October 13, 2005

A central tenet of the Demand-Driven Supply Network, a phrase coined by AMR Research, is to use all possible information to respond better to actual customer demand. By having the right products in the right place at the right price, you avoid the margin killers of stockouts, excess inventory, and excessive discounting. Two particular areas are important for B2B manufacturers, says Bill Swanton, vice president of research for AMR: price management and channel management.

Pricing solutions typically produce the quickest ROI of any supply chain software—“a 5- to 19-percent profit improvement,” according to the Yankee Group—yet few companies want to talk about it for reasons of perception. “But we all know that discrete manufacturers live in a world of deal negotiations,” said Pam Kline Smith, vice president of marketing for Metreo, a provider of price management software and solutions.

“Typically, industrial manufacturers have a lot of SKUs, customers, and a lot of channels, resulting in a vast range of product prices. And often, salespeople will lower margins or offer discounts to increase win rates, break into new territory, or reward loyal customers among other reasons. Sales may go up, but at the same time revenues are eroding.”

According to Kline Smith, Metreo’s Smart Pricing Suite—an amalgamation of econometric best practice algorithms—analyzes historic and ongoing pricing data to optimize margins and identify most- and least-profitable customers, salespeople, and sales channels. As an example, she cited a customer, Owens Corning, who when emerging from Chapter 11, focused on achieving profitability quickly. “They had a range of products, channels, customers, and multiple discount plans. It was hard to know where to begin. With our software, the company realized an eight-figure ROI within 13 weeks. It’s the only lever people have to move where significant savings are practically instantaneous,” she added. The program can be used individually at the point of negotiation, by product managers and for planning.