Pricing strategy in operations and SCM
A business can use a variety of pricing strategies when selling a product or service. The Price can be set to maximize profitability for each unit sold or from the market overall. It can be used to defend an existing market from new entrants, to increase market share within a market or to enter a new market. Businesses may benefit from lowering or raising prices, depending on the needs and behaviors of customers and clients in the particular market. Finding the right pricing strategy is an important element in running a successful business.
Published on: Mar 4, 2016
Transcripts - Pricing strategy in operations and SCM
Shahista KARIM 14140896
Cynthia SHONTAN 14137935
Kaan AYDIN ATAOGLU 14123053
Choothan THAMMAPALO 14135090
Meykandan KRISHNAN 14135265
Procurement Case study :
Operations and Supply chain management
Table of contents
Theory of pricing policy
Identify a recognized pricing point
How to protect Company A from the price
Streamline or Reduce the processing time
How to protect Company A from pilfering of scrap
How to protect Company A from Risk of RTA
How to protect Company A from High cost of
How to protect Company A from incorrect weight
advised from off-site weighing
Background Operations and SCM
1st tier automotive supplier of metal pressings and assemblies
It produces 1million parts every year to single global OEM
The company uses a 25-30ft lorry full of parts to deliver to single
global OEM every 14minutes
Company A ensures that their operations in distribution are
always effective and on time as they will be charged a levy for line
The company has a policy of working 24 hours from Mon-Fri so
as to make ends meet for their clients
The main material the company uses is steel coil, approximately
1500 tonnes is used per month
The result of the steel material used produces a waste scrap
The company gets an amount of 733 tonnes waste(scrap
material) from the manufacturing of the steel coil.
The waste gotten is called “Slugs and Cuttings” and it has a
specific cutting of 150mm * 50mm(1cm in diameter)
The waste scrap is deposited onto a conveyor belt
This waste scrap is then taken to a “scrap house” which is
adjacent to the factory and contains 2 large and 1 small trailers.
There are 2-3 collections per day during normal daylight hours
The company then supplies the clean scrap which is generally
called 8A in the market to recyclers in demand due to the form
of materials compacted which can be used in foundries
• about the product they are selling (
Conduct some research on the market
reaction to the products provided)
• Is there an established market price for
similar products? And market
• Demand in terms of quality and quantity
• The price of the product will depend on the
competition, what are their prices, their costs?
• What are the key features and benefits of their
• Does company A products have a clear point of
difference or competitive advantage over
Who are my
What do they
PRICING POLICY : Market and
PRICING POINT : Selecting the
• To Cover the
• Price low to
stay in the
• To choose
• Set a return
(a % on the
• To increase
• Maintain the
• Can be an
• High price to
• Develop and
IDENTIFY A RECOGNISED PRICING
POINT : Defining the pricing strategy
IDENTIFY A RECOGNISED PRICING
POINT : Choosing a pricing method
Cost-Plus: Production costs are clearly defined and
then a target profit margin is added to make the final
Targeted Return: Investment costs are determined,
and a specific rate of return is applied in order to get
the return on investment.
Value: Build a price based on the value it creates for
Psychology: Psychological or emotional impact is
To protect the company from
extreme price fluctuations
Company A needs to have an agreed contract with the
recyclers on a standard price for the weighted scraps
regardless of the price fluctuation in the economy.
The company can also set up a warehouse to store the
scraps in the case of low pricing system and whenever
there is inflation the company can decide to take it to the
They could also purchase a weighting machine to measure
the amount of the waste scrap and sell it when the price of
the economy is favorable.
Furthermore, the company can source for investors that
will be able to forecast the pricing rate for the waste scrap
in future times depending on the economy of the market.
Team 1 Team 2 Team 3
Melting Melting Melting
Cooling Cooling Cooling
Cutting Cutting Cutting
• Identify waste in the
• Study the process
• Implement efficient
• Monitor the activities
Automation is used to get rid to monotonous
Saves resources for the company.
Reduces manual errors.
Investment in new technology
Return on Investment.
Sustain in the market.
Protect Company A from pilfering
The company needs to set up security measures by
acquiring a warehouse which uses locks and is well
lighted to be able to store the scrap by using CCTV
(Security Cameras, Alarms or Motion Detectors).
They should ensure that all landscaping pathway that
allows criminals to hide from view of the company
must be removed.
Installation of exterior lighting and protect fixtures with
locked metal cages should be increased.
Protect Company A from Risk of
Road Traffic Act Fines (RTA)
Ensure the designated drivers follow a rule which is to reduce vehicle
speed using GPS.
Decrease idle time using GPS tracker
Install a GPS in all Lorries which serves a purpose of improving routing
Make sure there is proper vehicle maintenance in order to prevent line
stoppage and implement fuel card integration.
Since the company works round the clock, there is a possibility that the
workers will be experiencing fatigue and this can lead to accidents, in
order to prevent this there should be shifts between the drivers and those
working in the manufacturing company.
In addition, the company needs to get a warehouse close to the company
(Single global OEM) that needs the steel. In this way the assigned Lorries
delivers materials to the warehouse and whenever the single global OEM
Protect Company A from High
The company can be protected from spending too much
by following the below steps
Create a budget plan to know what the company needs
in order of priority
Source for various suppliers that can offer the raw
materials company A needs at a lower cost
Create a balance sheet to keep records of the expenses
spent so as to be able to detect/monitor the amount of
money spent on a particular thing if it’s over the budget
weights advised from off-site
Multi Point Weighing:
1. The dry weight of the truck is determined by the on sight
2. The weight of the fully loaded truck will be weighed on sight
to determine the weight of scrap.
3. The fully loaded truck is again weighed by a 3rd party weigh
bride agreed by both the companies.
4. The weight of scrap in the receipt note from the recycler
should match with the values determined by the on sight and
3rd party weigh bridge.
5. If the machine on sight is faulty, the weight on the receipt
note should at least match with the weight provided by the
3rd party company.
Action plan for the project
Transport to the
to Improve efficiency in each
of the primary processes
within 1 year by 10%
Encyclopedia of business, 2nded (2013). Pricing policy and
strategy. Available at:
pr/pricing-policy-and-strategy.html. [Accessed 13 November
Ian Baker Moodle course on Pricing Strategies. Available at
[Accessed 18 November 2014]
Nab (2010) How to develop a pricing strategy. Available at:
[Accessed 13 November 2014]
strategy_2.htm [Accessed 17 November 2014]
Any questions ?