How to Reduce Overhead & Risk in the Manufacturing Industry
September 2nd, 2020 (Updated 03/24/2021) | 10 min. read
By Duncan Hendy
Reducing Overhead and Risk for the Manufacturing Industry
Considerations are vast in the reduction of overhead and risk for the manufacturing industry. Especially when you’re looking at adapting your business to dynamic market shifts. We are here to help simplify the process.
What Is Overhead and Risk in the Manufacturing Industry?
In simple terms, overhead is the sum of ongoing business expenses not associated with the production process.
- Manufacturing overhead such as plant costs, salaries
- Selling and administrative costs
- Corporate salaries
Risk refers to the risks incurred by manual processes, which can be broken down into three key areas. These are:
- Ease of management of complex pricing strategies
- Eliminating the friction from quoting and negotiations
- Reducing the manpower required to manage rebates
Requirement 1: Make It Easier for My Team to Manage Complex Pricing Strategies
Reducing overhead and risk requires acknowledgment of the common complex pricing strategies businesses face. As businesses have become increasingly advanced, so have their pricing strategies. Processes and systems often remain the same while more and more elements are added to the pricing strategy and tactics, resulting in a lack of integration and automation of key systems. These often lead to businesses being unable to manage their pricing strategies effectively. The more bloated and complex the pricing strategy becomes, the greater the risk of getting prices, accruals, or payouts wrong.
Using Dynamic Pricing to Reduce Overhead and risk
Dynamic pricing, at its core, involves continuously adjusting prices to meet real-time supply and demand. This can happen in minutes as advanced pricing software analyses the market you reside in and adjusts accordingly. To put it into perspective, Amazon is one of the largest retailers in the world utilizing dynamic pricing. They update their prices every 10 minutes according to a great many predefined criteria and the market as a whole.
There are many distinct benefits to dynamic pricing and few drawbacks. First of all, contrary to popular belief, it gives you far greater control over your pricing. With automated dynamic pricing, it might seem as though you’ll no longer have control over the many complex elements that your pricing strategy is composed of. When in fact, you gain access to far more options to improve your pricing. For example, you can compare your prices in real time against your competitors and adjust accordingly, as well as gain a clearer understanding of your current supply and demand.
Many businesses worry that dynamic pricing will send the wrong message to their customers and clients, and that seeing prices rise and fall will eventually be harmful for their brand. However, dynamic pricing can help to strengthen a brand’s image. By setting a base price for profitability, the brand can launch seasonal and promotional offers without losing profit – not to mention the increased levels of service that come part and parcel with dynamic pricing.
What’s more, switching your complex pricing system when considering how to reduce overhead and risk will help you to save money in the long run. Not only will the reduction of manual tasks cut down your overhead, but dynamic pricing often leads to increased sales and profit because of the powerful insight it brings. A fantastic example of this is when Walmart adopted dynamic pricing. They now alter their prices nearly 50,000 times in a single month, which led to an increase in global sales of 30% on its implementation during 2013.
Pricefx’s PriceBuilder supports price policy definition, the setting up of price guidelines, calculations and simulations of gross, special and net prices. It allows you to integrate with price lists, Excel, business intelligence, ERP and CRM systems seamlessly to make adjustments in real time. The software specializes in mapping out pricing strategies and conducting automated monitoring of them.
PriceBuilder allows you to define a pricing strategy specifically tailored to your business and your customers by using a wide array of available factors. It centralizes your pricing based on global, regional, customer, segment, or any other business hierarchy levels, all within one application. What’s more, you can dynamically segment your customer bases according to market, cost-plus, value-based or mixed pricing strategies. It also allows you to create real-time pricing simulations to test the effect discounts and special offers have on your margins.
All of which is achieved by the three-step PriceBuilder process.
PriceBuilder allows you to quickly analyze pricing logic, define calculation schema and load all relevant pricing data. You can also automate data flows with the help of scheduled data loads or Pricefx PFX Platform.
It gives you the ability to grow with ease as your business expands, while supporting new business units, products, currencies and markets with varied calculation methods.
Achieve fast, intuitive and self-sufficient definitions and executions of price calculation schemes.
Requirement 2: Eliminate the Friction from Quoting and Negotiations
One of the more difficult elements of pricing when considering how to reduce overhead and risk is quoting and negotiations. At this stage, both parties are attempting to raise their position in order to achieve the best outcome. However, the manufacturing industry often incurs significant overheads during this process due to several reasons.
