Lydia DiLiello: [00:00:00] Profits are going to continue to decrease dramatically. And I think the apathy comes from a feeling of helplessness, of not knowing what to do next, of trying to find any short-term fixes to buy them a little breathing room, so to speak. But the apathy is very, very dangerous, whether it's a Fortune 500 company or a small mom-and-pop, because the longer you stay in apathy, the more that bottom line deteriorates and it really then feeds upon itself.
Lindsay Duran: Welcome to B2B Reimagined. My name is Lindsay Duran, and I'll be your host for this episode. I'm joined today by Lydia DiLiello, CEO and founder of Capital Pricing Consultants returning for her third appearance on B2B Reimagined. Lydia, welcome back to the podcast.
Lydia DiLiello: Lindsay. Thanks so much for having me. It's always a pleasure.
Lindsay Duran: Why don't you remind our listeners of your background?
Lydia DiLiello: So Lindsay, I started out my career in General Motors. I was in executive management for procurement as well as pricing for 11 years. And from there I moved on to a private plastics manufacturer, a grassroots pricing project that was a [00:02:00] global implementation.
And then from that point, I decided to go out on my own and help other companies with revenue and pricing issues so that they could sustainably increase their profitability.
Lindsay Duran: Before we dive into our topic today. Can you share with our listeners something that they can't learn from your LinkedIn profile?
What’s one surprising or interesting fact about yourself?
Lydia DiLiello: So I married a man from Naples, Italy, the south of Italy, and I'm very fond of going back to Italy. I miss the food. I miss the culture. We have family there. So I'm very anxious to get back and see everyone and get back into that culture once again.
Lindsay Duran: Well, I always know who to call for recommendations for travel to Italy. That's for sure. We're thrilled to have you here today to talk about a very pressing and important issue. And that is supply chain and specifically supply chain disruption, which is certainly been a major issue for companies globally over the [00:03:00] past two years. To start out, why don't you tell us what's happening from your perspective?
Lydia DiLiello: So, Lindsay, I think that the perspective that I have now is very much a buildup of where we started in 2020, so briefly. You know, in 2020, when the pandemic hit, basically the global supply chain frozen place. So whether a can ship container was where it was supposed to be or not, it stayed there, whether that was hanging out in a port, whether that was offloaded or had just been on loaded, everything essentially froze because there was no labor force to support moving the goods, either off or on the ships or in and out of the port.
In 2021. The next event that we had is massive increases in pricing to the order of magnitude of 10 times. I have a friend that owns a Chinese restaurant and a shipping container from China to the United States back in 2020 was roughly $1,500. He's paying for that same container right now [00:04:00] between $15,000 to $17,000.
So dramatic, dramatic unsustainable price increases. And the third piece of this puzzle relative to what our perspective looks like right now is consumer demand for goods has actually gone up by 5% since 2020. We've got kind of that perfect storm, unfortunately, continuing, and I don't want to sound doom and gloom, but I think companies have to realize this isn't going away.
This is not going to suddenly evaporate. The feds are talking about putting in increases again, come in March. And so I think we have to really grasp the idea that we need a plan to do things differently now than we did in 2019, because this is here to stay for quite a long time.
Lindsay Duran: Absolutely. And certainly that coupled with inflation is making, doing business very challenging for all companies.
What is the impact to bottom lines for [00:05:00] companies that try to take on these, these new supply chain challenges with old commercial processes?
Lydia DiLiello: Lindsay, every client I talk to starts out the conversation with, well, our margins are down by 2%, 3%, one and a half percent. I have not yet spoken to a client who has not said their profit has been impacted.
And I believe that many of them are underestimating the impact because of time lag in data and in the challenge of keeping up with costs that are changing on them on a weekly basis. And so the short answer is everyone is feeling that the bottom line impact.
Lindsay Duran: Would you say that B2B companies were slow to react initially? And if so, why do you think that was the case?
Lydia DiLiello: I think most companies were slow to respond Lindsay, because we've never had a global pandemic. No one knew what to expect and everything that we've all been taught about business [00:06:00] cycles was that what goes up does come down. So to speak. And I think just trying to keep up with the requirements of what was happening relative to COVID and how to keep employees safe and how to put out the latest fire made it very difficult to put a plan in place for supply chain. When you're chasing late orders and your customers are out of stock, you're dealing with those fires at that moment. And by six o'clock at night, when you've put the fires out, you've got nothing left to try to put a plan in place to say, how are we going to deal with this ongoing supply chain problem.
Lindsay Duran: Indeed. I think we all were expecting that the pandemic to end much sooner than, than it has. And it's certainly still raging and wreaking havoc, especially on the global scale. So on the flip side of that, now that it has been going on for nearly two years, you've also seen companies sort of decide to live with it rather than[00:07:00] reinvisioning their value chain processes. Is that a, a fair statement?
