Are raw material prices creating uncertainty in your business?

Updated: Apr 30

Is Your Profitability decreasing? Due to raw material prices?

Your manufacturing cost has increased 25% and above, but your competitor is not increasing the prices of their products.

You could be from #dairy industry #logistic industry #pvc industry #engineering industry #oem #autoparts #paper #infrastructure #realestate etc.

What are the steps you can do to be competitive in these uncertain times?

Ever Since covid pandemic broke down the industry is facing very trouble with the steady and unpredictable raw material prices, every decision has become uncertain, your price quoted is no longer valid for more than 7 days, sometimes even lesser than that, the functional in the market is creating ambiguity and anxiety for the key decision-makers.

What should we do?

There is no magic formula, but it’s the alertness of management and key decision-makers which gives you the core advantage.

This is the time when you have to be very cautious about your tactical move,

When you are in a perfectly competitive industry, where your variable costs are Lower compared to your competition in producing a unit or batch or a piece, you still get the advantage to beat your competition.

How one should respond the same?

1) Be Proactive in your approach

a. The market always gives you some indication, judge that, and take a proactive approach

b. Understand the situation in the international market, follow the Raw Material Producer’s news from the reliable sources

2) Always keep MSL in your stock:

a. When you carrying MSL Level Inventory, it helps you to do average out the raw material prices

3) Make Loss from the profit: Trade-off Market Loss vs. Loss in order

a. Opportunity loss is a bigger loss than any loss, never create any vacuum for your competitor to enter into, market recapturing is a very difficult job, once the consumer has formed the habits, it takes blood and sweat to regain the market share.

Case: one of the clients from the dairy industry, has built the distribution channel to Morbi - Gujarat ( 75 km away from the distribution center, i.e. Rajkot – Gujarat) for the 6 long months company could not reestablish the distributor network, the company has 85 crate sales of milk and milk product, but still, the company continue supplying its product by their own vehicle, when I asked them the reason of doing so, they so it took them 4 years to reach up to 85 crates of sales, they can't allow losing their market, for many months company has made a loss every day when they have delivered and distributed the products,

Learning from the case: Take a Cost-benefit analysis of Customer Acquisition cost vs. Loss due to uncertainty

4) Communicate a message to customer /end-user: share the authentic proof with your customer, seek their support, and give them support to fight against your rivals By alert decision-making process.

5) Build a product that is pull in demand: When your company’s product and services are improved incrementally from time to time, you have a competitive advantage, and you can save your company from being into a price war, and in your product range you can save your company from the price war.

- This is the step that you can’t do overnight, but when you start doing consciously you get benefited from it.

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