Currently a potential trade war face-off continues with the U.S. and China. So far both nations have imposed tariffs of $34 billion worth of goods against each other. Trade talks are set to resume, but with this spiraling dispute at stake is $16 billion worth of levies. In addition, the threat of another $200 billion is on the table.
For most of my client’s, costs are soaring for raw materials and transportation. Toss in the labor shortage which is causing not only employee wages to escalate, but wreaking havoc with overtime, employee turnover, training costs, and decreased productivity.
Raising prices is always the first reaction. My recommendation is to use the EFocus holistic approach to not only answer this question, but to monitor your results. The following are some suggestions:
- Evaluate your product line margins. Where can improvements can be made? Determine which products have strong brand loyalty in case a price increase is necessary.
- Focus and brain storm on new operation ideas that lead to continuous improvement in labor/production efficiencies and utilization.
- Lock in rates with your suppliers and try to negotiate terms.
- Monitor trade terms. Are people starting to pay you more slowly on the inventory they buy from you?
- Track your inventory in conjunction with commodity prices and buy in bulk when beneficial. Manage your inventory on a last in, first out basis so increases in selling prices coincide with increases in your input costs.
- Communication with your customers is vital. Explain the reason why you are raising prices. Attaching a 3rd party report that shows cost increases can create some visibility. Also, try to find out what terms your customers are willing to accept.
It is imperative that you have in place a performance measurement system that monitors all your business metrics and they need to be reviewed each month with the management team.
CDH’s Executive Focus is an excellent solution for helping your business manage and monitor your operating expenses. Executive Focus is a visualization tool that provides transparency within the organization and empowers people with knowledge by helping them have a better understanding of all departments within the business. How do we do this?
· We develop a custom set of business metrics that represent your organization’s function as a whole.
· We focus on Key Performance Indicators (KPI’s) that clearly reflect efficiencies and value add capabilities.
· We facilitate monthly management team meetings to highlight and discuss the trends and relationships in your results to drive a culture of continuous improvement.
Matt Wirth is a Senior Consulting Manager for CDH, a national accounting and consulting firm. He has been consulting with privately held companies for over twenty years. CDH provides a service called Executive Focus. This service offers a process, tools and support to help management teams improve their performance. They design custom graphics packages which identify trends, relationships and performance drivers. The net effect is a system that fosters continuous improvement and enhances the bottom line. Matt has a BBA in accounting from the University of Milwaukee and is a CPA.