INDEPENDENT VOICE ; MARK MATHES
The Pricing Conundrum
The question that seems to follow me wherever I go is where I see containerboard prices headed. The bulk of
these requests comes from customers
who are setting their budgets and don’t
want surprises. I certainly understand,
as surprise avoidance is something I
live by, too. But I’m amazed at how
many people within our industry ask
the same question. An integrated linerboard rep once told me that I, as an
independent operator, probably knew
more about a pending containerboard
price increase than he did. The sad
part is I believe he was likely correct.
In spite of the size, complexity and
age of our industry, we really suck
at pricing. Please allow me, in my
independent perspective, to share a
few pithy and insightful examples, followed by a few suggestions to lead us
all to the profit promised land.
First off, what is the transacted price
of linerboard? Anybody? That’s the
problem. There is no one price. There’s
the “pass-through” price that integrateds
charge their own plants. Some industry
publications choose to cite these in their
pricing indexes, partially because they
are easier to find and monitor.
Then there are negotiated prices that
reflect various volume contracts. Natu-
rally, the more you buy the cheaper the
price. That might explain why I don’t
have the luxury of giving converting
away (that and the whole profit-motive
thing). But mixed into that are brokers,
buying groups, and assorted other ar-
rangements. In this category, prices are
like snowflakes; no two are alike. This
doesn’t even include exports, which are a
whole different ball game. So identifying
a transacted price is about as easy as get-
ting a crystal clear video of Bigfoot.
In spite of the size, complexity and age of our
industry, we really suck at pricing … Pricing
decisions flow into too many hands too far
down the org chart.
What to Do?
So what can we do to eliminate the
arcane process by which our industry
currently raises box prices? I would like
to submit what I humbly call the Mathes
Plan. While it really isn’t a plan per se,
it’s a set of ideas that I think have merit
in putting pricing at a level that is profitable and allows the industry to fund
investments in technology and R&D.
It also does not cut Medicare or Medicaid and continues our Social Security
commitment to our seniors.
First, fire all national account sales
reps and their sales managers. All these
contracts do is drain profit from the industry. If there is nobody around to put
the stupid ideas out there in the first place,
then we are all safer. It’s also a great overhead reduction and you will save tons on
customized golf balls and tee times.
Second, enact the “out clauses” that
most of these contracts have and kill them
now. Return this business to being priced
at the plant level where the plant level
management can at least cover its costs.
Here’s a hint to the national account guys:
Buyers don’t solely buy on price. They
will lose their jobs quicker over your poor
performance than they will over price.
Third, give 100-percent decision making to regional managers. If some national
account manager got a contract that is
a hopeless dog, the regional manager
should have the authority to refuse to
run it in any of his plants. I know of some
regions where the regional managers can
effectively control only a fraction of the
business that comes through their regions.
These guys also should have the authority
to close plants in their areas that are hopelessly unable to ever make a profit – and
there are plenty of them out there.