Maximize Aftermarket Returns with Price Optimization

How to maximise your returns from the aftermarket

with price and availability optimisation

Berlin, January 2013

Tony Abouzolof – Syncron co-founder

COPYRIGHT © SYNCRON INTERNATIONAL AB 2013

Main Themes of the Presentation

Right stocks in the right quantity in the right location at the right time

and the right price. This is the perfect recipe for success.

Is stock an asset or a liability? How can you optimise your stock

holdings across the supply chain to make stocks a real asset in your

aftermarket.

Why you need to work with your dealers to optimise inventories as

close to the end customer as possible and what are the real

challenges in doing this.

Can parts pricing help you achieve increased sales volumes and

profits? In most cases the parts pricing is working against your real

business objectives.


2010-2014 Customer Priorities

Reduce supply

chain costs

Create customer focused supply chains

Improve customer

satisfaction

Improve aftermarket

profits

Innovation -new

products and

services

Priorities for Supply Chain Organizations


Limited focus on Green Supply Chain

Limited focus on ERP Rollouts

Limited focus on M&A

2010-2014 Customer Priorities


Applications/Functionality with Greatest Interest

Retail Inventory Management (RIM)

Multi-Echelon Planning and Optimisation

Analysis of Customer Demand

Predictive/Analytical Forecasting


Applications/Functionality with Greatest Interest

Cloud Computing

Software as a Service (SaaS)

Mobility

Analytics, KPIs, Dashboard


Local Planning in a Multi-Echelon Supply Chain End c

usto

mers

• Stocking Policy • Target Service Level




Co-ordinated Multi-Echelon Planning End c

usto

mers


Construction Equipment

Volvo CE Customer Support

Aftermarket / Spare Parts


Independent Benchmark (2000)

Regional Warehouse

Central Warehouse

Dealer

Day 3

99,9% Day 3

99,7%

Day 2

99% Day 2

94%

Same day (OTC)

90% Same day (OTC)

60%

Spare part availability before Retail Inventory Management

Regional Warehouse

Central Warehouse

Dealer

Dealer Branch Dealer Branch

http://sverige.cat.com/


Dealers running Syncron RIM September 2012

Central Warehouse Dealership location

Volvo CE has systematically implemented a

conform RIM process and solution across the globe with more

than 90% of business volume connected


Independent Benchmark (2000)

Regional Warehouse

Central Warehouse

Dealer

Day 3

99,9% Day 3

99,7%

Day 2

99% Day 2

94%

Same day (OTC)

90% Same day (OTC)

91-93%

Spare part availability after Retail Inventory Management

Regional Warehouse

Central Warehouse

Dealer

Dealer Branch Dealer Branch

http://sverige.cat.com/


Case Study Automotive Company Pilot

PoC Results : Profile Stock

£-

£10,000

£20,000

£30,000

£40,000

£50,000

£60,000

£70,000

£80,000

£90,000

£100,000

Profile Healthy Profile Excess Profile Obsolete

PoC Logistics Efficiency: Order line Reduction

0%

20%

40%

60%

80%

100%

120%

83ki National All Parts 83ki APR Dlr All Parts 83ki APR Profile Parts

82ki

Order line

Level

+ 13%

- 17%

- 50%

PoC : Profile Parts Availability

40

50

60

70

80

90

100

Wk

48

Wk Wk Wk

17

Wk

21

Wk

25

Wk

29

Wk

33

Wk

37

Wk

41

Wk

45

Syncron Forecasted Availability Customer Actual Availability Check Target

OTC availability increased from 68% to +90% in 14 weeks

TOTAL - Parts Sales : APR vs National Trend

0

5,000

10,000

15,000

20,000

25,000

30,000

Profile Parts Competitive Parts

No

. o

f p

ieces

Last Year This Year

Actual + 14% (National Trend + 7%)

Actual + 13% (National Trend + 8%)

13 9

+30% reduction in average dealer inventory

50% reduction in logistics cost for profile parts

Pre APR: 59% availability


Maturity of Strategic Pricing in Leading Industries

Pharma

Financial services

Oil and Gas

Aftermarket part and service

Retail

Chemical

Freight

Travel

Airlines and hotels are the most sophisticated

industries. (30 years)

Industrial manufacturing companies, pharmaceuticals and financial services have just started to focus on pricing.


The Power and Potential of Strategic Parts Pricing

1% improvement in… Increases a company’s operating profits by…

Fixed Cost 2%

Volume 3%

Variable Cost 7%

Realized Price 10%

Source: The Price Advantage – Baker, et al (McKinsey & Co.)


Why Price Optimization & Management Matters in

Aftermarket Sales

Source: Pricing Effectiveness Benchmark Study. Deloitte LLP. Deloitte Analysis

Note: The metrics are indexed on base 100 for relative comparison


Pricing Challenges and Improvement Opportunities

Opportunity*

Pricing Challenges Low High

Differentiated pricing (Segmentation) 0.5% 3.0%

Maximizing Pocket Price (Reduce Transactional Leakage) 1.0% 2.5%

Reduce out-of-guideline transactions (Analysis) 0.5% 3.0%

Streamline Price Administration (Efficiency) 0.5% 1.0%

Realignment (Product/Market Bundling & Segmentation) 0.5% 1.0%

Total Potential Benefits 3.0% 10.5%

Source: Accenture study *Average realized savings measured in gross margin points


Problem Background for Applying Value Based Pricing

“Our cost+ methodology does not capture our

profit potential”

“Value Based Pricing sounds good! but how can we start applying this with

our limited resources?”

“Sometimes we feel that cost+ is the only option for some items. How can I understand when to use

Value Based pricing?”

“I understand that some items are valued more

than others, but how do I quantify this?”

