pricing for inventory availability

Pricing for Inventory Availability23 October 2014

COPYRIGHT © SYNCRON 2014

Syncron is the global leader in aftermarket service optimization

• Price Management and

Aftermarket Specialist

– Price Management

– Inventory Management

– Master Data Management

• Customers are multinational

companies

– Active users in more than 100

countries

– R&D intensive, investing >20% of

revenue

Meet the Presenter:

Johan ÖstlinPricing Consultancy Manager at Syncron

• 7+ years providing pricing consulting services to companies

• Ph.D. Aftermarket Solutions, Institute of Technology at Linköping University

• Speaker at European Aftermarket Business Platform 2014


What are our key strengths in the service parts offer?

1. Part quality

2. Part availability from stock

3. Service technicians know how and service

4. Technical documentation availability

5. Delivery times

6. One stop shop

7. Ability to deliver parts over the lifecycle


Our customers tell us:

• 90+ % of our sales revenue has an inventory stocking policy from a central warehouse point of view

• 10-15% of our priced parts are on a stocking policy

• Syncron Estimates that in generall 40-60% of sales revenue are done with a superior delivery potential to competitors


Price Optimization - Value Based Approach

• Today's pricing process in a traditional company.

• “Reverse” pricing process to

– Focus on customer benefits and perceived value as prime input.

– Provide input to purchase process when possible.

Product Cost Price Value CustomerCost+ Approach

Customer Value Price Cost ProductValue Based Pricing Approach

Nagel T. and Hogan J. (2006)


Understand when superior availability is important

1. Competitive options for parts (captive, competitive)

• Independent aftermarket, suppliers supply chain, supplier contracts, reengineering possibilities.

• Parts availability out of stock from our competitors

2. Part purchasing characteristics

• Breakdown parts

– Critical and non critical

• Consumables and maintenance parts

• Reconditioning, overhaul, remanufactured parts


Understand when superior availability is important

3. Position in the product lifecycle

• New, Growth, Mature, Decline, Obsolescence

4. Different types of supply chains

• Own Subsidiaries, Dealers, Retailers, Distributors, Etc

5. Different types of customers

• Walk in, Service Contract, Large Fleet, Rental Operator Customers


Typical Aftermarket Pricing Categories

General Items

Captive Consumables

Captive Items

Commercial Unique

Commercial Commodity

Standard Items

Kits

Remanufactured Items



Captive Items

• Reengineering/repairs mainly the competitive option• Availability are highly important since we are the main source• Frequently categorized as critical parts • Part availability is key• Risk of emerging competitors if we underperform



Captive Consumables

• Volumes may attract copy alternatives to develop• High runners/maintenance parts are frequently stored by larger

customer themselves• Less value add on superior delivery for large customers



General Items

• Reengineering possible • Delivery time and stock availability is key



Commercial Commodity

• High competitive pressure • Highly likely that high volume parts are also available from

competitors of the shelf• Maintenance parts can be stored by customer themselves


Commercial Unique

• Less competitive pressure • Suppliers are more likely to have special types of part on a

“make to order” policy



Different Customers Types have different needs

Constructing a price premiumAccording to part availability


Traditional Product Oriented Pricing Approach

FiltersCommercial Unique Items

Air Filters Filter paper A+

Oil Filters

Water Filters

Filter paper A

Filter paper B

Product Segmentation Structure

Volume

ValueDriver

Volume

Volume

Filter paper A+

Filter paper B

Price

Volume

Captive ItemsImpeller Product Range A

Product Range B

Material A

Material B

Material C

Diameter

PC Boards Process Control

Flow Control

Cost+

Cost+

Generation 6

Generation 5

Cost+

List Price

List Price

FiltersCommercial Items

Diameter

Diameter


Expanding the Pricing Framework

Commercial Unique Items

Product Category

Captive Items

Commercial Items

Customer Type

Independent Dealers

Customers with high organizational

capabilities

Medium Sized Customers

Walk in customers

Service Level A+

Service Level A

Non stocked

Inventory Availability

Critical

Maintenance

Service Type

Low criticality

Volume parts

Life Cycle

New

Growth

Decline

Maturity

Obsolesce

Supplier 1

Supplier 2

Supplier/Competitor


Price Potential


Product Category

Customer Type

Independent Dealers


capabilities

Walk in customers

Service Level A+

Service Level A

Non stocked


Critical

Maintenance

Service Type

Low criticality

Volume parts

Life Cycle

New

Growth

Decline

Maturity

Obsolesce

Supplier 1

Supplier 2

Price potential on all customer types

Supplier/Competitor



Price Potential


Product Category

Customer Type

Independent Dealers


capabilities

Walk in customers

Service Level A+

Service Level A

Non stocked


Critical

Maintenance

Service Type

Low criticality

Volume parts

Life Cycle

New

Growth

Decline

Maturity

Obsolesce

Supplier 1

Supplier 2

Price potential for smaller customers

Supplier/Competitor



Price Potential


Product Category

Customer Type

Independent Dealers


capabilities

Walk in customers

Service Level A+

Service Level A

Non stocked


Critical

Maintenance

Service Type

Low criticality

Volume parts

Life Cycle

New

Growth

Decline

Maturity

Obsolesce

Supplier 1

Supplier 2

Price potential for all customers on some specific life cycle stages

Supplier/Competitor



Constructing the Price Premium


Product Category

Customer Type

Independent Dealers


capabilities

Walk in customers

Service Level A+

Service Level A

Non stocked


Critical

Maintenance

Service Type

Low criticality

Volume parts

Life Cycle

New

Growth

Decline

Maturity

Obsolesce

Supplier 1

Supplier 2

Conditional List Price Factors Customer Discount Factors

Supplier/Competitor

Base Price x x



Example – Service Level A+

Service Level A+

Critical

Maintenance

Serv

ice T

ype

Low criticality

Volume parts

New

Life Cycle

Maternity

30% 20% 40%

10% 10% 20%

10% 10% 20%

0% 0% 10%

Obsolesce


Large Medium Small

0% 0% 0%

-10% -10% 0%

-10% 0% 0%

-10% 0% 0%

Customer Type

+

Conditional List Price Factors Customer Discount Factors


Summary

• Price and inventory are often considered in isolation but balancing price and inventory strategies can drive additional profit

• Main potential arrives from critical parts with low amount of competition early and in later part of the lifecycle

• Don’t overprice your general and commercial parts when you cant deliver, there is a risk or competitor entrance

• Customer types and different purchase patterns are key in identifying the value we bring, and hence the price potential

pricing for inventory availability

Software

copyright syncron

parts availability

critical parts

parts captive

remanufactured parts

service parts offer

superior availability

high volume parts