Pricing Automation for the Chemical Industry: Top 3 Uses

For chemical and process manufacturing companies striving to sell commodity products under turbulent market conditions, streamlining pricing processes with automation is a bare minimum for staying ahead. So, what does pricing automation entail in the chemical industry, and which key areas require automation to ensure long-term profitability?

Here at Pricefx, as a leading enterprise-level pricing software vendor with chemical and process manufacturers among our key customers, we acknowledge the difficulty of setting prices amid shifting raw material costs, inflation, supply chain disruptions, and other global issues of the day – and this is all while striving to keep price-sensitive customers happy.

Here’s where price automation comes in. In this article, we’ll walk you through the ways chemical and process manufacturing companies can bring automation to their pricing setup and how they’ll benefit.

So, let’s dive in!

Optimizing Pricing in the Chemical Industry: Three Key Areas for Automation

In chemical and process manufacturing, bringing automation to pricing structures and processes can be game changing, enabling companies to scale their pricing as quickly as their business. Here, we’ll show you what that looks like in price setting, both for short and long-term chemical pricing strategies, and in rebate calculations.

1.   Automated Complex Pricing for Long-Term Agreements

In the chemical industry today, most commodity products are priced for the long term, with core prices locked into year-long contracts. The pricing strategy used here is usually formula-driven, with a high complexity to ensure prices are sustainable for longer periods.

While contract-bound, formula pricing is by no means static. Contracts require frequent updating to accommodate fluctuating cost-to-serve elements (such as freight and packaging), customer needs, and raw material costs, among countless other variable factors.

While the complexity of formula-based pricing is necessary, as covers all of the relevant cost drivers and ensures that customers pay fair market-rate prices, it can make updating prices a time-consuming and error-prone process.

To support quicker, more accurate price updates, companies in the chemical and process manufacturing industries can automate their complex pricing in a few important ways.

Automatic Price Recalculation

Chemical companies can set up calculation logic for real-time price adjustments based on relevant cost drivers, skipping the need for manual updates with each cost change across a web of customer and product groups.

Pricing Templates

Rather than undergo the arduous process of updating contracts on a per-customer basis, pricing specialists can use contract pricing templates to group customers with similar qualities, allowing large groups to experience a price change all at once.

Access to External Data

Without the means to quickly draw from the latest market data, companies can experience delays in delivering accurate prices to their customers for commodity goods, which are largely dependent on market rates.

To mitigate this, real-time integration with third-party data sources arms pricing teams with data-driven support in negotiations and ensures consistently competitive prices.

2.   Automated Spot Pricing for Short-Term Agreements

Spot or inventory pricing, used in the chemical industry to adjust prices outside of contracts or for smaller customers without long-term agreements, presents several challenges if managed manually.

As a short-term pricing strategy, spot pricing requires frequent updating to keep up with fluctuating market forces, such as raw material costs and supply and demand dynamics. Even trickier still, spot prices should align not only with individual customer requirements, as outlined in short-term contracts, but also adapt to the subtle nuances of the various markets and geographies where they sit, which is a challenging task to undertake daily.

In spot pricing, accounting for these disparate variable elements can be difficult to pull off efficiently, let alone accurately, without some degree of automation. And, while the strategy is used in the short term, frequent calculation discrepancies can pose significant challenges to long-term profitability.

Here’s how companies can leverage automation to streamline their spot pricing strategies:

Automatic Price Updates and Data Integration

Companies can automate their spot pricing process using many of the same strategies we’ve already mentioned for simplifying their complex formula pricing.

With several cost factors simultaneously in flux, chemical pricing managers can ease their load by establishing automatic price updates, triggered according to the various conditions they outline in the recalculation logic. Additionally, API integration with external (market) and internal (cost to serve) data sources ensures these updates reflect current market conditions and any variable surcharges.

Access to Performance Analytics

Due to the more dynamic nature of spot pricing, understanding the impact of spot pricing scenarios on margins is also key, as it signals to companies whether their short-term pricing consistently meets their latest business goals. And without visibility into performance, this is near-impossible to do.

Chemical companies can use pricing analytics to track how well their spot prices meets their revenue, volume, or margin goals in the long term, zeroing in on how that performance varies across customers and geographic regions.

With visibility into the effectiveness of their spot pricing decisions using analytics, pricing analysts can prevent prices from inadvertently absorbing costs from market fluctuations, ensuring their profit margins remain healthy.

3.    Streamlined Accruals and Payouts

For any chemical company, price setting isn’t the only stop on the path to pocket price that could use automation. Rebates, and specifically the calculation of accruals and payouts, are often one of the last opportunities available to capture expected profits from a customer.

Without a centralized tool to accurately track how well customers meet their commitments and reward those who earn them, these processes remain disparate, siloed in a few capable hands in the finance and pricing departments.

But with so many hands in the pot (and that “pot” often taking the form of a web of emails and spreadsheets), manual rebate performance tracking and calculation is hardly consistently replicable or accurate. As a result, unearned payouts persist, margins take a hit, and future rebate programs continue to motivate the wrong behavior.

In a highly commodified industry in which long-term partnerships often hold the key to success, chemical companies have a lot to gain from streamlining their rebate accrual and payout processes.

Automatic accruals and payouts are informed by real performance data, not best guesses, and allow customers to be rewarded accurately and in time. And, beyond maintaining strong partnerships, they mitigate margin erosion by ensuring no customer is paid over (or under) what they deserve.

How Pricefx Software Helps Chemical Companies Price Smarter

We hope that by now, we’ve helped some shed light on the areas in your pricing structure that could benefit from automation, and in turn, enable profitable outcomes in the long term.

Automating pricing processes, whether for long-term agreements with complex formula-based pricing or short-term spot pricing strategies, is critical for ensuring chemical prices stay competitive and fair amid rapidly shifting market forces.

Curious to discover how our pricing software automates chemical pricing workflows, empowering companies like yours to price smarter? Check out our article below: