<\/span>A Stress Test Waiting to Happen<\/strong><\/span><\/h4>\n\n\n\nMitch:<\/strong> Back in March, as\u202fglobal shipping prices\u202fspiked and as many goods became scarce, conventional wisdom had it that the supply chain disruption we\u2019re seeing was largely the result of a surplus of orders reflecting extraordinary shifts in demand. <\/p>\n\n\n\nIsrael:<\/strong> Well, I think that for a globalized supply chain, in a way this was a stress test waiting to happen. There\u2019s been the growth of international commerce and longer supply lines, the acceleration of ecommerce, and many companies adopted lean\/just-in-time production to cut cost and boost profit, leaving minimal margin for error. For the global economy, shipping is at the center of the explanation. <\/p>\n\n\n\nIf we look at the effects of the pandemic has had in global logistics is not only the change on demand, from finished goods to healthcare equipment, required more capacity available than before. Consumers in the United States and other wealthy countries had taken pandemic lockdowns as the reason to add gaming consoles, pastry blenders or exercise bikes to their homes, swamping the shipping industry with cargo, and exhausting the supplies of many components. <\/p>\n\n\n\n
Container shortages paired with delays to unload cargo due to employee lockdown; Suez Canal blocked for a month, plus China shutting down container ports due to new outbreaks had snowballed\u2026generating an incredible backlog\u2026 <\/p>\n\n\n\n
It will be very<\/em> interesting to see Black Friday\u2019s dynamics this year. <\/p>\n\n\n\n<\/div>\n\n\n\n<\/span>The Trends Ahead?<\/strong><\/span><\/h4>\n\n\n\nMitch: <\/strong>What do you see as a trend that\u2019s taking shape? <\/p>\n\n\n\nIsrael:<\/strong> There is no end in sight. So everybody should be assuming we are going to have an extended period of supply chain disruption. <\/p>\n\n\n\nRational consumer behavior on shortages affecting demand (like with toilet paper) drive them to buy more, ahead of time, than they previously needed. <\/p>\n\n\n\n
But from an enterprise perspective, I don\u2019t think that we can look at cheap and reliable transportation as a key foundational aspect of international trade. Shipping a 40-foot container from Shanghai to Midwest used to cost six to seven thousand dollars, now it\u2019s $26K, and added rail and trucking cost will most likely raise it to $35K.<\/p>\n\n\n\n
If we think about the shortage of computer chips,\u202fToyota\u202fannounced this month<\/strong> that it would slash its global production of cars by 40 percent. Factories around the world are limiting operations \u2014 despite powerful demand for their wares \u2014 because they cannot buy metal parts, plastics, and raw materials. <\/p>\n\n\n\nThis will have deep implications. There will be no more shifting production offshore looking for cheap materials and lower labor costs.<\/p>\n\n\n\n
<\/div>\n\n\n\n<\/span>Inflation is Here to Stay (For Now)<\/strong><\/span><\/h4>\n\n\n\nIsrael: <\/strong> First off: It\u2019s a fact that inflationary dynamics<\/a> are in action, and there\u2019s no clear end in sight. Costs are changing, the availability of products is changing, impacting their perceived value. So, necessarily, pricing has to change. <\/p>\n\n\n\nHow, though, can a seller mitigate the potential damage of these disruptions? Israel offered up a big range of insights. <\/p>\n\n\n\n
<\/div>\n\n\n\n<\/span>Linking Product and Service Offering to Value Perceived and Price Paid<\/strong><\/span><\/h4>\n\n\n\nIsrael:<\/strong> It\u2019s important to develop customer intimacy. B2B buyers base purchase decisions on how well vendors or suppliers meet their demands. So delivering good customer experiences and cultivating intimacy with them is extremely important. In eCommerce, there\u2019s an unrelenting need for accurate information<\/strong> about product availability, shipping, and inventory levels, as it\u2019s the most strategic element in driving bottom-line customer satisfaction. <\/p>\n\n\n\nSome steps you can take? <\/p>\n\n\n\n
\n- Rationalize product portfolios: <\/strong>Customers who are willing to shop in-stock product show a higher willingness to pay, due to the tradeoff between availability, price, and value. <\/li>\n\n\n\n
