Leke Olufade

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STRATEGY WITH LO -THIS WEDNESDAY -13-11-24

UNSOLD GOODS: NOW N1.24 TRILLION

It is another Wednesday and time for strategy with Dr L.O. The focus today is the rising value of unsold goods in Nigeria which has risen by about 357.6%. If you can guess the actual value in Naira: N1.24 trillion according to the Vanguard edition of 12 November 2024. That is significant and this is evidence of poor strategy in respect of production and product pricing in this VUCA environment.

PRODUCT PRICING: SCENARIO PLANNING STRATEGY

In the previous discussions I restated the fact that in this volatile, uncertain, complex and ambiguous environment (VUCA) one important strategy tool to leverage is scenario planning. This should be combined with a Sales forecasting tool to avoid the alarming situation of over I trillion Naira unsold goods when the population is actually ready for such products except when priced above their means. Let me recall key points:
* Identify and profile your customers- who and where they are!
* Find out what price they will be willing to buy since what affects you is equally affecting them.
* Design your production plan to ensure you produce what can be sold based on sales forecast.
* Create your pricing scenario to agree break-even point
When the value of unsold products rises by about 357.6 %, the implications are huge, and they include:
* The hold cost -warehouse, security, lighting, pilferage, deterioration- especially with expiry date.
* Production stoppage: cost of holding raw materials, cost of idle machines, idle workforce, etc., cost of capital around these costs.
* Finance cost: higher overdraft, default in facility repayments etc. administrative overhead not recovered, cash flow challenges …. So many things.
Then the strategic question or strategic option is whether all these costs would not have been more than the cost of a reasonable price discount? Trying to recover all the escalating prices of inputs through higher selling prices will not work again. There is always a break-even point.

TAKEAWAY

Every business requires agility and resilience and proactive management to ensure the right things are done driven by the right decisions. There is no more room for armchair managers who are resistant to change. The prices of these products should be discounted, encouraging bulk sales so that the money can be recouped and reused in the business. Another strategic approach is to always minimize losses. It is a serious strategic failure to produce products and not be able to sell. Yet this is avoidable.

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The inflation rate is rising above 30% compared with last year, fuel price from under N500 to over N1,000, electricity cost from about N50 per unit to N222 per unit. It is therefore a reality that we manage our cost of doing business and... read full article on https://lekeolufade.com/vuca-and-business-survival-part-4