Strategy and Pricing Management Blog

    Why there are no Winners in a Price War (other than the customer)

    February 23rd, 2010 by Joern Meissner

    In a price war, where competitors with similar products, designs, and incentives compete for customers by having the lowest price, the only person that wins is the customer. Always.

    When allowing your sales staff to use price as their main tool to meet quotas for the month, week, or even year, you, as the executive, are actually making it harder for them to achieve the company’s goals. When competing on price alone, your customers will quickly realize that all they have to do is signify that some other company’s pricing is just a little bit better, and your prices will fall.

    Don’t think this affects your bottom line? Not only will your profit shrink, there’s a good chance that if your sales team doesn’t have a bottom price range, the customers will manage to convince them that the only way to get the sale (which salesmen see as their one, main priority) is to dip below cost. Customer loyalty and all those other things the customer will promise your salespeople once that below cost sale happens will disappear the moment your competitor decides it is going to keep the war going.

    So, playing the price war is a lose-lose situation for you, your brand, and your sales team, because your sales numbers may go up but your revenues will go down. You might even have happy customers – happy customers that will happily jump ship to your competitor with a lower price. Essentially, price wars are a no win situation, especially if you want to be at the top of your field.

    Customers, especially in this recession era, have become very savvy at the pricing game. To them, only one thing matters in a market where everything else is equal: price. By choosing not to play their game, by pricing your products on value, your company can still win. While your competitors are eating away at their profits, focus your company on figuring out how to make your products different and worthwhile and showcase that value to the customers.

    By pricing on your products’ value, your customers will realize the differences between you and your competitors. If you succeed in showing your customers a reason to pay just a little bit more, you can also create customer loyalty with a superior product. So instead of allowing your salespeople to empty warehouses below price, tell the rest of your company to create products and promotions that customers can actually see tangible value in. And avoid that price war altogether.

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    Posted in Pricing
    Tags: , , , , , , , , , , , ,

    Supply Chain Management in the Upturn

    February 8th, 2010 by Hongyan Li

    The economic upturn is largely believed to be happening, and all industries make take notice, including manufacturing, to create the best outcomes for their supply chain management. With a predicted 2.1 percent rise in gross domestic product and 3.2 percent rise in US manufacturing production in 2010, manufacturers must have a solid foundation to effectively and profitably leverage opportunities for the recovering economy.

    Manufacturers, especially of customer goods, must be able to react quickly to the recovery. Those companies that continue to free up unnecessary inventory will have more flexibility to change business strategies or respond to market surprises. Companies can strengthen cash position by continuing to rationalize inventory levels against the changing product mix across the entire supply chain, aligning levels with current consumer demand.

    Manufacturers can also realign the supply chain to achieve financial goals by taking control of financial and operational strategies. An integrated business planning approach goes beyond aligning supply and demand and integrates time-phased strategic revenue, cost, and margin plans with a company’s operational plans. This not only improves collaboration and responsiveness to market change but also enables executives to set financial expectations for all sales, marketing, promotion, inventory, and capital expenditures plans, which is a critical element for success in any economy.

    Newer supply chain technology might also be helpful for this collaborative approach. While traditional technologies have helped manufactures tactically balance supply and demand, a next-generation, integrated business planning approach will transform this into a process that integrates the entire business and enables company executives to confidently deliver on strategic objectives. Total supply chain integration, collaboration, and visibility will enable manufacturers to transform business practices, adopt new strategies and seize opportunities that arise in the recovery.

    Although there’s speculation on the rate of the economic recovery, what’s certain is that there will be long-term effects on new consumer habits. History shows that those who can afford to invest during an economic recovery come out winners by capturing market share. Even as the economy rebounds, consumers will continue to be more spend conscious than ever before. Successful companies will seize these opportunities to create a strategic advantage by frequently aligning and rationalizing product offerings with the changing preferences of the new consumer. By weeding out poorly performing products, positioning the right assortments on store shelves, and setting the right pricing and promotional strategies, manufacturers can drive market share and profitability. Catering to consumer demand will also enable manufacturers to build market share and long-term brand loyalty, even as consumers find themselves with more discretionary spending income in the future. Additionally, establishing closer collaboration with retail partners can provide insight into point-of-sale and SKU data, enabling manufacturers to better respond to shifts in market conditions, inventory production planning and scheduling beyond the current economic cycle.