Lydia DiLiello: I think it's a very fair statement. And I think that they were living with it mostly in 2021. And as 2022 is kicking off. They're starting to realize that all the indicators are saying the same thing, which is, this is a marathon and it's not ending anytime soon.
And so what are we going to do about it? Because doing business the way we were in terms of just chasing fires is not going to be effective for 2022.
Lindsay Duran: That's really interesting. And sort of paradoxical almost like it's led to some feelings of apathy. What is the result of that?
Lydia DiLiello: Profits are going to continue to decrease dramatically. And I think the apathy comes from a feeling of helplessness, of not knowing what to do next of trying to find any short-term fixes to buy them a little breathing room, so to speak. But the apathy is very, very dangerous. Whether it's a [00:08:00] fortune 500 company or a small mom and pop because the longer you stay in apathy, the more that bottom line deteriorates and it really then feeds upon itself.
And so I'm encouraging all of my clients and I hope anyone that hears this podcast to really take all measures available to them to stop that slide and put some price gates in place to help secure their profitability.
Lindsay Duran: Indeed, it continues to amaze me that that companies are trying to manage through all of these, very kind of steady volatile cost increases that we're seeing at an increased frequency and rate really more than ever before. And that they're doing so with these kind of old school manual processes, right. Doing everything in Excel and re-uploading updated prices in your ERP and trying to make those adjustments on a sometimes daily basis just seems like such a big undertaking with those manual tools and processes.[00:09:00]
Lydia DiLiello: You're absolutely right, Lindsay and it always comes back down to the data. The vast majority of my client base does not have a good grasp on their data. And they've got Excel spreadsheets, ad nauseum, but they don't have actionable data that they can answer the question that I always ask, which is the 20% of your customers that are bringing in 80% of your revenue, where do you stand with them on a profitability perspective right now?
And they can’t answer it.
Lindsay Duran: I think that's a great way to think about it and prioritize where they should be focusing their attention out of the gate. What else should B2B manufacturers and distributors be doing in lieu of the approaches that they're taking today and how do they get to that more intelligent, actionable insight?
Lydia DiLiello: So I think the first thing that they need to look at is obviously pull up all of their contracts. Under these circumstances, I'm sure they have out clauses in those contracts and they need to [00:10:00] exercise them immediately. They need to be holding prices for a week at a time. Not a month, which was standard practice before the usual 30 or 45 day quote shouldn't even exist right now, either it's a week or it gets requoted.
I think that the days of volume discounts have to go away and no loss leader. So many, I talked to a company last week, small company, and they were telling me how they were still using loss leaders. And I kind of came out of my seat and said in this climate you can't afford to sell anything as a loss leader.
Every single SKU has to be profitable on its own because loss leaders in this climate,just double up the effect of the profit that you're already losing, just due to time lags in the cost increases they're receiving versus the prices that they're quoting.
Lindsay Duran: Absolutely. That's really incredible. And something that I hadn't contemplated, that companies were still going down the path of selling [00:11:00] loss leaders, particularly in, in this environment.
What strikes me is that there's an opportunity here for companies to take a look at their data, particularly their product master data, and try to understand where they could be selling substitute products, that maybe certain product lines are less affected by the supply chain disruption than others. How have you seen companies approach that and do you feel like companies have a good handle on how to actually operationalize doing that success?
Lydia DiLiello: I would give you a yes and a no on this one, Lindsay, and it really depends on the company. And the reason I answered that way is it depends on their control of their data and their master data. As you mentioned, when a company can't answer the profitability question on the 20% of their customer base that is the most profitable to them, they certainly struggle with answering the question about substitute products and what products they should either not sell any longer or discontinue because of supply [00:12:00] chain issues or adjust with dramatic price increases or switch out as you mentioned. And so I have seen some that do it extremely well and it feels very much to me like the all or nothing. Either a company is well situated because they have the systems in place to provide them that actionable data, or they don't and size does not dictate which category they fall into, but systems certainly do. So if they're still running off of Excel spreadsheets, 95% of the time, they're really not addressing this issue at all. If they are running off of a system that is providing proactive pricing, that's taking into account real time costing, they have a much better chance and generally are then likely addressing that. Case in point would be Lowe's the hardware giant hardware store, if you want to call it that. Their CEO actually was quoted in Barron's, I think it was last [00:13:00] November, as having tied together the supply chain function with pricing. And I thought that was fascinating because for the first time ever a CEO was publicly saying how much power there is in marrying supply chain with pricing so that you knew exactly real time, not only your costs, but your prices and therefore what your resulting profit was at that moment in time.
So I see that there's hope Lindsay for these companies, the core is they've got to get control of that data first and foremost.
