A food company that makes sauces, condiments and frozen foods provides hundreds of products to thousands of foodservice distributors around the US. Traditionally, the food company uses a complex, delivered pricing model for its customers with regional differences and many non-standard structures such as “FOB delivered.” The existing model had several drawbacks:
- Delivery cost increases were absorbed by the company
- Smaller loads were often shipped at a loss to the food service company due to price policy bracket exceptions
- Pricing administration is difficult with an exception-based policy
As a result, managing channels and pricing was dysfunctional. Senior managers at the food company recognized a significant opportunity to develop a logistics and pricing solution that would better serve different customer segments. This would simplify the process and provide better results. They needed a tool that could define “cost-to-serve”, understand dependencies across segments, and provide detailed implementation capability. The model would improve pricing administration and make it easier for customers to work with them. Moreover, the new pricing model would provide the company with the ability to improve profitability by passing along delivery cost variances to the customer.