More intelligent pricing superior to cost-cutting when it comes to an agile supply chain

Pricefx claim pure cost-cutting approach leads to dangerous supply chain risks

In a new statement from pricing experts at Pricefx, the prioritisation of solid pricing strategies over just-in-time manufacturing is the way forward.

Just-in-time is a process used to save money and avoid a stockpile of inventory. It can create a far leaner and agile supply chain, but results in an inability to respond to the fluctuations of a turbulent climate.

“During Covid, just-in-time manufacturing led to shortages of almost everything. In this moment, we are seeing the impact of the father of Toyota’s production system, Taiichi Ohno’s vision for cost cutting, gone too far,” said Gabriel Smith, pricing expert at Pricefx.

“Just-in-time may be a well-meaning strategy to save money and avoid the stockpile, but it adds unnecessary pressure on every link in the chain to be perfect,” continued Smith. “When one part of the chain breaks, everyone downwind gets the blowback, such as quality control, or analysis, or shipping. The pandemic has shed the light on the importance of inventory management costs at all stages, not just bottom-line savings that finance teams seem to only measure.”

“For B2B companies, pricing with an eye on supply chain and manufacturing stability can correct this trend by placing an explicit premium on availability, allowing for companies to hold inventory at sufficient levels to ensure you are not impacting your customer’s production now, and into the future.”

These strategies include:

  1. The integration of price management and optimisation that offers granularity across all channels, geographies and customers for a non-disruptive pricing to maximise profitability.
  2. Finding solutions with pricing transparency that are able to minimise the risks of complex value-chain pricing and can explain the value behind the data. This will leave teams able to negotiate terms and conditions effectively.
  3. Creating a more holistic approach to pricing – analysis of data and the understanding of profit drivers can turn these into effective pricing strategies across the value chain.
  4. The investment in powerful analytics to understand profit drivers for every transaction, product, salesperson and customer.
  5. Planning ahead with dynamic pricing, including parameters-based repricing and variable price contracts, and developing ‘what-if’ simulations before implementing to reduce risk.
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