1. Price Management 5 Steps to Jumpstart your shift to Value Based Pricing for Spare Parts

2. Page 2 COPYRIGHT SYNCRON 2014 Syncron is the global leader in aftermarket service optimization Price Management and Aftermarket Specialist Price Management Analytics Inventory Management Customers are multinational companies Active users in more than 100 countries R&D intensive, investing >20% of revenue Meet the Presenter: PhD in Aftermarket Solutions Industrial experience from leading position in a global industrial company Several years of Pricing Consultancy Designed and implemented variety of pricing processes systems Johan stlin Senior Pricing Consultant Syncron International 3. Page 3 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 Pricing professionals tell us that they often struggle with when and how to implement value-based pricing Our cost+ methodology does not capture our profit potential Missed Profit Potential Applying Value based Pricing will result in changes in price both up and down, how can I manage this transition? Price increases & decreases Value Based Pricing sounds good! but how can we start applying this with our limited resources? Limited Resources Sometimes we feel that cost+ is the only option for some items. How can I understand when to use Value Based pricing? When to use Value-based? I understand that some items are valued more than others, but how do I quantify this? How to assign value? 4. Page 4 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 5 Steps to Jumpstart your Shift to Value Based Pricing for Spare Parts 1. Understand areas of profit potential 2. Build a business structure for your parts 3. Segment your products with ABC analysis 4. Collect the right information 5. Select and implement new target prices 5. Page 5 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 Global Price Management Module To be able to get the profit potential, you need consider the appropriate strategies, tactics and operations Strategy Tactics Operations Price Strategy Framework Price Execution Price Optimization Price Analytics Segmentation Optimization Administration / Integration Enforcement Packaged + Ad Hoc OLAP + Data Mining Price List Mgt Discount Management Regional Price Management Global Price Management Purchasing Cost Management 6. Page 6 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 Focused at the global level but regional pricing, discounts, cost and transfer prices should also be considered Customers Insensitive Sensitive Dealers Discount Management Regional Price Management Purchasing Cost Management Price Driver Cost Target Target Price Transfer Price Management Driver Global Price Management Price Cost 7. Page 7 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 Typical Aftermarket Pricing Categories General Items Captive Consumables Captive Items Commercial Unique Commercial Commodity Standard Items Kits Remanufactured Items 8. Page 8 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 5 Steps to Jumpstart your Shift to Value Based Pricing for Spare Parts 1. Understand areas of profit potential 2. Build a business structure for your parts 3. Segment your products with ABC analysis 4. Collect the right information 5. Select and implement new target prices 9. Page 9 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 Building an Value Based Business Structure FiltersCommercial Unique Items Air Filters Filter paper A+ Oil Filters Water Filters Filter paper A Filter paper B Product Segmentation Structure Volume Value Driver Volume Volume Price Volume Captive Items Feed Screw Product Range A Product Range B Material A Material B Material C Feed Capacity Feed Capacity Feed Capacity PC Boards Process Control Flow Control Product Reference Product Reference Generation 6 Generation 5 Product Reference List Price List Price FiltersCommercial Items 10. Page 10 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 Identifying different Value Drivers Numerical Value Drivers Weight, Volume, Diameter, Area, Length Power, Torque, Capacity, Pressure, Flow List Prices, Net Prices, Cost Discrete Value Drivers Material, Coating, Pressure Class, Product Group, Shape, Profile, Assembly Position, Technology Features, Connectors Branding, Suppliers Process Operations, Surface Req., Manufacturing Complexity Typical Value Drivers 11. Page 11 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 5 Steps to Jumpstart your Shift to Value Based Pricing for Spare Parts 1. Understand areas of profit potential 2. Build a business structure for your parts 3. Segment your products with ABC analysis 4. Collect the right information 5. Select and implement new target prices 12. Page 12 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 Apply the 80/20 rule to segments; evaluate potential and limit the scope so you focus resources and drive impact Accumulated Sales Value Start with the segments that have a major impact on the business Evaluate the potential for value-based pricing KPI measurements as e.g. sales volume and average sales/item Good value drivers for these items Quality of the cost data To limit the scope Sales volume Lifecycle stage 100% ABC - Analysis Main Segments Sales Value % Item Numbers Average Sale/Item Value Driver Definition Value Driver Access Cost Quality Potential Inverters 5,2 600 8 667 Good Good Good Excellent Feed Screws 4,6 450 10 222 Good Good Good Excellent Hydraulic Motors 4,3 100 43 000 List prices Good Poor Excellent Impellers 3,8 800 4 750 Good Good Good Excellent Bearings 3,6 2 000 1 800 List Prices Good Good Good Filters 3,4 1 500 2 267 Complex Poor Poor Medium Shafts 3,2 1 000 3 200 Good Drawing Good Good PC Boards 3,1 4 000 775 Complex Poor Good Difficult Sealing 3 1 500 2 000 Good Description Poor Good Segment 13. Page 13 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 5 Steps to Jumpstart your Shift to Value Based Pricing for Spare Parts 