Reducing Overhead and Risk in the Chemical and Process Industries
Today’s CFO encounters ever-increasing complexity in addressing the subjects of risk and overhead in the chemical and process industries.
Typical risk factors include:
- Earnings volatility
- Cash flow
- Accurately projecting earnings in the face of business uncertainty
- Efficient and effective use of capital
- Exchange rate exposure
- Hedging to address raw material and currency volatility
Many overhead factors contribute to complexity in today’s market.
Some that capture the most attention are:
- Inventory and work in progress
- Selling and administrative costs.
Investing in a pricing solution like Pricefx helps you address overhead and risk while underpinning key business processes. How does a pricing solution like Pricefx help address some of these key risk and overhead factors? Let’s take a quick look at the several of them.
Earnings volatility and cash flow
Raw material prices rise and fall quickly in the chemical and process industry sector. Subsequent price increases to capture increases in these costs almost always lag the cost increases, leading to margin compression. Transparency of raw material price information leads to demands from customers to reduce prices immediately as raw materials begin to decline. Quickly accommodating these demanding customers compresses the time available to recoup margin losses, often leading to a failure to meet earnings projections in businesses.
Cash flow expectations can fall short of target due to issues in the pricing process. Loss of margin from logistics and internal cost compression can nibble away at earnings and cost expectations. When pricing systems don’t allow timely price changes and notification to customers, delays and disputes arise from incorrect invoicing. These issues can result in customers delaying payment for goods or short paying invoices to reflect their belief in what pricing should have been at the time of invoicing. Errors from incorrect calculation of index or formula pricing can add to the earnings and cash flow issues.
Pricefx addresses these concerns in several ways:
- Pricefx enables companies to manage margins precisely and to understand the time required before implementing price reductions to allow lost margins to be recaptured. Pricefx’s PriceOptimizerAI, leveraging artificial intelligence and machine learning, can determine the timing of price changes to ensure margins are maintained as prices decline.
- Pricefx’s QuoteConfigurator improves speed and agility in providing quotes to customers, driving lower cycle times and higher win rates.
- Pricefx’s PriceBuilder enables precise and timely execution of mass price increases to customers without administrative delays.
- Pricefx’s PromotionManager enables accurate and timely updating of formula and index pricing as underlying costs and indices change, avoiding costly errors that can result from attempting to manage price complexity in Excel.
- Pricefx’s RebateManager allows end-to end oversight of rebates from conception through payout. It integrates with the rest of Pricefx to ensure the impact of rebates is considered in understanding product and customer profitability. It also integrates with financial systems to allow calculation and processing of payouts to take place with a high degree of automation and integration.
Efficient and effective use of cash
All companies face difficult choices on the use of cash. The CFO ensures investment choices align with strategy and generate the best financial options for the company. The choice to invest in a pricing solution like Pricefx not only addresses the opportunities mentioned above, but also offers an opportunity to generate outstanding returns on the use of cash. Bain’s experience has shown that if a company is not actively managing price today, it is leaving 200–400 basis points in operating profit on the table. They also observe investments in pricing software have immediate and ongoing payback.1
Opportunities of this magnitude shouldn’t be overlooked!
Inventory and work in progress
Not only can Pricefx’s PriceOptimizerAI support improved price change approaches, but it can also help address difficult questions requiring tradeoffs between conflicting objectives. Consider each of the following use cases that can successfully be addressed for your business with PriceOptimizerAI:
- Achieving business targets in view of segmentation value and demand modeling constraints
- Recognition of seasonality
- Optimizing margins and prices as product availability tightens and loosens
- Supply/demand balance shifts
- Addressing pricing and margins when customer, industry, or market events impact supply/demand balances
- Evaluating optimal pricing when excess inventories exist – margin optimization in consideration of working capital costs
- Constrained supply conditions
- Retaining value recognition in segments while addressing shortages in supply – tradeoffs on which segments and customers to supply, inclusive of contract obligations
- This can also include shortages of raw materials
Hasn’t your business been impacted by many of these scenarios in the past year?
Selling and administrative costs
Most chemical and process industry companies have mandates for the following two things:
- Digital transformation
- Cost reduction
Pricefx provides substantial support for both while supporting all the above-mentioned benefits for your pricing and selling processes.
- Transforming selling and pricing processes using modules such as QuoteConfigurator for agile quoting processes and RebateManager for end-to-end oversight of rebates.
- Improved efficiency by automating approval processes and enabling customer notifications from QuoteConfigurator and other modules. Efficiency gains should also be expected from automation of index or formula prices. These will allow reduction or redirection of resources to more productive selling and pricing activities.
- In contrast to Gen 1 pricing software providers, Pricefx eliminates costly and time-consuming upgrades to get to new product features. Pricefx’s cloud-native system delivers the latest features on a routine cadence as part of the subscription – no costly upgrades or delays getting to the latest in capability!
The bottom line
From the CFO viewpoint, Pricefx has much to offer in terms of a high return investment, as well as enabling benefits that will address risk and overhead factors while driving significant value to the bottom line. Sales and pricing will benefit from the digital underpinning of Pricefx while enabling much greater transparency on product and customer profitability while improving agility externally with customers and internally with sales and pricing teams. Contact us to today so we can help you enable your organization with this powerful set of tools to drive value in your business!