The Worst Management Idea of the Year

Introduction

As a management consultant and professor, one thing that I usually urge executives to do is to be willing to engage in stealing. Now, I know that I need to explain that one. What I have found from my experience is that it is typically a sign of the best management when a company’s leadership is willing to copy the best ideas and practices of market leaders and adapt them for their purposes. This is true whether we are talking about how to manage your people, how to market your product, how to provide good customer service, etc. Steve Jobs, the legendary founder and CEO of Apple, who many of the innovations he is credited with actually originated with other companies, loved the famous Pablo Picasso quote that: “Good artists copy, great artists steal.”

All too often however, executives fall into the NIH (“Not Invented Here”) trap, falsely believing that only they and their management team can come up with bright ideas. And so being willing to benchmark good ideas and best practices - what lay people would refer to as stealing or copying - is indeed a very good sign from my perspective that you have a good management team in place in an organization.

With that being said, there are some ideas that may sound like they are ideal in theory. However, when you think about them - when you really think about them - you soon realize that your company should not follow the leader, and in fact, you should stay far, far away from doing anything close to what that market leader is doing. And today, we have a perfect example of an idea that you and your company should steer clear of, even if the concept might sound entirely reasonable, even prudent, given present market conditions. So here are three words that should be verboten in any corporate boardroom or small business manager’s office today: “Supply Chain Surcharge!”

Surcharges Everywhere

American consumers see - and yes, mostly accept - surcharges throughout their existence today. From our wireless bills to our utility bills, we see surcharges galore. When we open our bank statements and our insurance renewals, we see more and more charges being added-on to the “base” amount that we pay each and every period. Surcharges have become a de facto standard pricing tool today. From delivery charges to convenience fees to fuel surcharges, Americans have grown accustomed to seeing charges being added onto the “base” price across many aspects of what we do and what we buy.

Perhaps nowhere is this more evident than in the airline industry. Baggage fees became almost an industry standard seemingly overnight after being introduced in 2008 by American Airlines when dire economic circumstances threatened the airlines. And once fees for checking a bag came into being, all of us travelers have been paying for the privilege ever since. In 2019, the last “normal” travel year before the COVID-19 pandemic upended air travel, American airlines all told collected almost $6 billion in additional revenue through fees for checked baggage. Today, Southwest Airlines stands alone among the major U.S. airlines in not charging fees for checked luggage, giving them a distinct competitive position that is one of the reasons the company has such a loyal customer base and grown so rapidly in recent years.

And while travelers may dislike baggage fees, this surcharge, among a whole host of other fees that have begun to be charged by airlines, have simply become standard across the industry. For travelers however, these fees make it exceedingly hard to compare “net” prices across airlines between airlines that have different surcharges that one may - or may not - incur when flying.

The Supply Chain Surcharge

Seemingly everywhere one turns today, the supply chain - the underpinning of our modern existence that had for long operated in the background without much public attention - is suddenly the subject of a great deal of conversation - and consternation! Today, one cannot escape the incessant media reports about the “supply chain crisis,” complete with the visuals of container ships full of imported goods bound for America that are simply stranded off the California shore, waiting to be unloaded. And when one goes to the grocery store or a big box store to shop today, you can easily see for yourself the evidence of a severely strained supply chain, with empty shelves and yes, higher prices.

Just as consumers are feeling the pinch of the supply chain crisis, so too is just about every company today. We see auto companies unable to supply the new cars that customers want - and will pay a premium price for - due to a short supply of the computer chips that manage everything in today’s high-tech automobiles…

We see manufacturing companies of all types struggling with not just supply chain issues for the components for what they produce, but also for the cardboard, foam, and other packaging materials needed to ship them to consumers. We see retailers - both big and small alike - struggling to stock their shelves with the staples that all of us rely on today...

All of this causes very real issues - operational, competitive, and financial - for management in almost every consumer-facing company today. Many companies, both small and large alike, may well be facing not just short-term issues, but existential-level problems that sadly, for some, will prove fatal. And so certainly, managers everywhere are being challenged to come up with novel strategies on how to best address what is, no doubt, a very real business crisis today. While there will certainly be innovative tactics to be touted in other articles, the present one is about what not to do in response to the current supply chain crisis. And remarkably, this “lesson learned” comes from one of America’s most well known consumer brands.

