PRICING finished goods in the feed industry is a complex and challenging task that, if not monitored and updated on a regular basis, can lead to dwindling margins and ultimately can affect your bottom line.
In today's environment, the frequency at which items need to be re-priced has increased dramatically due to the global and volatile nature of the ingredient market. This volatile market is the new norm, and you must adapt your business to ensure that you can keep up.
As you look at your current pricing process and tools or evaluate new tools, there are a few things to consider.
Frequency of process
When I travel to other places around the world, the thing that catches my ear in many businesses is the labor-intensive process they go through to update pricing. In many cases, this process can take eight hours or more.
In the past, when pricing was updated once a month or even less frequently, this wasn't such a big deal. Today's environment has changed all of that.
Many companies are updating pricing on a weekly basis, if not more frequently, to ensure that they keep profitability at an acceptable level.
The roadblock to increasing the frequency of process comes down to resources. The tools you use to price must allow for an increased frequency of process without draining resources.
Modularized pricing and pricing references can help reduce this drain. Modularized pricing allows single changes to affect many prices with the push of a button. Pricing references enable you to easily follow formulation cost changes so reformulation can occur as often as necessary (more often is definitely the trend).
Flexible, visible, accurate
Flexibility, visibility and accuracy within your process may be the most important aspects of a tool. This gets very complex, and your tool must be able to handle many different situations.
The day-to-day pricing operations must be supported by a robust equation engine. This is critical to your success as it should allow for the creation of variables and equations that can be as granular or as generic as you desire.
Another thing: Make sure these equations or variables can be specific to either a site or standard across your company.
A great example of this is being able to account for the differences in the processing cost of one formula versus another. Being able to assign a specific cost to processing a specific formula through a specific process at a specific site allows for ultimate accuracy of the margin created for a product.
In regard to margin, your tool should allow this to be adjustable so that changes in profit are clearly visible.
Another example might be when the same product (same formula) is produced at multiple sites; you want to ensure that you have the ability to apply unique pricing based on the ingredient cost at each site.
Does anyone have a customer with unique demands? I would guess that a few people in the crowd are raising their hand.
Customer-specific pricing must be considered. This is a major customer service offering of a company. If the interaction is not smooth or there are errors, it can damage your reputation and cause you to lose valuable customers.
To ensure a smooth interaction, certain pricing components must be customized to maintain customer pricing agreements.
A good way to manage this is through the use of multiple-cost lists or sets. The lists could be generated from various system costs, calculations or manually entered costs. From here, your final price to a customer can be calculated using whatever cost list you choose. It could also be calculated by referencing other items within the price list using a standard calculation and adding or subtracting margin, or it could be calculated by manual entry.
As the industry changes, each company must change with it (or before it, if possible).
Pricing is one of those areas with a huge impact on your bottom line and, ultimately, needs to be a focus of any company.
As you take positive steps in your pricing process, be sure you have a tool that does not put a drain on resources and also has the flexibility to manage variations, the visibility to make profitable decisions and the accuracy to drive your business forward.
*John Conboy is a global portfolio manager with Feed Management Systems focused on the development and direction of new products, solutions, services and continuous improvement consulting for feed industry manufacturing and operations. Conboy can be reached at [email protected]