Supply and demand are Economics 101, but businesses in complex supply chains are struggling to react with agility to fluctuations of these two intrinsically related concepts.
That’s because they impact essentially all workflows of a sell-side organization, yet for B2B suppliers and wholesalers, many of those flows occur in silos. Blue Ridge’s Ed Rusch said a disjointed strategy — one that fails to bridge the gap between sales and supply chain planning — can lead to lost revenue, unhappy customers and a lack of optimization from inventory to pricing.
Speaking with PYMNTS, Rusch described why today’s business climate demands that these silos be broken down and requires firms to take a far more proactive approach to their supply chain management and sales efforts.
“There is more and more a need for people to be able to respond to move from a more reactive position with their supply chain to one that’s a lot more proactive,” he said.
B2B pricing and payments are notoriously complex. While a wholesaler may place a price in a certain part, product or service, customized pricing and discounts for individual clients need to be taken into account when establishing a pricing strategy.
Yet that’s the tip of the iceberg, especially in today’s market of volatile and disrupted supply chains.
According to Rusch, there has historically been a silo that separates pricing strategy from supply chain and sales planning that can be financially detrimental to a B2B organization.
“When you have a company that’s making decisions around pricing, and doing so in a silo, they are only taking a subset of the view of what’s going on into those pricing decisions,” he said, noting that the pricing strategy often will only look at the sales side of the organization for guidance.
He offered the example of a sales department establishing promotional pricing on a certain item. But that pricing strategy fails to consider the ability of the company to actually keep those items in inventory — and the state of the supply chain that unlocks access to those items, too. In another instance, an item that may be overpriced could be sitting in inventory, keeping working capital stuck on the shelves.
In any case, he said, this pricing methodology may be aligned with sales department initiatives, but it overlooks supply chain management efforts that may or may not be able to support the goals of the sales department.
“One of the biggest financial consequences directly relates to profitability, and ultimately leaving profit dollars on the table,” added Rusch.
Supply Chain Breakdowns
Supply chain management, forecasting and planning must align with sales and pricing objectives in order to ensure that the demand fueled by pricing decisions can actually be met.
What’s vital for B2B organizations to note, said Rusch, is that pricing and supply chain planning are intrinsically connected, and they can help an organization more seamlessly ebb and flow with supply and demand fluctuations occurring.
“Not only can you plan and respond, you can actually use pricing as a lever to help shape your demand as well,” he noted.
This is increasingly difficult considering an onslaught of Black Swan events, not least of all the pandemic, but other disruptions like the Suez Canal blockage. As a result, real-time visibility into supply chain events, as well as sophisticated data analytics tools that drive actionable insights, are essential to guiding pricing activity.
Legacy silos can lead to pricing efforts that can actually harm the company’s ability to drive revenue, retain customers and achieve strategic goals. On the other hand, overcoming those silos can lead to a pricing strategy that actually shapes demand in a predictable and controllable way — and creates a far more agile, proactive supplier.
“There are many things that are unforeseen, but being able to know what those things are in real time, understanding and measuring quickly the impact that those things have on your business, and managing that with smarter, faster decisions so you can be in a better position when those things happen relative to your competition, are all things that will ultimately add up to success,” Rusch said.
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