Making sure the price is right

Pricing software vendors say their products can transform the art of pricing from what amounts to a guessing game into a disciplined, fact-based process that contributes directly to the corporate bottom line.


Though he can't divulge actual numbers, Robert Smith, director of corporate pricing at Eastman Chemical Company, says his organization has seen significant financial benefit from the adoption of pricing software.

Items made with Eastman Chemical products

Items made with Eastman Chemical products

And Michael Dunne, a research VP at industry analyst firm Gartner, says Smith is likely speaking the truth.
"Companies that have implemented pricing software have increased gross margins by two to five percent," says Dunne. "But such software has only relatively recently become broadly available."
Eastman Chemical offers a prime example of the challenges manufacturers constantly face in trying to strike a balance between satisfying the customer and turning a profit on each transaction.
The company operates in an arena in which freight and raw material costs fluctuate daily. It also is globally dispersed, which can make it difficult for sales people and pricing managers working in any one location to get all of the information needed to make proper pricing decisions.
That picture has improved, however, since Eastman adopted pricing software from Vendavo.
The solution helps Eastman determine the best price for each single transaction by giving company executives, pricing managers, and sales people up-to-the-moment snapshots of all the factors that go into setting price. These factors include:
• The current cost of raw materials needed to make the product;
• The cost of shipping the order to the customer; and
• A history of what the customer has paid for similar products.
The market for pricing software-or what the vendors prefer to call pricing optimization solutions-is dominated by a few players, including Vendavo, Zilliant , and PROS Holdings .
These vendors say their products can transform the art of pricing from what amounts to a guessing game into a disciplined, fact-based process that contributes directly to the corporate bottom line.
Dunne says these newer pricing solutions also allow "normal people"-such as a salespeople and pricing managers-do to sophisticated analysis on market trends in order to set prices effectively.
"Until recently, most price setting was done by working with consultants or other experts who have their own methods for assessing market trends and offering advice on setting prices," Dunne says.
By contrast, he adds, today's pricing software synchronizes the pricing-related information from multiple sources-ranging from a company's internal systems to third-party data services-and presents it to users in a format that is easy-to-understand.
For instance, before adopting Vendavos's pricing software, Eastman manually pulled together information from different sources. An Excel spreadsheet, for example, might contain pertinent cost information. Problem was, those information sources weren't updated often enough to play a role in day-to-day price setting, Smith says.
"It was nearly impossible to do accurate analysis because many of the data sources you were pulling from manually would be changing from day-to-day," Smith says. "Unless you have a lot of manpower available, you're not going to update records like that Excel spreadsheet on a routine basis."
Vendavo's pricing software allows for creating links to all sources of pricing information, which means Eastman is constantly getting new information from sources that update data at regular intervals. "So rather than spending hours pulling together the information to do the pricing analysis, you can do it in seconds," Smith says.
The Vendavo solution implemented at Eastman includes two main components:
Vendavo Price and Margin Analytics , which allows for analyzing the history of business transacted with individual customers; and
Vendavo Deal Execution , which permits a review of every price change proposed by a salesperson or customer.
Smith's team uses Price and Margin Analytics to review the profitability of past pricing strategies with an eye toward improving those numbers going forward. "We can look back and see if there are areas where price leakage occurred-where we didn't prices things as effectively as we could have," Smith says. "Or, we can see where freight, raw material, or other costs of serving our customers were higher than anticipated, indicating that perhaps we should have charged a higher price to reflect the true value we were bringing to the customer."
The system also helps when salespeople contend competitive pressure calls for cutting prices below recommended levels.
"If we have a customer that calls a sales representative and says‘I have a competitive price from another company on one of your products and I want you to reduce your price to meet that,' our pricing personnel will review the request inside the software to see the impact of the requested price on profitability and margin and compare it to other prices we've approved for other customers for the same product," Smith says.
Dunne believes pricing software will help manufacturers maintain, and in some cases increase, margins during this tough economic time.
"We've seen companies use pricing software to help them hold the line during a pretty crazy 12 months," he says.

No comments
The Top Plant program honors outstanding manufacturing facilities in North America. View the 2013 Top Plant.
The Product of the Year program recognizes products newly released in the manufacturing industries.
The Engineering Leaders Under 40 program identifies and gives recognition to young engineers who...
A cool solution: Collaboration, chemistry leads to foundry coat product development; See the 2015 Product of the Year Finalists
Raising the standard: What's new with NFPA 70E; A global view of manufacturing; Maintenance data; Fit bearings properly
Sister act: Building on their father's legacy, a new generation moves Bales Metal Surface Solutions forward; Meet the 2015 Engineering Leaders Under 40
Cyber security cost-efficient for industrial control systems; Extracting full value from operational data; Managing cyber security risks
Drilling for Big Data: Managing the flow of information; Big data drilldown series: Challenge and opportunity; OT to IT: Creating a circle of improvement; Industry loses best workers, again
Pipeline vulnerabilities? Securing hydrocarbon transit; Predictive analytics hit the mainstream; Dirty pipelines decrease flow, production—pig your line; Ensuring pipeline physical and cyber security
Upgrading secondary control systems; Keeping enclosures conditioned; Diagnostics increase equipment uptime; Mechatronics simplifies machine design
Designing positive-energy buildings; Ensuring power quality; Complying with NFPA 110; Minimizing arc flash hazards
Building high availability into industrial computers; Of key metrics and myth busting; The truth about five common VFD myths

Annual Salary Survey

After almost a decade of uncertainty, the confidence of plant floor managers is soaring. Even with a number of challenges and while implementing new technologies, there is a renewed sense of optimism among plant managers about their business and their future.

The respondents to the 2014 Plant Engineering Salary Survey come from throughout the U.S. and serve a variety of industries, but they are uniform in their optimism about manufacturing. This year’s survey found 79% consider manufacturing a secure career. That’s up from 75% in 2013 and significantly higher than the 63% figure when Plant Engineering first started asking that question a decade ago.

Read more: 2014 Salary Survey: Confidence rises amid the challenges

Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
The One Voice for Manufacturing blog reports on federal public policy issues impacting the manufacturing sector. One Voice is a joint effort by the National Tooling and Machining...
The Society for Maintenance and Reliability Professionals an organization devoted...
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Maintenance is not optional in manufacturing. It’s a profit center, driving productivity and uptime while reducing overall repair costs.
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.