The main aim of pricing and revenue management in a supply chain is to create a balance between supply and demand, while simultaneously optimizing profits. Traditionally, businesses would tweak the availability of their assets. However, in this day in age, revenue management has adopted a different approach. One that focuses more on pricing as the main tool for leveling out supply and demand.
As a more universal approach, this type of pricing and revenue management in a supply chain has proven to boost profits more efficiently. It’s a winning strategy for companies across a number of industries, including manufacturing, food distribution, and wholesale. Let’s dive into how and why you would adopt this approach for your own company.
Balancing supply and demand
Individually, both supply and demand can be adjusted using several different strategies. For supply, this could include changes to your inventory, while demand is usually generated by marketing efforts.
Pricing management is the process that ties supply and demand together by focusing on strategies designed to strike a balance between the two. Working with limited supply chain assets, both in terms of capacity and inventory, pricing and revenue management in a supply chain use pricing as the key tool for optimizing profits.
Increasing the profit margin
There are several revenue management strategies organizations can choose from, depending on your industry and business model. You can choose to focus on the timing of your pricing, targeting different customer segments or adjusting rates based on product or service availability.
Each of these approaches to pricing and revenue management in a supply chain can significantly increase profits. Which one you choose is largely based on the nature of your offering. Perhaps your value proposition is different for different audiences. Or maybe the demand for your products or services spikes during certain seasons. You could even adjust pricing based on individual versus wholesale purchases.
Seasonal pricing and revenue management in a supply chain
Manufacturers and food distribution companies selling season-specific products rely on revenue management tactics to balance out their supply and demand between peak times and the rest of the year. One winning pricing strategy for optimizing profits in this area is fluctuating between higher rates when demand spikes, and reduced prices in off-peak periods. This way you’re encouraging customers to shift their demand, which in turn allows you to maintain the efficiency of your supply chain.
By making this shift as well you are not stuck with a ton of inventory at certain times of the year and you can maintain consistent cash flow for these items.
Revenue management of bulk and spot customers
Most products can be offered individually at a higher price (spot sales) or in bulk at a lower rate. Effective pricing and revenue management in a supply chain strikes the right balance between the two, ensuring wholesale companies are bringing in optimal profit from their offering. You can achieve that through in-depth customer segmentation and strategic inventory management.
It does take an all-hands-on-deck approach. All teams need to be on the same page to be able to execute an effective pricing and revenue management strategy.