Inflation is staggering. It is time to do some necessary adjustments to selling and ordering.
Supplier pricing is based upon cost of goods, covering SG&A and adding a profit margin. A distributor’s selling price is based upon the very same elements. However, their cost of goods is more easily calculated by looking at the supplier net. Today, every factor in product pricing is seeing incredible unbridled increases. Take freight to get raw materials in, be it from offshore or domestic, freight costs have skyrocketed by 25-40%. Finding a trans-oceanic container in which to pack for export is still difficult and the cost for trans-Atlantic or trans-Pacific shipping goes up every hour with increased fuel prices. Tesla does not make cargo ships yet. The time for cargo to go from the OEM source to a supplier may be weeks longer than in 2018. Insurance for freight has increased and, due to labor shortages and the need for competitive wages, a shipping clerk is more expensive.
The cost of plastic and availability are huge issues in the screwed up Covid supply chain. The availability of oil to make poly-anything grows more difficult, compounded by the Russian war in the Ukraine. Any gulf coast hurricane this season can put a lid on it all, at least for a while. I am experiencing paper shortages and paper costs increasing by 30%. I am having difficulty finding envelopes and I am stockpiling them so I can make Christmas card deliveries in the Fall. It all adds up to an unstable market with ever escalating prices.
When the wheat chaos hits the global supply chain some time this summer or fall, that will filter down to more than just holiday cookies and candy for our industry.
I am sorry for presenting reality and for seeming like a prophet of doom and gloom, but we all must face this and alter our business strategies as well as our customer relationships. Having been a distributor, I know that a salesperson will go to the ends of the earth on behalf of a customer. In fact, in my workshops I correlate a promotional products distributor to an “agent”. I have always wanted to see us called “agencies”. By definition, an agent works on behalf of a client, as in insurance, travel, talent, marketing, etc., and why not promotional products? Reality check -- we are tight on miracles and clients should not be beating you, the middleman, for things that are well out of your control. What can you do to limit the chaos, the damage control, and your own stress?
1. Never assume a published price is up to date. That includes a supplier’s own website, SAGE, ASI or anything published. There is always a disclaimer somewhere. Fighting with your source of supply is never a good idea. Yesterday the pizza and pasta ordered for takeout was $6.00 more than their menu online and my same order three months ago. I, literally, had to eat that price increase.
2. Be mindful of the expiration date on your quotes. Many are much shorter now.
3. Never assume a supplier has inventory. Be sure to get an inventory guarantee if it is an unknown supplier to you. Said paper trail can help you explain to your customer why you got screwed. It can also be used if you ever seek compensation.
4. Negotiate with a supplier. If I prepay, will that get around your system of not allocating inventory?
5. If an order is not confirmed, move it somewhere else.
6. Read the fine print in every confirmation. “Subject to change” can cost you a customer.
7. Increase your periodic follow-up calls. Become a human robot. It’s not that you can’t trust your vendor, it’s that you can’t trust your vendor because they can’t trust their vendors.
8. Put price and availability notices on your website. Don’t scare buyers away, scare buyers to buy, but let them know there can be issues.
9. Be aware of flux pricing and surcharges. If you are going to pass this along to your buyer, let them know this when you confirm their order. UPS and FedEx will sock it to us this Fall. They, too, must pass along their increased costs.
On your side, start hedging in your quotes and acknowledgements. Call out the volatility in the supply chain. Consider “subject to change” or other statements of protection. Perhaps, if you negotiate with a supplier on prepay, you might ask the client to do so with you and remove “out of stock” from that sudden order-killing email a supplier may send you two days before the order is to ship. You and I know it only takes a few hours to complete an order for 1,000 “anythings”, as long as the anything is on a shelf. So, they may have had a lot of “anythings” when you ordered, but none left when they had to pick it off the shelf for decoration. If you pay for it…you own it!
Tactically, this chaos can be turned into a closing technique. Everyone who is reading this column knows the “if then” closing technique.
If, Mrs. Customer, I can hold the price despite inflation, guarantee inventory, despite supply chain issues, then can I write the order today?
This can work well on products your client “always” orders like holiday cards (commercial plug). Get the order now, send it to the supplier, lock in the price and ask for delivery in November (were it a Christmas card). Suggest to a client that they double their order. I do hundreds of thousands of CDs for hospitals and radiology clinics. Generally, they order each quarter. Get them to double, triple or quadruple the order and then arrange for quarterly call outs and drop ships.
It is time to think logistically. The horizon line is clearly red.
Joel D. Schaffer, MAS is CEO and Founder of Soundline, LLC, the pioneering supplier to the promotional products industry of audio products. Joel has 48 years of promotional product industry experience and proudly heralds “I was a distributor.” He has been on the advisory panel of the business and marketing department of St. John’s University in New York and is a frequent speaker at Rutgers Graduate School of Business. He is an industry Advocate and has appeared before the American Bankers Association, American Marketing Association, National Premium Sales Executives, American Booksellers Association and several other major groups. He has been a management consultant to organizations such as The College Board and helped many suppliers enter this industry. He is a frequent contributor to PPB and Counselor magazines. He has facilitated over 200 classes sharing his industry knowledge nationwide. He is known for his cutting humor and enthusiasm in presenting provocative and motivating programs. He is the only person to have received both the Marvin Spike Industry Lifetime Achievement Award (2002) and PPAI’s Distinguished Service Award (2011). He is a past director of PPAI and has chaired several PPAI committees and task forces. He is a past Chair of the SAAGNY Foundation, Past President of SAAGNY and a SAAGNY Hall of Fame member. He was cited by ASI as one of the 50 most influential people in the industry.