For a firm to supply its product to the market, it must do five things.
- Plan
- Source
- Make
- Deliver
- Return
The management of these steps is known as supply chain management (SCM). SCM is the oversight of the flow of how a product is made and all the processes that transform raw materials into the finished product. The only wholly internalized step in the supply chain is to make, or to manufacture. Manufacturing, the core competence and often area of greatest investment at a firm, functions as an integrated component of the supply chain (SC).
Controlling Costs in Your Supply Chain
Manufacturing management techniques such as total quality management (TQM), just-in-time (JIT) and Six Sigma are designed to minimize and control SC costs by reducing defects, waste, carrying, and shipping and return costs. SCM works continuously to optimize costs to be the lowest possible while ensuring on-time and on quality delivery.
A core principle shared by all of the processes above is that they use data and technology to continuously improve and automate. Most companies, once they reach a certain size, implement enterprise resource planning (ERP) software to collect and store data throughout each process and integrate the supply chain end to end.
Companies often prioritize investments in technology and tools to manage and control costs. This is understandable when one looks at the history of the industry.
What the Next Industrial Revolution Means for Pricing
Just when industrial breakthroughs matured to the point of being affordable by even the smallest companies is when a new wave of change strikes. Industrial revolutions radically changed manufacturing and required firms to retool, upgrade or wholly change out their production lines to remain competitive and in business:
- First Industrial Revolution 1765 (steam)
- Second Industrial Revolution 1870 (electricity, oil and gas, then in early 20th century, further disruption from planes and automobiles)
- Third Industrial Revolution 1969 (electronics, robotics, nuclear power)
- Industry 4.0 (the internet, mobility, miniaturization, globalization)
The constant disruptions in manufacturing create a need to continually innovate. The current waves of disruption powered by the limitless connectedness of the internet are now expanded to include the short- and long-term impacts of a global pandemic. Customers are asking B2B manufacturers to change the ways they sell and service. Buyers increasingly want to buy directly via e-commerce-style applications.
This requires more than simply establishing a digital storefront. Enabling transactions online or via e-commerce requires sellers’ supply chains to be integrated with e-commerce. It also requires an entirely new way of managing pricing. This trend—and no doubt it is a trend and not a passing fancy—is forcing sellers to digitally transform their end-to-end customer experience to allow for their customers to shop, order, pay, track and replenish, all without ever needing to meet face to face or even speak with a salesperson.
Why You Need Dynamic Pricing
This larger digital transformation must include a focus on transforming pricing from an administrative activity that may happen once or twice a year to a core competency and competitive advantage for a seller.
As price transparency accelerates across every sector because of the digital transformation of the end-to-end sales process, pricing must be increasingly dynamic. One only needs to look at how airlines and hotels price their perishable inventory and how Amazon actively uses data to rapidly adjust prices to see a version of your future. Although this may be a radical change in how business is done for many B2B manufacturers, it is an investment and effort that can deliver 5x to 10x ROI and significant profit impact within the first 12 months.
As Warren Buffet said:
“ … the single-most-important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by a tenth of a cent, then you’ve got a terrible business. I’ve been in both, and I know the difference.”
To learn more about how dynamic pricing can help mid-market B2B manufacturers raise their bottom line, reach out to the Furious team at contact@furiouscorp.com.
