Although it is common knowledge that our manufacturing sector is still in the doldrums, surely there must be other ways for local manufacturers to be more competitive. Retailers say they are stocking more foreign products because of poor domestic supply, they can also say local products are expensive and would therefore not yield as high a return.
These are people driven by self-interest, and it would not make sense for them to stock expensive products. It is therefore incumbent for manufacturers to adopt innovative production and pricing mechanisms, as well as good marketing management philosophies in their making of goods.
Cost-plus pricing
I have heard some producers complaining that although they are just putting a margin of as low as two percent, their products are still not being bought. This is where it should be noted that two percent of an elephant is different from two percent of a rat in terms of quantums.
Manufacturers should abolish the notion of using only cost-plus pricing when making products. Cost-plus pricing first calculates the cost of the product, and then includes an additional amount to represent profit they will make. Although this method guarantees profit to the producer, which is an incentive for continuity of operations, that profit is only on condition that the product is bought. Most local products are currently expensive, compared to imported ones, because the local manufacturers are using cost-plus pricing only.
Market-based pricing
Local manufacturers should therefore use the market based pricing method. Market-based pricing means evaluating the prices of similar products on the market and the price of imports.
The manufacturer will then work backwards to determine if his costs can allow him to make the product and leave him with a profit.
Using both methods gives the manufacturer the guarantee that his product is going to be competitive and that he is going to make a profit.
Further to the above, local producers should adopt some marketing management philosophies earmarked at checkmating the imported products’ dominance in retail shelves. There is also need to calibrate their production systems to enhance competitiveness through increasing efficiency and eliminating waste from manufacturing.
The talk of lean manufacturing should not keep falling on deaf ears. Here we are talking about production practises that consider the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination.
Post published in: Business