Recently, David Lazarus, a business columnist for The Los Angeles Times, wrote an article on how Sherwin-Williams, the country’s largest paint company, was implementing what he believed was a “sneaky fee” to its customers in the form of a “Supply Chain Surcharge.” Lazarus found fault in not just the concept, but in its execution. Rather than raising prices on the paint and other home improvement-related merchandise that Sherwin-Williams stocks in its company-owned retail stores, the firm simply added the 4% fee to all customers at checkout, with no notice to customers beforehand. The writer saw this surprise fee as especially egregious, for as Lazarus correctly pointed out, when a customer goes to checkout with custom mixed paint, he or she really has no choice but to proceed with the transaction. He stated: “Sherwin-Williams apparently chose not to raise prices in a straightforward fashion. Instead, it slapped a surcharge onto paint sales. This is an important — and shifty — distinction.”

The company’s implementation of their “Supply Chain Surcharge” has also drawn the ire of consumer advocates. As Jenn Engstrom, the state director for the California Public Interest Research Group, stated in the L.A. Times piece: “Hidden surcharges undermine consumers’ ability to shop around for the best value for their money.” Despite such criticism, and likely more than a few irate customers, Sherwin-Williams has stated that it intends to continue with the surcharge until at least the end of this year.

Analysis

There is a famous quote in politics from Rahm Emanuel, a former advisor to President Barack Obama and Mayor of Chicago that goes: “You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before.” And many times throughout history, in times of crisis, things change faster than could ever have been imagined absent a crisis and major changes implemented to the way things were done. Certainly, many companies have been able to make use of crisis times to make major strategic moves and implement significant organizational and operational changes. Indeed, stories like that of how Johnson & Johnson responded to the Tylenol poisonings of the early 1980’s are the stuff of business legends, resulting in the tamper-resistant packaging that we see in use across the consumer packaged goods sector today.

Yet, perhaps the worst marketing position one can find oneself in is to be perceived - rightly or wrongly - as actively trying to take advantage of a crisis. And taking on a “crisis surcharge” is certainly likely to be perceived by customers as simply being wrong. Now, Sherwin-Willliams, while being the first nationally known firm to tack-on a specific supply chain crisis-inspired surcharge, is not nearly the only company to take the crisis surcharge route. Indeed, during the course of the COVID-19 pandemic, we have seen many restaurants, hotels, dentists and more rush to add “COVID Surcharges” to their bills, drawing the ire of consumers. Now some of these fees may well be legitimate when they deal with specific protective measures, many others are perceived by consumers as the same kind of “tacked on fee” for everyone that Sherwin-Williams is currently using.

And so my best management advice for any company that might hear of Sherwin-William’s move and think that it’s a good idea, well, it’s really simple: Don’t go there! In the end, as Jenn Engstrom observed in the L.A. Times article, such a Supply Chain Surcharge is doomed to fail: “It’s a sneaky way to hide the true price of the product, but a great way to annoy your customers.” Certainly, a Supply Chain Surcharge might be a very tempting short-term move for management in many companies right now to plug revenue holes. However, no matter how one might label it, such a fee will only cause pricing confusion - and yes, likely consternation - for their customers. For while we live in an era of surcharges, this is a strategy whose time is not now - or ever.

So, while my belief as a management consultant and professor is that this would be an ill-advised tactic for companies to employ today, my fear is that some firms will read about Sherwin-Williams’ move and copy it. What we do not want is for a “Supply Chain Surcharge” to take hold in the same way surcharges and fees have across the airline industry today. If we were to see such fees added onto total bills in retail, we, as consumers, will indeed lose the ability to compare prices. And in the process, companies will further erode consumer’s trust in them, which as things stand today, is something that should be treated with immense care as once lost, it is difficult, if not impossible, to regain. So indeed, executives will be well-advised to stay away - far, far away - from even considering instituting such a supply-chain crisis-based surcharge!

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About David Wyld

David Wyld is a Professor of Strategic Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, publisher, executive educator, and experienced expert witness. You can view all of his work at https://authory.com/DavidWyld.

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