How can spare parts pricing be automated successfully?

Case Study

A large spare parts portfolio offers enormous earnings potential, especially when priced correctly. However, the number and variety of parts and their complexity must be managed. The often very large quantity of spare parts demands largely automatic and value-based pricing. The variety of parts requires different pricing logics. Besides differentiated markup pricing, the standard case, also competitive  prices,  product  group-specific  prices  and  bundle  prices,  among  others,  are  used.  So how do you reconcile more than 50,000 active articles as well as the different pricing logics? One intelligent way is nueprice. The software has been specially developed for the pricing of large spare parts portfolios. 

Starting Point

Our example customer is an international mechanical engineering company that operates business units in several countries. The goal of our spare parts project was both to reduce the manual effort in pricing and to increase the process reliability in the pricing process.

The consistent pricing of spare parts was intended to increase profits. Both in-house production and purchased parts had to be priced. Previously, the customer had added a factor specified by the management to the historically grown prices for annual price adjustments and the prices were maintained manually in Excel lists by the employees of the service departments with great effort. Responsibility for pricing was decentralised in the business units and was based on product groups.

In addition to the annual pricing of each product group, several individual items were priced daily as a result of price complaints from the market. Frequently, entire groups of parts were found to be inappropriately priced due to incorrect Excel linkages or outdated data. The effort and the error-proneness of the system swallowed up large parts of the income generated.

Solution approach

First, we defined a new pricing process with our client. Closely linked to this was the definition of the standard pricing logic. With such a large number of articles, it was important to price large parts of the portfolio consistently through differentiated markup pricing. For this purpose, supplier and item criteria, which experts evaluated, were defined. The criteria were weighted among each other. The resulting individual markup factors were aggregated to an overall markup and multiplied by the manufacturing costs of the items. In this way, it was already possible to differentiate and systematically price the largest part of the portfolio.

In addition, product groups that required separate pricing logics were identified. The following special pricing logics were determined: Market Pricing, Product Group Specific Pricing (Family Pricing) and Bundle Pricing. Through the clearly defined, superordinate pricing process , these special pricing logics were clearly ordered by priority.

After prototypical testing of the individual pricing logics in Excel, it quickly became clear that a fully implemented software could map the complexity in the most user-friendly and secure way.

Nueprice maps all the price logics mentioned. Also, the required data can be easily imported into the software. In addition to the standard logic, pilot families for product group-specific pricing including product criteria have been created. The customer has the option of adapting the existing pilot families and creating new product families. The data required by the customer could also be stored for the competitive research. An automatic expiry date for researched competitor prices was also added.

After the successful definition of all logics, a simulation was carried out to be able to analyse the effects of the price adjustments both aggregated and item-specific. For the annual price adjustment several scenarios were simulated simultaneously in nueprice. A lot of time could be saved compared to the time-consuming simulation per scenario in Excel. The clear visualisation of the scenario results facilitated the customer’s decision regarding the price adjustment. The favoured scenario could then be easily implemented in the software. For the price adjustment, rules and limits were defined in the software in order to gradually carry the resulting price adjustment to the market. In an iterative process, the calibration of the system by means of the simulation was completed to the satisfaction of all parties involved. The calculated prices were transferred directly to the ERP system.

The client has created roles for his users in nueprice, which have different authorisations. Manual overwriting of the proposed prices is, for example, only possible with the consent of the person responsible for the price. The pricing logics and the parameterisation can only be adjusted by the management. The interface provides users with an overview of the existing price information per item. It is also possible to see whether several special prices are stored for each article. This facilitates the decision for the respective person in charge.

Outcome

Due to the differentiated price adjustments in the spare parts portfolio, the turnover could be increased by approx. 3.5 % in the following business year. Compared to the Excel lists, the user-friendly interface of nueprice leads on the one hand to a significant time saving for the users. The employees now use the significant time savings to add further important product groups to the special price logics established in the project. On the other hand, the employees make significantly fewer errors in pricing, so that customer complaints have decreased considerably. In customer communication, sales can be sure that prices have been set consistently and in a value-oriented manner. Price enforcement has thus been sustainably improved. Higher-level management not only enjoys the increase in earnings, but also the insight into the effects of their specifications through the software’s simulation function.

This case shows that the large number of articles and diversity of a spare parts portfolio  must  be  met  with  different  methods  of  pricing.  Where the functionality and manageability of Excel lists reaches its limits, nueprice can come up with an intelligent  solution.  The  software  combines all functions in one tool and the results can be easily transferred to existing systems. 

Your company can benefit from nueprice, too.

If you would like to know more about how nueprice works and how you can optimise your spare parts pricing, please contact us.

We will be happy to provide you with further information and advise on your case.