In B2B commerce, where product sales are complex and intricate, no detail can be overlooked — particularly the cost of essential materials, which carry huge weight. Even the pricing of basic materials like steel plays an important role in shaping the direction of the business. Steel, a widespread material in manufacturing and construction, is a compelling example of how raw material pricing can shape B2B business strategy.
In this blog post, we’ll explore the balance B2B businesses must strike when pricing raw materials, the pitfalls of miscalculations, and the transformative power commerce technology can play in mitigating risks and challenges.
The Link Between Raw Material Prices and Business Strategies
Raw material pricing is a significant factor in global commerce. Because fluctuations in raw material prices directly impact the overall cost of manufacturing goods and providing services, businesses must carefully manage and adapt to cost changes to maintain profitability. Raw material pricing has a ripple effect across supply chain dynamics, inflation and customer pricing, and general economic stability. This means that understanding and managing raw material prices are essential to strategic decision-making for businesses engaged in international trade and commerce. Take the cost of steel: as prices fluctuate, the impact extends far beyond the steel industry itself.
Automotive
In the automotive manufacturing sector, steel plays a foundational role in the fabrication of vehicles. As steel prices fluctuate, manufacturers grapple with heightened production expenses, impacting their operational costs. This prompts a reassessment of pricing strategies, potentially leading to price adjustments for consumers. The repercussions extend to suppliers within the automotive supply chain, as they navigate increased input costs for components reliant on steel. Whether steel prices rise or fall, manufacturers face the intricate challenge of balancing competitive market pricing with sustained profitability, necessitating continual adaptation of pricing strategies.
Construction
In the construction sector, steel is a vital component in structural frameworks. As steel prices vary, construction companies experience shifts in material costs, influencing project budgets and overall expenses. Higher steel prices may lead to increased construction costs, potentially affecting the feasibility of projects. Reduced steel prices may offer cost relief, enabling more competitive project pricing. The construction industry must manage these fluctuations to maintain project viability, adjust pricing strategies, and navigate the intricate interplay between material costs and overall project economics.
Machinery/Appliance Manufacturing
In machinery and appliance manufacturing, steel serves as a core material in the production of components and structures. Fluctuations in steel prices directly impact production expenses, influencing the overall cost structure for manufacturers. When steel prices rise, manufacturers may face increased operational costs, prompting considerations for pricing adjustments. Lower steel prices provide a window for cost savings, potentially enabling manufacturers to offer competitive pricing or invest in innovation. The challenge lies in effectively navigating these price dynamics to ensure sustained competitiveness and profitability in the machinery and appliance manufacturing sector
Understanding the crucial link between steel prices and the broader economic landscape is imperative for businesses seeking resilience. For instance, during a period of rising steel prices, businesses may explore alternative materials or invest in efficiency measures to mitigate the impact on their bottom line. Or, when steel prices fall, businesses might capitalize on the opportunity to invest in expansion or offer competitive pricing to gain market share.
The Domino Effect of Pricing Miscalculations
With this in mind, miscalculating raw material pricing clearly has significant repercussions and a cascading effect on B2B businesses. When raw materials are inaccurately assessed, it sets off a chain reaction.
Imagine a manufacturing company failing to accurately predict the surge in steel prices, leading to an underestimation of production costs. Sure, this strains profit margins. But more than that, it hampers competitiveness and can even result in financial losses.
Impacts go beyond the numbers. Operationally, this miscalculation can lead to supply chain disruptions, delayed production schedules, and strained relationships with suppliers. The business ecosystem becomes bruised and ineffective.
This begs the question: how can B2B businesses accurately price raw materials at any given time to respond to market fluctuations and ensure business continuity?
Automation and Advanced Configurators: A Solution to Pricing Challenges
B2B companies, historically reliant on manual processes and conventional pricing strategies, are now turning to advanced commerce technologies to build resilience when it comes to raw material pricing fluctuation.
Sophisticated automation and configurator solutions are enabling businesses to optimize their pricing strategies, boasting precision with uncertain raw material costs. Commerce technology, in general, provides B2B businesses with the tools to manage pricing intricacies. Advanced configurators, like those offered by Logik.io, enable companies to handle complex product configurations with ease. The ability to configure, price, and quote online not only expedites the sales process but also allows for real-time adjustments to accommodate shifts in raw material prices.
Let’s say that the same manufacturing business highlighted, which is facing the fluctuating pricing of steel, leverages an automated commerce configurator like Logik.io to navigate challenges. Here’s what happens:
Real-Time Pricing Adjustments
- The configurator is integrated with real-time market data, allowing the business to receive instant updates on steel prices.
- When steel prices surge, the automated configurator dynamically adjusts the pricing for products that heavily rely on steel as a raw material.
- The business can promptly reflect the increased costs in its quotes and proposals, preventing underestimation and potential profit losses. To further enhance cost management and maintain pricing accuracy, our solution is equipped with an intelligent feature that triggers an approval workflow when a previously generated quote exceeds predefined bounds due to significant fluctuations in raw material prices.
Scenario Analysis and Predictive Modeling
- The configurator enables the business to conduct scenario analyses and predictive modelling based on different steel price scenarios.
- By simulating various pricing scenarios, the business can proactively plan for contingencies, adjust product configurations or explore alternative materials.
Supply Chain Optimization
- With Logik.io's capabilities, businesses can extend the configurator's reach to their supply chain.
Adaptive Sales Strategies
- The configurator allows the sales team to adapt strategies in real-time based on changing steel prices.
- When faced with price increases, the sales team can proactively communicate with clients, explaining the adjustments and potentially offering alternative configurations to maintain competitiveness.
Commerce technology also brings visibility and control to B2B transactions. Businesses can use data-driven insights to make informed decisions about pricing strategies, supply chain management, and overall business operations. A proactive approach is important in preventing pricing miscalculations caused by fluctuating raw material costs.
Raw Material Pricing: Agility with Technological Resilience
The ebb and flow of raw material prices pose an ongoing challenge for B2B businesses in their ability to adapt to changing market dynamics. The integration of advanced configurators and automation enhances the accuracy of raw material pricing and empowers businesses to make informed decisions, optimize supply chains, and adapt sales strategies in real-time. Does your business depend on raw materials? Talk to Zaelab about how the right configurator technology can help your business respond to raw material pricing fluctuations more effectively.
