Over on Spend Matters, Jason Busch recently brought attention to McDonalds’ ever rising commodity price increases, which they are soaking up rather than passing on to their customers. As Jason notes, McDonalds’ expects cheese to rise 21%, chicken 5-6% and beef 8-9% this year. So, why not raise prices on their menu? Well if you look at it from a full cost/benefit perspective, a price hike would be a blow to the famous low prices (the Dollar Plus a Dime Menu isn’t very catchy is it?), cut into sales and possibly customer loyalty. And a company with as much marketing experience as McDonalds knows that getting a customer back could cost quite a bit more than they’d lose by keeping prices low. But that’s a good problem to have for a company like McDonalds, which has the sales numbers and supply chain relationships necessary to ride out this storm.

What about other restaurants and retailers, who absolutely must balance commodity price increases with savings elsewhere OR raise their prices? Faced with skyrocketing prices, the answer is…don’t give up. You can’t just throw in the towel and say “costs are high, boss. Just gonna have to wait it out. I’m sure things will get better soon…unless of course they don’t.”

In climates of increasing commodity costs, it’s even more important for organizations to pull every lever they can to control costs. If your top line’s not growing as fast as your product costs, you need to look everywhere for savings. It may be a bad analogy given the topic, but spend areas that used to be sacred cows (think indirect categories - marketing, legal, etc.) need to be turned into burger meat. As McDonalds and savvy companies know, addressing indirect spend is far less likely to impact the customers, who during soft spot in the economy are more valuable than ever.

Your spend management goals also need to adjust to reflect the economic conditions. Finding the 15% savings you’re used to is going to be pretty hard if the underlying commodity costs have gone up 21% just this year. Instead, find the stable, predictable and safe sources of supply at competitive costs. The best way to do that continues to be through the diligent application of spend management strategies. Cost containment might not be as much fun as hard savings, but it sure beats just accepting the price increases as they come in from your supplier or, worse yet, getting no product at all.

Kris Colby, a Director of Ariba’s Spend Management Services group, recently authored a white paper on the subject of minimizing risk - An Ounce of Prevention: Steps Your Organization Can Take Now to Reduce the Risk of a Product Safety Incident.

Email Forward & Bookmarks

Close this WindowBookmark and Share This Page

Save to Browser Favorites

Ask backflip blinklist BlogBookmark Bloglines BlogMarks Blogsvine BUMPzee! CiteULike co.mments Connotea del.icio.us

DotNetKicks Digg diigo dropjack.com dzone Facebook Fark Faves Feed Me Links Friendsite folkd.com Furl

Google Hugg Jeqq Kaboodle linkaGoGo LinksMarker Ma.gnolia Mister Wong Mixx MySpace MyWeb Netvouz

Newsvine PlugIM popcurrent Propeller Reddit Rojo Segnalo Shoutwire Simpy sk*rt Slashdot Sphere

Sphinn Spurl.net Squidoo StumbleUpon Technorati ThisNext Webride Windows Live Yahoo!

Email This to a Friend

Copy HTML: 

If you like this then please subscribe to the RSS Feed.

Powered by Bookmarkify™

More »