    Timing is everything in a financial period where customers, retailers, and your own company change every day. Learning to be prepared for these changes and to anticipate your customers and retailers’ need are the ways to keep your company increasingly profitable during the upturn.

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    Posted in Manufacturing, Operations, Supply Chain
    Tags: , , , , , ,

    Inventory Optimization frees much needed Working Capital

    October 22nd, 2009 by Joern Meissner

    How to make your supply chain work during a recession.

    The main problem with running your business during a recession is the major cash flow problem. There are no loans coming from the banks. Your inventory is languishing in a warehouse. Your customers are simply not buying like they used to. Freeing up capital is a must during these hard economic times, and since we’ve seen it can’t be done by slashing prices, it must come from your supply chain and by optimizing your inventory.

    Forecasting

    It doesn’t matter that you didn’t see the recession coming. Even most of the people who did see it coming didn’t think it was going to be this bad. Let this mistake go and focus on your company’s future. Now is the time to forecast. Now more than ever, you need to focus on what is going to happen to your company, in your market, on both local and global scales, in the next few years. Things are changing and if your company wants to be at the top, then you need to be able to see what’s coming.

    In a boom, products don’t sit around waiting to be bought. Or rather, they sit around just long enough to move from the factory to the warehouse to the store to the customer’s home. In a recession, allowing your inventory to stall in the warehouse or store is going to drain the capital needed in other places. Since leftover inventory means slashed prices and slashed prices does nothing for your company’s image or profits, make sure that your inventory remains as a low as possible while still keeping your company’s customer service up to speed. Be able to forecast just how low your inventory can get. Less has become more profitable than more.

    Cash-to-Cash Cycles

    A cash-to-cash cycle is the period of time from which a business invests capital in a product to the time it receives payment for the product. Cash-to-cash cycles are essentially the chronological view of a business’s bottom line: the amount of time a product is paid for by the company to the time in which the product is paid for and a profit is made. And cash-to-cash cycles are an intrinsic part of the supply chain.

    The supply chain begins whenever the business makes their first investment with purchasing the raw materials and goes all the way down to your customer buying your product, which often also results in the company being paid for that product. And while many executives are all over their supply chain management, they have yet to take a look at their company from a cash-to-cash cycle prospective. Find out where your investment begins and where profit is returned. By altering aspects of your supply chain, especially the amount of inventory purchased at the beginning of your cash-to-cash cycle, you can free up capital at the end of the cash-to-cash cycle.

    Free Capital

    Companies need free capital, even more so during a recession. The fight for customers, the competitive pricing, and the lack of profit margins are going to quickly decimate the money your company has to work with.

    Maximizing your inventory optimization comes from supply chain management, and managing your supply chain is linked to how your cash-to-cash cycle is working. By collecting the data from each aspect your supply chain on a daily basis might seem like an overwhelming task, you must task yourself to do so.

    Your capital is used to begin your supply chain, by purchasing your raw materials. You then create your product, using more capital, and then wait for your product to be sold, creating your inventory. When your inventory stalls, so does everything that comes after it, including your profits. To free up capital, go back to the very beginning and buy less raw materials, leading to less inventory.

    Small problems in this economy, like extra inventory, can turn into business-destroying problems. Extra capital can be freed up by taking a look at how your inventory fits into your supply chain and your cash-to-cash cycle, so every executive needs to take a good hard look at what’s going on in their businesses at the points long before their products every make their way into the hands of their customers.

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    Posted in Manufacturing, Operations
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