- Same day delivery is king<\/strong>, delivering instantaneous customer satisfaction. Where are the opportunities to show that kind of agility and show you\u2019re still agile and responsive, customer-focused. <\/li>\n\n\n\n
- Freight mechanisms can be a deal attribute;<\/strong> think, too, about other operational improvements such as shipment consolidation, outsourcing, deferred services, service level differentiation. Remember that nobody questions that there\u2019s a need for price revisions but don\u2019t <\/em>reduce service if you increase price. Inflation presents an opportunity to stand apart from competitors on this front! <\/li>\n\n\n\n
- Behavioral discounts:<\/strong> Use them to reduce order fragmentation or incentivize larger orders. Levy adders or surcharges on shipping for inefficient behaviors on the part of buyers. <\/li>\n\n\n\n
- Rethink next-day delivery commoditization; <\/strong>understand where special operations may deviate from SOP. Did the customer ask for it? <\/li>\n<\/ul>\n\n\n\n<\/div>\n\n\n\n
<\/span>Investing in Visibility of Cost-to-Serve <\/strong><\/span><\/h4>\n\n\n\nIsrael: <\/strong>You should work at uncovering deal improvement opportunities<\/strong>. Typically, a lot more discipline and scrutiny go into understanding the processes around discounting and pricing, but there\u2019s less attention given to properly assessing the cost to serve customers.\u202f <\/p>\n\n\n\nObviously, cost-to-serve is comprised of all non-product costs (e.g., freight cost, warehousing cost, packaging, etc. technical service, installation service) that are specific to serving a customer.\u202f\u202f Logistic costs are a huge<\/em><\/strong> component of this and, depending on the industry, recovering those costs and reflecting them in how you price your product and services can literally become a matter of survival.\u202f\u202f <\/p>\n\n\n\nWhy? Simply put, CTS is always going to subtract<\/em><\/strong> <\/strong>profit<\/em><\/strong> from all your transactions.\u202f <\/p>\n\n\n\n\n\nThe price waterfall is a structured framework for representing price and profitability. So a properly designed pricing and margin waterfall <\/a>\u2013 <\/strong>that calls out the impact of all costs – is the most important output of commercial excellence requirements.\u202f\u202f\u00a0<\/p>\n\n\n\nLogistics cost savings initiatives have been traditionally exhausted and have often been optimized with a lot of outsourcing of logistics needs to carriers and third-party providers. So useful data should be readily available. So, too, should be a legacy of standard network costs allocated using activity-based cost models. In both cases, the most effort typically required is to allocate them to customer, product, shipment, and line item. <\/p>\n<\/div>\n\n\n\n
Israel:<\/strong> Well, I think that for a globalized supply chain, in a way this was a stress test waiting to happen. There\u2019s been the growth of international commerce and longer supply lines, the acceleration of ecommerce, and many companies adopted lean\/just-in-time production to cut cost and boost profit, leaving minimal margin for error. For the global economy, shipping is at the center of the explanation. <\/p>\n\n\n\n If we look at the effects of the pandemic has had in global logistics is not only the change on demand, from finished goods to healthcare equipment, required more capacity available than before. Consumers in the United States and other wealthy countries had taken pandemic lockdowns as the reason to add gaming consoles, pastry blenders or exercise bikes to their homes, swamping the shipping industry with cargo, and exhausting the supplies of many components. <\/p>\n\n\n\n Container shortages paired with delays to unload cargo due to employee lockdown; Suez Canal blocked for a month, plus China shutting down container ports due to new outbreaks had snowballed\u2026generating an incredible backlog\u2026 <\/p>\n\n\n\n It will be very<\/em> interesting to see Black Friday\u2019s dynamics this year. <\/p>\n\n\n\n Mitch: <\/strong>What do you see as a trend that\u2019s taking