Parker Hannifin Corporation - Strategic Pricing - October 19, 2010
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Parker Hannifin Corporation
Strategic Pricing
Richard Braun, Vice President
Corporate Strategic Pricing
October 19, 2010
Parker’s WIN Strategy
Vision The #1 Motion & Control Company
Goals
#1 Premier Financial Profitable
Customer Service Performance Growth
S ♦ Suppliers ⇒ Strategic ♦
♦ Delivery of Quality
Internal
T Products on Time Procurement Acquisitions Globalization
R
A ♦ Innovative Products
♦ Value Added Services ♦ Operation ⇒ Lean
T
E
G ♦ Best Systems-PHconnect ♦ Customers ⇒ Strategic ♦ Systems Solutions
I Pricing
E
S
Empowered Employees
Financial Performance
• Strategic Procurement: smarter
purchasing from our suppliers
• Lean Operations: streamlining continues
to decrease inventory and increase
quality and productivity
• Strategic Pricing: capturing the
full value our products bring to
our customers
3
When You Do Lean Pricing
Selling Prices
Margins Go
Win RatesWhy Have We Not Managed Price • The Market Sets Prices • Sales Knows Where We Need To Be • We Need The Volume • Too Many Parts … Too Many Customers • We Have Deflation • We Solve Non-Price Problems with Price
Strategic Pricing Diagnostic ¾ Parker Has a Complex Pricing Environment ¾ >125 Divisions ¾ >40 Sales Companies ¾ ~900,000 Products ¾ ~600 Product Families ¾ ~400,000 Customers ¾ ~1,200 Markets ¾ Infinitely Configured Product Portfolio ¾ Pricing Control Widely Distributed to Sales, Engineering, Customer Service, Product Management, Marketing ¾ Complexity Managed Poorly … Homogeneous Cost Plus Strategies Dominate
Analytics - List
LIST Prices V Compeition
30%
Variance Reduction:
20%
Competitive Alignment
Competitive Premium
10%
0%
$0 $50,000 $100,000 $150,000 $200,000
Bad Factor
-10%
-20%
-30%
MRO Opportunity:
Annual Sales
Small Order Charges
CM% at List Price
110% Rush Order Charges
100%
90%
R2 = 0.0053
Order Pattern Analysis
80% Core/ Non Core Analysis
CM%
70%
60%
Life Cycle Analysis
50%
40%
1 10 100 1,000 10,000 100,000 1,000,000
Part$VolumeAnalytics - Quotes Discount on Exception Deals
11.0%
y = 1E-07x + 0.0891
Variance Reduction:
R2 = 0.0139
10.0%
Excess Discounts
Incremental Discount
9.0% Customer Scoring
8.0% Part Scoring
7.0% Annual Quote Review
6.0%
$10 $100 $1,000 $10,000 $100,000 $1,000,000
Order $
OEM Price Index vs Annual Sales
Growth Opportunity:
1.5 Market Price Segmentation
Data Recommended Prices
1.25
Price Volume Trade Offs
Price Index
1 Account Planning Integration
0.75
y = -2E-07x + 1.107
R2 = 0.0334
0.5
10 100 1,000 10,000 100,000 1,000,000
Annual SalesIntegrated 3 Pronged Divisional Strategy
Pricing Audits Kaizen Events
Variance Reduction
e
• Detailed Analytical Reviews • Transformational Events
tur
• Variance Reduction • Tied To Standard Work
uc
tr
Creation
PD
• Tied To Journey Assessment
ras
• Process Control
CA
• Strategy Development
Inf
n
• Goal: PRICING CELLS
ma
• Goal: PLAN FOR EVERY
CUSTOMER
Hu
Tracking Centers
• Tracking the Basics Sell Price Changes, Quotes, SPAN,
• Win Loss Tracking to Refine Price Strategies
• Tied To Management Standard Work
• Goal: Current Results AwarenessPricing New Products to Value
Pricing New Products to Value ¾Understand Financial Drivers For Your Customers ¾Energy ¾Safety ¾Life ¾Purity ¾Operating Costs
Pricing New Products to Value ¾Evaluate Parker Performance vs Next Best Alternative ¾Verify Performance via In Depth Customer Interaction ¾Explore & Document Pros and Cons of Parker Vs Alternative … Financially in Use From Customers Perspective
Pricing New Products to Value ¾Drive to Per Unit or Per Year Savings ¾Price So Customer AND Parker are Better Off
Strategic Pricing Results ¾Disciplined, Measured Price Delivery ¾Tools Created to Enhance Performance ¾Driving a Common Parker Process ¾Capturing the Value we are Creating
Effective Pricing is Headline News
Thank You 16
CHANGING THE FORMULA
Seeking Perfect Prices, CEO Tears Up the Rules
By TIMOTHY AEPPEL, WSJ
March 27, 2007; Page A1
http://online.wsj.com/article/SB117496231213149938.html
(excerpt)
CLEVELAND -- In early 2001, shortly after Donald Washkewicz took over as chief executive of Parker Hannifin Corp., he
came to an unnerving conclusion. The big industrial-parts maker's pricing scheme was crazy.
For as long as anyone at the 89-year-old company could recall, Parker used the same simple formula to determine prices of
its 800,000 parts -- from heat-resistant seals for jet engines to steel valves that hoist buckets on cherry pickers. Company
managers would calculate how much it cost to make and deliver each product and add a flat percentage on top, usually
aiming for about 35%.
***
[M]uch of industrial America -- 60% of U.S. manufacturers … still relies on oldfangled, "cost-plus" types of pricing methods
such as the one Parker used.
***
In October 2001, Mr. Washkewicz unveiled his big plan, which involved creating a new senior position for pricing …. By 2003,
the business that makes industrial fittings, for example, had spent six months reviewing some 2,000 different items….The
upshot: 28% of the parts, mostly metal fittings used in places like oil rigs and power plants, were priced too low. Overnight,
Parker raised their prices anywhere from 3% to 60%, with the average increase about 5%.
***
The price increases were met with immediate protest. *** One of those customers is Richard Pedtke, president of the
compact-vehicle division at Ingersoll-Rand Co., which uses a wide array of Parker hydraulic fittings and other components in
its Bobcat miniature loaders and excavators. Mr. Pedtke says he first objected when one of Parker's new hydraulic fan
motors cost much more than he expected. But when Bobcat's purchasing people sat down with Parker's sales team, Bobcat
learned that the new motor replaced 11 separate parts in the company's existing machines. Moreover, the new design
reduced leakage by eliminating hydraulic connections, was easier to install at Bobcat's factories, and opened up space inside
the machines -- all of which saves Bobcat money.
***
"Once you start doing this, you never stop…It's a different way of thinking that filters into everything."
[Don Washkewicz, CEO].You can also read
