Pricing it Right with End-to-End Product Cost Simulation
To make a profit, manufacturers need more visibility into the cost of goods to sell at a price that reflects the value to customers. And that transparency has been lacking to date. From flour to fuel – and now baby formula – the cost of commodities has skyrocketed while availability has plummeted and no one knows when things will turn around.
Clearly, things have gotten out of control. So the leaders at Clariant International, a leading specialty chemical company, decided to build a tool that would monitor and analyze future price changes on finished goods instantly so they could make pricing decisions that pass-through costs to the value chain.
What does a specialty chemical company make?
Modern chemistry delvers solutions and revolutionary products, and Clariant supports global production in everything from home care to vehicles, energy, electronics, mining, agriculture, and cosmetics – even your kid’s brightly colored toys (with safe, stable paint) to the stain-trapping polymers that protect their favorite Star Wars t-shirts.
Plus, to feed a hungry world with higher crop yields, there are “adjuvants” – biological enhancers of herbicides and pesticides that increase effectiveness and sustainability by preventing wind drift in farmers’ fields.
Development is a cause for celebration but getting revolutionary products into the market quickly is another. Here’s how Clariant — an SAP Innovation Award Winner — built a cost forecasting tool that simulates costs end-to-end from procurement and operations, to finance and sales.
In the chemical production industry, nothing stands still
Clariant’s legacy solution for pricing simulation allowed only a single, manual simulation that took several weeks to process making it outdated by the time it reached the business decision makers.
The need for real-time pricing forecasts was driven by the costing complexity of bills of materials (BOMs) and finished products from multiple group companies – not to mention currencies based on tens of thousands of raw materials operating in volatile markets around the world.
Clariant required a robust product costing solution that could simulate finished goods costs for multiple scenarios using data from a wide array of sources. It also needed to offer intuitive reporting and analytics that procurement teams could apply instantly to resolve the many challenges they were facing.
But the biggest drawback for the forecasters was the cumbersome, labor demanding, and error-prone calculation required for 20,000 finished goods, 50,000 materials used, 18 production levels, 67 production sites, and 18 months of forecast simulation.
To move this mountain, Clariant built an end-to-end cost simulation forecasting tool with full visibility to enable proactive pricing and margin management across a variety of factors.
100X Faster –Value-Driven ROI in minutes instead of days
The company based its end-to-end forecasting tool on a production benchmarking and simulation engine from MIBCON NDC built on SAP S/4HANA and SAP Analytics Cloud with robust data processing, system stability, and user-friendly dashboard reporting and analytics. The return on investment for the entire project was realized in just three weeks!
From one manual simulation per quarter to instant forecasting, Clariant’s pricing simulations are 100 times faster than before.
“We can run forecasts almost immediately and provide updated pricing quickly,” says Markus Mirgeler, head of procurement, Clariant. “This shows up in higher margins and better product volume, differentiating us from the competition.”
The ability to analyze the full production portfolio instantly, based on detailed bills of materials (BOMs) ensures accuracy. Plus, identifying products that require given raw materials, and the systematic collection of future raw material prices, any time, affords flexibility as things change.
Now, sales can rely on a single source of truth for global pricing forecasts that support the bottom line while significantly reducing the possibility of error. With less time needed to obtain the actual and input data as well as for planning and preparation, and empowered by self-service reporting and advanced visualizations, sales can analyze the value chain with pricing simulations and produce reports in minutes instead of days.
And last but not least, the transparency of cost changes is passed onto customers so they can see the value.
To learn more about the challenges Clariant faced, and the actions the company took that placed them as a winner of the SAP Innovation Awards, read their Innovation Awards pitch deck