Long CPQ cycles (configure, price, quote) can have incredibly detrimental effects on the negotiation process. The longer spent manually configuring and pricing, the more overhead costs you will incur. What’s more, the less automated and integrated this process feels, the more likely you are to lose deals. Lost deals are another risk as a customer or client could pull out for a great number of reasons at any stage during the sales process. This will not only lead to a loss of potential profits, but it will also increase your overhead as a new sale must now be made in replacement. One more way in which quoting and negotiations can cause overhead and risk is through discounts. With complex pricing strategies and a lack of dynamic pricing, even if a discount leads to a sale, it can actually be detrimental to the business’s profits. Often businesses will reduce their fees and offer discounts in order to bring in new clients. However, these clients are now paying less than you need to make the desired profit and are more likely to expect a discount in the future. To make matters worse, these types of clients often fail to appreciate the value in the work you do, demanding more work, which will further increase your overhead and reduce profit further.
Typically, these issues are sustained by a reliance on rigid legacy, home grown or manual quoting processes. Negotiations and quoting, like pricing, need to be dynamic and adaptable. A business who refuses to move away from these legacy systems will most likely continue to make the same mistakes and increase overhead and risk in the future.
Utilizing Fully Automated Quote Generation and Dynamic Discount Approval Workflows
By adopting fully automated quote generation and dynamic discount approval workflows, you can mitigate the overhead and risk brought on by legacy processes. Pricefx’s QuoteConfigurator solution supports your sales and back office teams with CPQ, calculation and simulation capabilities. The goal of this software is to be a fast and error-free response to price inquiries and reduce your overhead.
Within QuoteConfigurator, you can set the price and margin limits of your products based on list price, volume price and many other distinct categories. It provides seamless integrations with SAP C4C, Salesforce, Microsoft Dynamics and any other CRM solution you are working with. QuoteConfigurator’s dynamic segmentation works based on conformity checks, dependencies, and other factors relevant to your company, allowing you to segment prices dynamically. All of which allows your sales team to access similar customer purchases and products to up-sell and cross-sell to increase the sizes of all their sales.
QuoteConfigurator can achieve all this by following its three-step process.
QuoteConfigurator quickly analyzes your current quote and deal management process, then defines the required price attributes and parameters to construct a logic. You can set up advanced team workflows for timely quote approvals.
It allows you to respond to requests far faster and offer price quotes with greater accuracy and confidence than ever before.
You can utilize the quick, industry-leading CPQ, embedded configurations, and price calculations, all supported by contextual inline analytics and optimized AI-driven pricing guidance.
Requirement 3: Reduce the Manpower Required to Manage Rebates
Rebates are a best practice but managing rebates often requires a significant amount of finance manpower and many valuable resources are wasted whilst processing them. The bulk of issues stem from manual workflows for tracking, validating and issuing rebates, and failing to deliver fast and reliable results. All the time spent on manually trawling through data creates both overhead and risk. Many of the programs used to manage rebates are complex and require a thorough understanding of the software as well as your full attention for extended periods of time.
When considering how to reduce overhead and risk in regard to managing rebates, businesses should look towards purpose-built functionality for end-to-end incentive performance management. More specifically, this involves utilizing management software that automates the rebate management process in order to massively reduce overhead to track, accrue, credit, and payout rebates. As you see the overhead and cost fall, your business will become far more automated and streamlined. Not only will this free up untold amounts of manpower and hours, but it will also establish a system of full transparency across your rebates. Whilst this may initially seem like just an added bonus, it yields incredible long-term benefits for your business such as an improved brand image, increased profitability and more future potential for growth.
Adapting to Automated Rebate Management
With a more integrated and automated rebate management system in place, you will start to see profitability rise as overhead costs fall. RebateManager by Pricefx is a rebate management solution that powers the definition, management and calculation of payments of special off-invoice conditions, including rebates and credits. What’s more, it establishes full transparency across the entire price waterfall.
Within RebateManager, you can manage approvals in one centralized location and transfer them from your pricing software to your accounting systems with ease. It allows you to create custom dashboards and set user roles, entitlements and audits with absolute transparency. RebateManager has the ability to build rebates, bonuses and any other off-invoice agreements based on your products, volume and many more categories right within the module. Finally, you can set custom review and approval processes and simply integrate them with your CRM and other payment systems.
RebateManager follows a dedicated three-step process.
RebateManager can quickly analyze current or envisioned off-invoice condition frameworks, then set up your rebate library for immediate use.
You can optimize net prices, manage accruals and payouts, and perform periodical reviews of your rebate library, then make adjustment and additions based on changing customer relationships and market conditions.
Make use of centralized definition, maintenance, accruals, simulation and triggering of the payout process for all off-invoice and special conditions.