Marrying Dynamic Pricing and Real-time Supply Chain

Jan-Willem Adrian |
December 11, 2015

pricing and supply chainThe art of online pricing is a delicate one. It takes more than just comparing yourself to the competition and setting the price accordingly.

Instead, pricing algorithms must take into account a large set of parameters including competitor pricing and product availability, sales margins, price elasticity and indices, current and projected inventory, geography, weather, target groups, service levels, variance between online prices physical store pricing, etc.

Needless to say, no single pricing algorithm fits all. It must be adjusted to your unique business rules and environment in order to obtain the desired results.

Once you’ve got pricing right, there’s the issue of delivery. Not being able to deliver on your promise leads to a high number of returns, disappointed customers and a negative impact on your brand.

Best performing organizations will tackle this double challenge by marrying a dynamic pricing approach with real-time supply chain capabilities. This enables a price and service setting that reflects the company’s ability to deliver as promised. Here’s how this would be done.

Dynamic pricing

What is dynamic pricing all about? Essentially it’s about being able to measure the performance of pricing policies across hundreds of thousands of SKUs and making timely, frequent and optimal price adjustments.

Using your company’s own pricing rules, you want to be able to measure the performance of price policies and simulate re-pricing decision impact at any time. This way, pricing teams can run complex price simulations quickly to evaluate the impact of alternative pricing strategies. You also want to define price thresholds and receive alerts once they are crossed, so that you can take advantage of events such as a price change on a competitor site or a change in availability of stock.

So why is it so difficult? The complexity lies in the interaction between strategic factors influencing the competition, as well as the many factors that influence pricing decisions. Factors like catalogue size, segmentation, scope / volume of data (internal & external), channel consistency, organizational capacity and limited time window. Automating this task means that better informed decisions can be taken more swiftly, allowing you to respond faster to market opportunities and threats.

To understand this better, take a look at Fnac, the 3rd largest e-commerce retailer in France. This short video describes how they are able to deploy optimal prices on a daily basis for their entire product catalogue.

Real time supply chain capacity management

Now what about your ability to deliver and the capacity of your supply chain? There are many factors affecting the supply chain capacity, be it transport, physical warehouse or handling capacity issues. Marrying the various data sources (e.g. ERP, TMS, WMS & online sales system) in real time could help identifying capacity issues during the day or the days to come. Each order (online or store orders) can be translated into the amount of volume it will occupy in transport, the amount of handling that is required in the warehouse and the amount of stock quantity that is needed from the warehouse. Taking this information and matching that it up against the capacity per truck, per shift or available stock respectively, allows supply chain managers to set maximum delivery capacity and service levels for each type of customer promise, as well as adjust data throughout the day.

This in turn allows product managers to determine in real-time what service levels can still be offered and whether certain customer groups should get priority over others in order to maximize customer satisfaction and adherence to customer promises.

Actionable alerts

Pricing alertsWhile marrying dynamic pricing and supply chain sounds perfect, something’s still missing. (Perhaps a ménage à trois would have been a better title).

Your logistics and pricing teams don’t have the time to look at the screen all day to see whether there are any events that they should react to. They should have the ability to define thresholds on the pricing & supply chain indicators and get notified in real-time when they deviate from the desired limits or capacity levels.

Once a user receives an alert, they should have the ability to review the most up-to-date data to identify the root-cause. They should be able to swiftly identify the events affecting the breach and instantly take the necessary decisions to reduce operational risks, cost impacts or opportunity losses.

Putting these three elements in place will let you maximize profits on a daily basis. You’ll be able to understand the impact of a decision taken at one end of the value chain on the rest of the chain and on the delivery promise to your clients.

Learn how ActivePivot’s in-memory analytics can help you Discover, Sense and Respond to dynamic pricing and real-time supply chain.

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