1. Understand areas of profit potential 2. Build a business structure for your parts 3. Segment your products with ABC analysis 4. Collect the right information 5. Select and implement new target prices 14. Page 14 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 Most companies lack complete information focus on the data that is available ERP systems PDM/PLM systems Existing specific database tables General data tables Description text, Extended description EPDM Sealing 5,7x300 Freight documents Supplier Data Sheets Supplier List Prices Data Sheets information for Products BoM logic to tie information to the Spare Part BoM Link to Product data sheet 15. Page 15 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 Supplier data can highlight information useful for identifying value drivers Pump Data Sheet Info Product Group Shaft Diameter Shaft Material Application Type Impeller Material Flow Rates Casing Diameter Casing Material Pump Shaft Assembly Shaft Impeller Casing Bearing Mechanical Sealing Wear Sleeve BoM Link Items with output/performance based value drivers Items that center around a key value driver Example: shaft diameter or a impeller diameter Items that belong to a specific product range Weight Material Casing Diameter Casing Material Shaft Diameter Application Shaft Diameter Profile Casing Diameter Casing Material Weight Shaft Diameter Product Bill of Material Value Driver 16. Page 16 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 Drawings are sometimes used but often this is the most time intensive data to consume ERP systems PDM systems Existing specific database tables General data tables Description text, Extended description EPDM Sealing 5,7x300 Freight documents Supplier Data Sheets Supplier List Prices Data Sheets information for Products BoM logic to tie information to the Spare Part BoM Link to Product data sheet Drawings 17. Page 17 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 5 Steps to Jumpstart your Shift to Value Based Pricing for Spare Parts 1. Understand areas of profit potential 2. Build a business structure for your parts 3. Segment your products with ABC analysis 4. Collect the right information 5. Select and implement new target prices 18. Page 18 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 SalesValue Graph cost, price and drivers helps build a price dampening strategy where the target price is implemented overtime Identify logical value drivers Apply new value drivers on current situation Price Diameter Price Cost Sales Price Logic Potential 19. Page 19 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 Graph cost, price and drivers helps build a price dampening strategy where the target price is implemented overtime Identify logical value drivers Apply new value drivers on current situation Potential Price Diameter Price Cost Increase Price Quality Target Create a new price target Sales SalesValue Price Logic 20. Page 20 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 Graph cost, price and drivers helps build a price dampening strategy where the target price is implemented overtime Price Logic Identify logical value drivers Apply new value drivers on current situation Price Diameter Price Cost Increase Price Quality Target Product Relation Competitor price Sales SalesValue Create a new price target Identify potential target level Relation to product value Relation to competitors Relation to target margin Market accepted level Potential 21. Page 21 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 Graph cost, price and drivers helps build a price dampening strategy where the target price is implemented overtime Price Logic Identify logical value drivers Apply new value drivers on current situation Price Diameter Increase Price Quality Capture Price Potential Price Cost Target Product Relation Sales SalesValue Create a new price target Identify potential target level Relation to product value Relation to competitors Relation to target margin Market accepted level Adjust target price level Potential 22. Page 22 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 Identify logical value drivers Apply new value drivers on current situation Price Diameter Create a new price target Identify potential target level Relation to product value Relation to competitors Relation to target margin Market accepted level Adjust target price level Adjust current prices Dampened over time Price Cost Target Product Relation Sales SalesValue Price Logic Increase Price Quality Capture Price Potential Potential Graph cost, price and drivers helps build a price dampening strategy where the target price is implemented overtime 23. Page 23 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 Actual customer demonstrates how these strategies impact the time required to implement value-based pricing 1. We started with 60,000 spare parts 2. Identified 10 top level segments of parts that accounts to about 35 % of the total sales 3. Developed the business structure in to 40 detailed segments with defined value drivers 5. Collected value drivers for 3000 articles based on new data requirements 4. Total amount of items assessed in to segments = 6,000 Items 6. Generated Prices for 4,000 articles accounting to 30% of the sales 24. Page 24 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 This customer identified these results as the primary benefit to implementing these strategies 1. Capturing of Profit Potential (6 % revenue increase is anticipated, 3 % in the first revision) 3. Limited Resource Requirements (150 hours of internal resources used) 4. Increased Price Awareness in the Organization 2. Higher Pricing Quality 5. New Possibility to Review Purchasing Cost 25. Page 25 COPYRIGHT SYNCRON INTERNATIONAL AB 2012 Syncron International AB stra Jrnvgsgatan 27 SE-111 20 Stockholm, Sweden johan.ostlin@syncron.com +46 721 911 399 www.syncron.com Johan stlin 26. Questions?