Industrial manufacturers often make their highest margins on configured or custom-built products. These goods are specific to customer needs and are often highly differentiated offerings, fetching a premium price when weighed against standard or discrete products.
Of course, effectively pricing configured products is orders of magnitude more complex than doing so for discrete products. Given the variety of inputs and specific raw material formulations needed, the configured product manufacturing process operates on the quiet assumption that supply chains, material availability and costs are reasonably predictable.
As we’ve written about recently, these factors are currently incredibly unpredictable. The downstream impact of these macroeconomic trends for industrial manufacturers is sharp, throwing off the carefully crafted process of engineering and configuring products to order, while further muddling the important pricing decisions that their margins rely upon.
While manufacturing output has increased each month over the past year, “plants are waiting longer and longer to get the materials they need. The average wait time is now 85 days, the longest since the Institute for Supply Management (ISM) began keeping tabs in 1987,” according to Yahoo! Finance.
It’s the polar opposite dilemma from the one manufacturers encountered a year ago. This time last year, deep in the COVID recession, the effect of shuttered plants coincided with cratering demand. The chief focus for these companies was moving stale inventory while somehow avoiding over-discounting.
Now, demand has shot back up faster than manufacturers’ ability to ramp up production, while supply chains struggle with labor shortages and skyrocketing fuel prices. It seems companies across the board can’t raise prices fast enough, or high enough, to quell demand or buy time for supply to normalize. It’s led to a perfect storm of frustrated end customers, undersupplied distribution channels, massive cost increases and extremely difficult pricing decisions, especially for manufacturers of configured or custom products.
The need for intelligent pricing technology has never been starker, and those that made investments in pricing pre-COVID have separated from the pack. Our July 20 webinar with KBMax will go deep into the configured product pricing conundrum and share success stories from visionary manufacturers.