MUST WE BE PRICE SCARED?

RICHARD JOSEPH
GENERAL MANAGER,
CARIBBEAN BUSINESS SERVICES LIMITED

In a recent statement, the Chief Executive Officer of Price Smart said that an objective of the Company was to determine how low it could set its prices. This was further confirmed in information released by his Chairman who advised that their goal is to be the "low price leader" for the markets they serve.

This has to be seen as another wake up call for both our distribution and manufacturing sectors (and also the banks which support them). Many of our businesses have developed and thrived in our protected markets, including CARICOM. In the wider-world, to which we are more and more being exposed, the strategy being followed by Price Smart is common, and only represents the result of a logically thought out approach to business.

Deliberately adopting a low price strategy does not mean selling at loss. It requires a thorough understanding of all the various cost elements, hidden or not, which are taken into consideration when setting a price. Each of these costs is then carefully examined to see if they can be avoided, and if not how they can be minimized. Most of our operations already do this, but in order to exist in a more aggressive marketplace, they have to do it better.

Price Smart has not made a secret of how it expects to go about achieving its goal. First of all it cuts the cost of keeping inventory by reducing the range of items it sells, and linking the amount of stock on hand to clear sales projections for a specified period. Though this gives the consumer less choice, reducing the amount of inventory carried substantially reduces storage costs, the associated overhead costs and the financing costs.

Next, it negotiates the lowest possible cost from its suppliers. This is not necessarily bad for the suppliers if they are efficient and have adopted a similar philosophy to managing their operations. Modern production management techniques, which have not yet been widely adopted here, bring costs down by squeezing waste out of their production system. In addition, they apply the same tools being used by the distributor such as tight inventory management and seeking price cuts from their raw material suppliers who are also required to become more efficient. Internationally, manufacturers have been improving competitiveness by implementing ISO 9000 quality systems and adopting Lean Manufacturing disciplines.

The third leg of Price Smart's strategy is based on state of the art information systems. These systems enable them to monitor closely the performance of individual product lines as well as customer preferences. An information driven approach enables managers to base decisions on factual knowledge of customers' preference, both in terms of product and price. This reduces the element of guessing and therefore inefficiency in the system.

The fourth leg of the strategy is the recruitment and training of high quality personnel. A properly trained and motivated workforce is essential to success in any environment today. "Our best resource is our employees" is more than just a catchphrase, and the first three elements of the strategy cannot be effectively implemented without the last element.

The strategies described above are not magic, and are not the exclusive property of Price Smart. Any distributor or manufacturer can adopt them, though there will be a learning curve to be overcome.

We have already seen a successful implementation of modern management techniques by a local entrepreneur in the fast food industry. The history of the Pizza Boy's chain is well known and their strategy and success has been based on models developed and used in the American fast food industry. Though Pizza Boys and other international fast food operations have changed our eating habits, they certainly have not closed down our indigenous roti and doubles vendors.

As with many other sectors, unstoppable change is sweeping through our distribution system. We will be facing the same situation again if and when the gas station system becomes de-monopolized. Such changes cannot be avoided, and our only option is to understand them and take the measures that will allow us to benefit from them as well.