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Chemicals Manufacturer Implements Transaction Pricing Analysis

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Abstract

After three pilot projects in individual business units had yielded an average increase in operating margin of 1 percent, a global manufacturer decided to implement a transaction pricing analysis (TPA) capability across its entire business. To do this, the company needed to make the complex TPA analysis repeatable – and align its organization to effectively take advantage of it.

The Challenge

In its three pilot projects, the company had performed the TPAs manually, a very labor-intensive process. Now, the company wanted to automate the analysis and make it repeatable in order to run new analyses as the business and market conditions changed. But that wasn’t all that needed to happen: Executives realized that the ability to perform TPAs on demand would fail to drive the expected value unless people in the business embraced its use. This meant making significant changes on two fronts. One, the company would need to select and implement pricing analytics software to perform the TPAs. And, two, the company would have to encourage the appropriate personnel to incorporate the insights delivered by the TPA into their pricing decisions.

How We Helped

With Deloitte’s assistance, the company evaluated software packages to automate the TPA process and present pricing analytics in a browser-based interface. One major feature of the software is a tool that allows account managers to calculate, in real time, the profitability of various product, price, volume, and delivery configurations when negotiating with customers. The software also offers analytical tools that allow users to explore profitability trends, forecast revenue streams, analyze cost to serve, and make point-and -click mass price changes, among other capabilities.

After the company selected a package, Deloitte provided implementation services as well as assistance in the company’s efforts to:

  • Deliver training, align policies and develop procedures to support adoption of the new software. The company conducted an extensive change management program that addressed the following areas:
    • Training: Account managers and finance staff received training on how to use the software.
    • Governance: Policies were created to regulate when analyses should be run and who would be responsible for collecting and reporting the results. For example, business managers were given responsibility for periodically analyzing transaction-level data to uncover the root causes for margin erosion and for recommending and executing price changes based on these analyses to reduce price and profit leakage.
  • Perform TPAs in all business units to “test drive” the new software and surrounding pricing processes. These TPAs had the double goal of 1) identifying pricing improvement opportunities with an ROI of 300 percent or more, and 2) reinforcing the new price management approaches introduced as part of the project.
  • Improve pricing processes. The company defined and documented structured pricing processes, using the new software’s capabilities to automate a number of formerly manual processes (such as price approval). The company also standardized pricing approaches across many of the segments within each business unit.

Solution

Within the first year of use, which involved 13,000 deals, 220,000 prices, and more than 500 users, the new analytics software and surrounding pricing processes allowed the company to identify pricing-related opportunities that could boost profitability by $30 million. Of these opportunities, the company has already implemented or is committed to implementing changes that should deliver a $22 million increase in profitability within one fiscal year through a combination of reduced costs, enforced pricing policies, and more profitable prices. As used in this document, ‘Deloitte’ means Deloitte LLP (and its subsidiaries). Please see  www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

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