2004 Articles
June 21, -200
AMR - Servigistics Adds Price Optimization Functionality With ProfitScience Acquisition
Servigistics recently acquired ProfitScience for an undisclosed amount of cash to expand its service parts management suite. ProfitScience brings its consulting service and software for developing pricing strategy with its traditional strength in automotive service parts to the deal.
The Bottom Line: The ProfitScience acquisition strengthens Servigistics service parts expertise and domain knowledge in Automotive by adding service parts price optimization to its supply chain management capabilities.
What It Means: Price optimization, used to establish pricing targets, is the first step in the process of price management. Price execution and enforcement are the follow-on steps.
To get the value out of price optimization applications, companies must gather a great deal of data, internal and external, to feed the engine. The amount of data required limits the appeal of price optimization to most service parts pricing scenarios, particularly for slow-moving parts, and most companies use a cost plus or targeted gross margin pricing strategy. However, with the high volumes of activity that auto parts experience and the data available to support analysis, price optimization fits well.
The technology of optimization used in other industries includes analytics and algorithms and ranges from spreadsheets and Business Intelligence (BI) tools to elaborate algorithm-intensive engines. A significant level of processing power and memory is necessary because of the great deal of data required to power the analysis. Five terabytes of data is not uncommon, particularly in industries such as Retail, and as analysis becomes more mature and detailed, this number will continue to grow.
The AMR Research Report “AMR Research’s Price Management Model,” May 2004, outlines additional vendors and discussions regarding price optimization. Of note for parts vendors, pVelocity provides a different approach by bringing manufacturability, or the level of effort and cost required to manufacture a product, directly into the pricing discussion. Other service parts management vendors, including i2 Technologies and Manugistics, also offer pricing optimization applications.
Conclusion: The concepts of price management benefit all service parts business. However, price optimization will not be for every service parts business. Use the following guide to decide if you should invest in technology and process for service parts:
· Manufacturers that have high volumes of service parts stand to benefit the most from price optimization. Those high-volume parts suppliers in High-Tech, Medical Devices and Diagnostics, and Automotive that use price optimization, in a price management model, can add 5% to 10% revenue improvement.
· Focus on price management if you are a complex goods manufacturer, such as in Semiconductor Capital Equipment or Aerospace and Defense. A lack of data and limited part turnover reduces the value of optimization investments but does not preclude the value of market-based pricing administered with price management.