THE ENTERPRISE
As I think about the floods, mud slides, and now frigid weather and winter storms, it reminds me that no matter if the temperatures were close to 70 degrees in Ohio in mid-January, it was a temporary respite. We still have "normal" winter weather to endure for about another 60 days.
A temporary respite
In my view, the same goes for commodity cost pressures. There was a respite during December, but when the New Year gets rolling in earnest, watch what happens. The US economy is still recovering, and (deficit) spending on Iraq continues strong for the near term. Oil prices will climb again, driven by a combination of a finite supply, strong demand, and winter weather.
The same goes for steel. Auto companies manipulate production around the holidays because the combination of Christmas gifting, charge card shock in early January and nasty weather depresses auto sales. But spring is just around the corner, and auto companies are touting their new model introductions...which will require steel and stiffen or reverse any price softness.
Stiffen your resolve
Why am I recounting all this? Because buyers are smart negotiators, and they will take advantage of the lull to reject the badly needed price increases, and in some cases, push for decreases. Give in to this, and the financial results come spring will be thorny. It takes guts to stand firm. There is also a risk that the buyer will move some business to make a point. Hope it doesn't happen.
I know--it's tough out there--I've been there and felt that apprehension. I also know that you get as much heat for 6% as for a 4% increase . The higher starting point provides more "wiggle room", and a chance to shade the increase in response to buyer and competitor pressures. Be prepared. Document the commodity price pressures. They are well known, in spite of what buyers say. Get to the bottom of what competitors are doing in pricing. If you are the market leader, lead! If not, follow, fast, at the first sign of an increase possibility.
China can add to the pressures
Finally, there is some chance (more than before) that the Chinese will let the Yuan move in a range (5%?) against the dollar. If/when that happens, imported goods from China will go up in cost--whether you buy them, or whether you compete with them. Be prepared for this scenario, and consider how it plays into your current cost and price situation.
If you keep eating cost increases and not passing them on at the appropriate rate, there will be dire consequences--sooner rather than later. And that is not a pretty picture. Remember, if you don't look out for your company's bottom line, who will?
Best, John
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