Profiles in Supply Chain Enablement: Building materials manufacturer deploys pricing solution to improve profitability
Company: Owens Corning (Toledo, OH)
Company Size: Large
Company Sector: Manufacturing
Area(s) of Enablement: Supply Chain Integration & Infrastructure, Decision Support
Enabler: Metreo Inc. (Palo Alto, CA)
Case Study: Scenario
The world leader in building materials and other products made from glass fiber was trying to find a solution to increase profitability in an environment of shrinking gross margins on individual products. Simple cost-cutting measures along the supply chain were not enough to dramatically affect the bottom line. Although the business was growing revenue-wise, profits were decreasing and the problem couldn't be identified. In order to solve this problem, this company decided to institute a strategy to help change the gross margins.
The central tool to support this strategy was Metreo's pricing engine, allowing the analysis of margins at nearly every level of detail, even down to the customer, product and day. Metreo's PI (Pricing Intelligence) solution tracks and analyzes the profitability of each transaction. It enables companies to understand the "pocket price" (profit left over) they retain from sales to each customer and for each product. It also assists in making both strategic and tactical decisions about which customer segments to build, which to leave behind and what business opportunities exist that are not being maximized. Owens Corning selected Metreo based on the solution provider's demonstrated ability to adapt and rapidly deploy a solution. Also, Metreo was able to integrate with Owens Corning's existing technology infrastructure, including SAP.
Since the system was installed, the company now knows exactly how much it earns from doing business with each of its customers. Its salespeople also know the profit margin associated with each deal negotiated, before the deal is completed. Arming the sales staff with this information has changed their behavior by allowing them to make smarter decisions on which deals to follow through on since they can now see how each deal affects targets not only for revenue, but for margin. This has also allowed the company to identify process improvement opportunities even at the point of transaction with the customer. Initial investment in the gross margin strategy was in the high six figures, with return on investment (ROI) in the eight figures. Implementation time was 10 weeks, and time to payback was within two quarters. Based on the implementation of Metreo's price optimization solution, the company can continue to prove their value to their customers and has confidence that they're making a profit on every sale. As next steps, Owens Corning plans to use Metreo's complete solution by taking the pricing analytics and conclusions and tying them to the actionable recommendations the software offers for implementation in everyday business operations.
For more stories of successful supply chain implementations, read the "2005 Supply & Demand Chain Executive 100" article in the June/July 2005 issue of the magazine. Also watch the Today's Headlines section of SDCExec.com every Tuesday and Thursday for more in depth best practices drawn from this year's Supply & Demand Chain Executive 100.