shape? <\/p>\n\n\n\n Israel:<\/strong> There is no end in sight. So everybody should be assuming we are going to have an extended period of supply chain disruption. <\/p>\n\n\n\n Rational consumer behavior on shortages affecting demand (like with toilet paper) drive them to buy more, ahead of time, than they previously needed. <\/p>\n\n\n\n But from an enterprise perspective, I don\u2019t think that we can look at cheap and reliable transportation as a key foundational aspect of international trade. Shipping a 40-foot container from Shanghai to Midwest used to cost six to seven thousand dollars, now it\u2019s $26K, and added rail and trucking cost will most likely raise it to $35K.<\/p>\n\n\n\n If we think about the shortage of computer chips,\u202fToyota\u202fannounced this month<\/strong> that it would slash its global production of cars by 40 percent. Factories around the world are limiting operations \u2014 despite powerful demand for their wares \u2014 because they cannot buy metal parts, plastics, and raw materials. <\/p>\n\n\n\n This will have deep implications. There will be no more shifting production offshore looking for cheap materials and lower labor costs.<\/p>\n\n\n\n Israel: <\/strong> First off: It\u2019s a fact that inflationary dynamics<\/a> are in action, and there\u2019s no clear end in sight. Costs are changing, the availability of products is changing, impacting their perceived value. So, necessarily, pricing has to change. <\/p>\n\n\n\n How, though, can a seller mitigate the potential damage of these disruptions? Israel offered up a big range of insights. <\/p>\n\n\n\n Israel:<\/strong> It\u2019s important to develop customer intimacy. B2B buyers base purchase decisions on how well vendors or suppliers meet their demands. So delivering good customer experiences and cultivating intimacy with them is extremely important. In eCommerce, there\u2019s an unrelenting need for accurate information<\/strong> about product availability, shipping, and inventory levels, as it\u2019s the most strategic element in driving bottom-line customer satisfaction. <\/p>\n\n\n\n Some steps you can take? <\/p>\n\n\n\n Israel: <\/strong>You should work at uncovering deal improvement opportunities<\/strong>. Typically, a lot more discipline and scrutiny go into understanding the processes around discounting and pricing, but there\u2019s less attention given to properly assessing the cost to serve customers.\u202f <\/p>\n\n\n\n Obviously, cost-to-serve is comprised of all non-product costs (e.g., freight cost, warehousing cost, packaging, etc. technical service, installation service) that are specific to serving a customer.\u202f\u202f Logistic costs are a huge<\/em><\/strong> component of this and, depending on the industry, recovering those costs and reflecting them in how you price your product and services can literally become a matter of survival.\u202f\u202f <\/p>\n\n\n\n Why? Simply put, CTS is always going to subtract<\/em><\/strong> <\/strong>profit<\/em><\/strong> from all your transactions.\u202f <\/p>\n\n\n\n The price waterfall is a structured framework for representing price and profitability. So a properly designed pricing and margin waterfall <\/a>\u2013 <\/strong>that calls out the impact of all costs – is the most important output of commercial excellence requirements.\u202f\u202f\u00a0<\/p>\n\n\n\n Logistics cost savings initiatives have been traditionally exhausted and have often been optimized with a lot of outsourcing of logistics needs to carriers and third-party providers. So useful data should be readily available. So, too, should be a legacy of standard network costs allocated using activity-based cost models. In both cases, the most effort typically required is to allocate them to customer, product, shipment, and line item. <\/p>\n<\/div>\n\n\n\n<\/span>The Trends Ahead?<\/strong><\/span><\/h4>\n\n\n\n
<\/span>Inflation is Here to Stay (For Now)<\/strong><\/span><\/h4>\n\n\n\n
<\/span>Linking Product and Service Offering to Value Perceived and Price Paid<\/strong><\/span><\/h4>\n\n\n\n
\n
<\/span>Investing in Visibility of Cost-to-Serve <\/strong><\/span><\/h4>\n\n\n\n
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