Articles

Customer Pricing and Delivery Upon Restarting a Business

By Bill T. Walker, CFPIM, CSCP-F, CLTD-F, CIRM 

July 2020

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Bill Walker

On a rainy Friday night, we decided to order pizza.  Our choices were curbside pickup or a “Contact Free” Grubhub delivery. Although more expensive, we decided on Grubhub’s delivery convenience.  The pricing of the pie looked about right, the Grubhub delivery was tagged as “free”, the only extra was the driver’s tip.  In this time of Covid-19 providing a little revenue to the local pizza shop and a tip to the delivery driver could not hurt.

From last month’s column as supply chains are restarted…First, reimagine the network container – This is a revised set of company relationships, import/export logistics, order flow connections, and cash flow connections to SOURCE, MAKE, and DELIVER your products.  Old assumptions are validated, and the revised network design is iterated to achieve a profitable customer landed cost. 

Before Covid-19, the pizza shop operated on a slim 4% profit margin included within the $3.97 seller’s markup shown below.  Upon restarting, the pizza shop faced two critical 

changes to its network container.  First, its cheese wholesaler decided to pass along 181% in market price inflation.  Second, the pizza shop owner decided that to rebuild demand, it was necessary to offer home delivery and to absorb Grubhub’s actual delivery costs.  Unless the wholesaler is changed and pizza prices are raised, the profit lost in the landed cost rollup makes this supply chain network untenable for the pizza shop.

Upon restarting, your supply chain network clearly must both reach the intended customer market and operate from a customer’s landed cost budget that sustains your profitability.

©2020 William T. Walker, CFPIM, CSCP-F, CLTD-F, CIRM has 42 years practitioner experience, authored Supply Chain Construction and Supply Chain Architecture, and teaches Supply Chain Engineering at NYU Tandon plus Demand Planning at Rutgers. He is a 40-year ASCM member and APICS E&R Foundation past president. email: [email protected]