Opportunity/Problem Statement
How do we maintain full utilization and decide on the most profitable contracts? Furthermore, at what does our actual peak contract point for production to maximize both utilization and profitability while keep enough supply of hand for spot market prices and plant down time?
Action Taken
Creation of a contract review tool based on: Adherence to specified volume expectation–monthly, quarterly and yearly. Comparative price index based on product and attribute (chemical engineering, quality, and cut), furthermore created comparatives based on quantitative and qualitative (industry, product use)
- Development of segment-based strategies and go-to-market price guidance.
- Augmentation of production schedules to provide ‘real-time’ (daily upload) prices by product line dependent on flow, percentage of product under contract, and under negotiation to provide better price guidance.
- Designed a list of ‘red’ contracts/customers with commensurate guidance on new proposed prices or that PPG should ‘fire’ the customer to free up inventory and production for more profitable contracts.
- Furthermore, the design of the ‘red’ contracts led to a ‘Hot List’ of proposed changes (both price increases/decreases), new contract guidelines, and at-risk events provided to salespeople on a monthly basis to work on during, before, and after negotiations.
- Original tool was created for management and operations, upon further review a =secondary tool was created for the salesforce for them to proactively analyze their own book of business and provide feedback to management.
Benefits:
- Firing and repricing of ‘Red Accounts’ alone, which accounted for less than 10% of the entire business improved profitability by 1.4%.
- Of the 68 accounts, 27 left, of those who stayed the average accepted price increase was 7.8%.
- With the inventory that was freed from firing customers, the ‘tracked’ inventory was sold of an average of 12.4%more than originally scheduled to be sold.
- Overall margins increased by 1.6%,from 14.4% to 16% representing an increase of 11.1% profitability for the business unit.
- Reducing monthly variability(over-runs/shortages) by roughly 28%, allowing for better predictability of revenues to the finance and strategy teams within greater PPG
- Overall, ROI of the project for two years is set to exceed 9X