Lindsay Duran: Absolutely. That's so interesting that you say that. And I think the other piece of that comes into that is inventory availability, right? How are you marrying cost and pricing and what you're stocking if that's the type of business that you're in order to make sure that you're making a really good commercial decision and that you're selling things profitably. I think one of the things that's probably exacerbating this issue, particularly for companies that are still using those manual [00:14:00] processes and living in spreadsheets, is that more and more business is shifting to those online digital channels and you can't rely on a sales rep to know what a substitute product should be if the product that the customer wants isn't available for months on end, you have to have that data in a structured, in a usable way, such that you can actually recommend those substitute products to a customer when they come to your eCommerce site. And if you're still living in the land of spreadsheets and relying on human intervention in order to solve that problem, I think you're likely missing out on a fair amount of volume and your margins are ultimately going to suffer.
Lydia DiLiello: Totally agree, Lindsey. And the idea of being able to suggest at that moment, an alternative product, and to your point, what's in inventory, which is in the company's best interest to know that immediately rather than it takes a week to answer that question and the sale’s gone by then.
Lindsay Duran: Can [00:15:00] you give us a few examples of companies that you've seen respond effectively or the right way, if you will, to the supply chain disruption and the benefits that they've seen as a result.
Lydia DiLiello: Well, certainly Lowe's is on the right track and the podcast in Barron's where, Martin Ellis is the CEO, he talked about how their profitability has increased. Now he talked in broad terms and didn't quote, specific numbers, but I'm certain that they are seeing significant, right now, I would say less, much less erosion. If they're not picking up points, they're certainly not experiencing the erosion that other companies their size are.
So I would say certainly not one case. A second case is there is the whole issue around the chips for manufacturing. Columbus, Ohio, actually put in a tax-free program for Intel to come in and create a new chip building center. So Intel has [00:16:00] now just created the world's largest chip center. That's under construction in Columbus, Ohio.
So I believe that by bringing in, because we didn't really talk about repatriating manufacturing to the states, but I think that's also part of the issue Lindsay, because when we talk about supply chain, if you can make it local, local meaning domestic, I think you gained far better controls over it. And therefore that removes a whole nother dimension to this. So those companies that are talking about repatriating and sharing supply back with local or state side suppliers are also gaining significant uplift.
Lindsay Duran: I think that's a really great point. I mean, we've seen over the years, so much U S manufacturing and even European manufacturing get outsourced to Asia. And when you have those very complex supply chains and you're building complex products and you have different piece parts of that product being built in [00:17:00] different places that need to be brought together and finished out to create that finished good. And you see a lot of disruption, you really are not setting yourself up well, especially if you're single source. Now, certainly if you're dual sourced that you may have some advantages there, but I think we have seen the trend of U.S. manufacturers bringing more manufacturing back into the U.S. just out of necessity, really, because any cost advantage that they were maybe benefiting from is gone if you can't actually get your product here.
Lydia DiLiello: In addition to that, Lindsay, and I think you're exactly right, is this whole idea of where we kind of started our conversation when a shipping container is order of magnitude of 10 times more expensive, no company can make up that kind of profit on an ongoing basis in any sustainable fashion.
Even if you're passing through that cost, how long before your customers start, to your point earlier, look for trade-offs in product. What else could they get from [00:18:00] someone else who might have localized their supply?
Lindsay Duran: Well, Lydia, I want to thank you again for being here. Is there anything that you'd like to leave our listeners with, any final thoughts?
Lydia DiLiello: A thought Lindsay relative to let's be proactive. We've spent two years being very reactive, profits have been hit. Let's start to take some measures to say, we've got to do something besides just put out the fires. And so some very short-term quick options are, look at your 80-20, go look at those 20% of your customers.
Start there. If you can get a handle on those, you'll stop the bleeding much more quickly. And if you only look at that list, I still believe that they will be better off in the long run as we do start to come out of this and then implementing the things we talked about earlier, in terms of contracts, in terms of volume discounts, in terms of looking at inventory, they are going to be much better off.
If it was me, I would leave a fire burning rather than leave the company [00:19:00] hanging and just continuing to kind of move through this as we have. So. I'm hopeful for a good news story as we move through 2022, but people need to realize this is absolutely a marathon.
Lindsay Duran: I think we could all use some more good news in our lives. Thanks so much for being here, Lydia, to discuss this very timely topic and for sharing your perspective.
Lydia DiLiello: Lindsay. It's always a pleasure and thank you very much for having me.
Lindsay Duran: I also want to thank each of our podcast listeners for being with us. Be sure to check out the link in the show notes to a recent in-depth blog post on this subject, entitled “How to Approach Pricing Amid Supply Chain Turmoil.”
If you're interested in learning how Zilliant may be able to help your business, please reach out to us on Zilliant.com. And finally, if you're enjoying this podcast, please take a moment to rate and review the show as it helps us to continue to put out great free content. We hope you'll join us for the next episode of B2B Reimagined [00:20:00].
