5 Strategies to Offset Rising Operating Costs

| 10 minute read
Ian Blackhall
Author Ian Blackhall
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Operating costs are on the rise, forcing the consumer goods and staples sector to take evasive action. From operational costs for brick-and-mortar stores to increasing pricing from South East Asian suppliers, costs are going up. 

Consumer goods and staples undoubtedly suffered during the global pandemic that stretched through 2020. With vaccinations underway and consumer confidence beginning to peak, expectations are high for a rebound in the global economy. Whilst market indicators are looking favourable, 2021 is not guaranteed to be easy sailing. Shipping prices remain unstable and oil prices continue to trend upward.

In our last instalment, we discussed the market conditions negatively impacting the consumer goods industry. Now, we offer solutions to help consumer goods and staples businesses do more than simply hold on. Our practical strategies and guidance are effective measures in combatting the pressures that are slowly eating into your bottom line. Using all these strategies – or a combination of the most applicable to your business – can help contain the rising costs.

 

Solution #1: Finding new suppliers

Consumer goods and staples businesses diligently work to build a network of suppliers on whom they can depend. It is not a stretch to say some longstanding relationships with suppliers make them feel like part of your extended (business) family. Having those kinds of connections can make it difficult to cut ties in the pursuit of better pricing. After all, cheaper pricing does not necessarily equal a better deal. Sometimes, in business, you get what you pay for.

Exploring your options is never a bad idea, even if you are wary of cutting ties with current suppliers in pursuit of something better. No one says you must make the switch. For now, do some digging to compile a list of alternative solutions in the supply chain. Branching out to locate new, more affordable suppliers is easier for businesses that are well established in their niche or are at a stable place in their growth and product life cycle. This helps to minimize risk if things do not go well during a supplier transition.

Consumer goods and staples businesses always have the option of negotiating with current suppliers to see if they can achieve better pricing. This works to your advantage if a large change in suppliers is too risky for your bottom line at this time, or you are in mid-production and cannot afford setbacks.

Sometimes, having that longstanding relationship with a supplier can increase your chances of successful negotiations. Other times, there simply may not be any wiggle room on your supplier’s end, so even if they are willing, they may not have the bandwidth to reduce costs.

 

Solution #2: Negotiating new deals

Negotiating is a fine art that comes easier to some than others. When times are tough, negotiating new deals can help create breathing room in your budget. Not only can the consumer goods and staples industry negotiate higher prices for their products, but they also can negotiate lower prices from suppliers. Using the following negotiating techniques can improve your chances of success.

  • Conduct thorough research. Before you even suggest the notion of discussing pricing with a supplier, make sure you understand all costs associated with their end of the business. Accessing this data gives you advance notice of how much wiggle room the other party has so you can ensure your ask is not overly optimistic.
  • Think like a supplier. Once you understand how suppliers work, you can switch “thinking caps” before you head into any negotiations. Looking at things from their perspective can help seal a new deal. Keep in mind that suppliers need to make money whilst reducing their own expenses, so if you approach with a win-win solution for both parties, they will be more receptive.
  • Think outside the (supply) box. Sometimes it is just not possible for suppliers to lower their pricing. When faced with that situation, it is time to get creative. Look at other areas of your supply agreement – down payment terms, bulk-purchasing discounts – to find areas of mutual gain.
  • Get other offers. Fewer things motivate suppliers more than knowing you will take your business elsewhere. Walk into any negotiations with at least three other quotes from competitors you can leverage.

Solution #3: Securing alternative funding

When things are tight, sometimes traditional methods are not the best solution. Securing alternative funding can help during a financial crunch. Small- to medium-sized businesses have had great success with venture capitalists. In the last five years, they have provided $18 billion in funding to SME consumer goods and staples brands. Attracting their attention comes down to innovation. What is your brand doing differently from competitors? How are you impacting the community? Nail down your points of difference and use them to attract investors willing to take a risk on your business.

Crowdfunding and peer-to-peer financing are part of a growing movement to revolutionise banking and investing. There are crowdfunding platforms focused only on the consumer goods and staples sector.

 

Solution #4: Outsourcing operations

Outsourcing is a word that sometimes makes businesses cringe. They worry if they engage in the practice, they will lack control over the aspects of business that are outsourced. Businesses also may worry outsourcing can make their clients feel unengaged or neglected. Using third-party service providers can evoke strong emotions, yet it still is one of the most effective ways to restructure your budget during lean financial times.

Reducing overhead costs is a primary objective when turning to outsourcing. Outsourcing components of your operations can also:

  • Provide flexibility in your workforce to better manage personnel costs
  • Offer access to materials or expertise currently lacking
  • Reduce operational risks caused by employee turnover
  • Free up cash flow for investment in other parts of your business

Solution #5: Third-Party Logistics

Shipping costs are one of the biggest budget hogs for most SMEs, regardless of industry. Consumer packaged goods are feeling the squeeze a bit more than other sectors because they import and export goods during the normal course of conducting business. Third-party logistics, called 3PLs, can significantly reduce shipping costs for the consumer goods and staples sector. Choosing a 3PL that specialises in the consumer goods and staples industry can help generate savings without the need for major capital investments. Here are just two of the ways 3PLs can save you beaucoup bucks:

  • Load consolidation allows smaller companies to achieve savings during shipping by switching from less-than-truckload shipping (LTL) to full truckload shipping, which produces significant cost savings.
  • Cross-docking freight allows your business to move to a just-in-time inventory model, which reduces warehousing costs.

 

Bracing for the upcoming year

Whilst consumer confidence is rebounding, the consumer goods and staples industry faces a tumultuous ride in 2021. Incorporating any (or all) of these five solutions into your game plan can help fortify your business against the increasing costs of doing business. 

 

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