“Applying Value based Pricing will result in changes in price both up and down, how can I

manage this transition?”


Challenges for Operational Excellence

“Our organisation has several thousand of items to price

each year, how can we do this as efficient as possible”

“Every year we get thousands of customer

price feedbacks and quotation request”

“We are really struggling to keep track of our

pricing reference data. E.g. competitor prices, lifecycle and cost data ”

“How can we find ways to communicate price changes

to our partners and customers in an easy way”

“Every year in September, the pricing

organization disappear in to a black hole and emerges again

in January”


Pricing Strategy Framework

Discount Management

Regional Price Management

Global Price Management

Purchasing Cost Management

Price

Driver

Customers

Insensitive Sensitive Dealers

Price

Driver

Cost Target

Target Price

Transfer Price Management

Cost


Typical Aftermarket Pricing Categories

General Items

Captive Consumables

Captive Items

Commercial Unique

Commercial Commodity

Standard Items

Kits

Remanufactured Items


Example Pricing Methodologies

Pricing Technique: Application:

Value Divers - Multiple Variables For Price Leader Position

Referential Item Pricing Spare Part/Product, New/Remanufactured

Commercial Price Positioning Competitive and comparable items

Advanced Cost-plus Bulk pricing of slow moving, low potential items

Product Lifecycle Pricing Generation items

Supersession Item Pricing Superseded items

Similar item reference pricing Article Pricing

Kit pricing Service kits


Identifying Different Value Drivers

Typical 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


• Customer pricing profiles

• Discount and Charge models

• Special and One-off prices

• Quotations & Deal management

• Product segmentation

• Price logic and methods

• Competitor prices

• What-if simulation

• Policy-based price administration

Global Price Management Product Features

Price Optimization Price Execution Price & Margin Analytics

• Integrated OLAP analytics

capabilities

• Built in Revenue and profit

margin analysis

• Price revision analysis

• Price band analysis

• Drill down functionality on

products, groups, customers,

regions, sales tiers, etc

• Price List Management

• Easy To Grasp Price Revisions

• Events, Alerts and Tasks –

workflow management.

• Price Dampening logic

• Pricelist Distribution

• Price on-demand services

• Price feedback management and

analytics

• Approval processing

List Price

Net Price


What-if Simulations of Pricing Strategies

• Simulate the effect of

changing the pricing strategy

for a segment

• Change from cost+ to Value

Based or Commercial

Reference pricing

• Based on historical sales or

future forecasted sales (GIM)

• Adaption based on price

elasticity function are possible

• Finding and changing the value

formula

What-If Simulations


Volvo Profits from a Single Pricing Process

Syncron’s Global Price Management

application makes it possible defining,

revising and communicating price points for

thousands of parts in a structured manner.

The solution supports our pricing process;

from basic and regional pricelists down to the

dealer, with dealer-net and suggested retail

prices that include discount, tax and charges,

all in local currencies.

Alessandro Pasa, Head of global pricing Volvo Construction Equipment

The challenge

250,000 unique parts across 1,300 sales locations.

500 price lists to manage pricing across almost 300

dealers and warehouses, 17 currencies, 40 different

systems, 5 million order lines and 20,000 new parts

annually.

This scale and complexity caused a lack of visibility, a

lack of coordination, duplicate effort, and a highly

reactive culture.

The result

• Single solution to support one global parts pricing

process

• Coordinated price harmonization strategy

• Automatic update of interconnected price lists

• Improved customer satisfaction from consistent prices

• Increased profitability for spare part sales

• Dramatic productivity increase


Hitachi Implements Value-based Pricing & Shorten Price

Revision Lead-times with 50%

“References from other Syncron customers

showed first-hand the typical pricing

improvements and ROI that can be achieved

using Global Price Management. Syncron

showed a great deal of commitment in

supporting Hitachi Construction Machinery

with …. all taking an active role in the project

process. The company sees Syncron as a

trusted vendor that maintains strong and

long-term partnerships with its customers.”

Katsuaki Ishii, Marketing Department Manager Spare Parts Division, Life Cycle Support Operations Group

The challenge

Over 1 million unique parts on price list

Need to login to multiple system to collect necessary information to price a part

Many new parts to be priced with increase demand of new machine release

Many price complaints due to some mistake during manual price revision process

Price revision simulation takes long time as it is done on excel/access

The result

• Single solution to support one global parts pricing process

• Seamless integration to ERP system

• One single screen to price all parts by applying appropriate price strategy with step-wise

• Easy price revision simulation having multiple scenarios with different policy (Shorten price revision lead time by half)

• Expecting the decrease in price complaints due to more accurate pricing with less manual intervention


According to Gartner Inc.:

”By 2015, best-in-industry

enterprises will increase

revenue by up to 3% and

profits by up to 15%, by

improving Price Management.”


Fast Facts

• We deliver solutions for optimize joint

pricing and supply chain performance,

easily.

• Our customers are multinational

companies in manufacturing and

distribution.

• We have active users in more than 90

countries around the world.

• Our customers are supported on every

time zone by offices located in:

– America Atlanta & Chicago

– Europe Birmingham, Düsseldorf, Malmö, Stockholm (HQ) & Warsaw

– Asia Tokyo


We are Trusted by Leading Global Companies

http://www.maplin.co.uk/?DOY=25m10

http://www.global-toyotaforklifts.com/index01.html


Syncron Solution Portfolio


Easy to Implement and Cost Efficient Delivery

Web

Inventory Planners / Purchasers

https

ERP

Systems

Customer(s)

sFTP

Syncron Data Center

User verification, access management.

Syncron

Staff/Third party providers

VPN User verification, access management.

Dedicated and isolated networks for each customer

Maximize Aftermarket Returns with Price Optimization

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