Parker Hannifin Corporation

Transcription

1 Parker Hannifin Corporation Strategic Pricing Richard Braun, Vice President Corporate Strategic Pricing October 19, 2010

2 Parker s WIN Strategy Vision The #1 Motion & Control Company Goals #1 Premier Customer Service Financial Performance Profitable Growth S T R A T E G I E S Delivery of Quality Products on Time Value Added Services Best Systems-PHconnect Suppliers Strategic Procurement Operation Lean Customers Strategic Pricing Internal Acquisitions Globalization Innovative Products Systems Solutions Empowered Employees

3 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

4 When You Do Lean Pricing Selling Prices Margins Go Win Rates

5 Why 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

6 Strategic Pricing Diagnostic Parker Has a Complex Pricing Environment >125 Divisions >40 Sales Companies ~900,000 Products ~600 Product Families ~400,000 Customers ~1,200 Markets Infinitely Configured Product Portfolio Pricing Control Widely Distributed to Sales, Engineering, Customer Service, Product Management, Marketing Complexity Managed Poorly Homogeneous Cost Plus Strategies Dominate

7 CM% Competitive Premium Analytics - List LIST Prices V Compeition 30% 20% 10% 0% $0 $50,000 $100,000 $150,000 $200,000-10% -20% -30% Annual Sales CM% at List Price 110% 100% R 2 = % 80% 70% 60% Variance Reduction: Competitive Alignment Bad Factor MRO Opportunity: Small Order Charges Rush Order Charges Order Pattern Analysis Core/ Non Core Analysis Life Cycle Analysis 50% 40% ,000 10, ,000 1,000,000 Part$Volume

8 Incremental Discount Analytics - Quotes 11.0% 10.0% 9.0% 8.0% 7.0% Discount on Exception Deals y = 1E-07x R 2 = Variance Reduction: Excess Discounts Customer Scoring Part Scoring Annual Quote Review Price Index 6.0% $10 $100 $1,000 $10,000 $100,000 $1,000,000 Order $ OEM Price Index vs Annual Sales Growth Opportunity: Market Price Segmentation Data Recommended Prices Price Volume Trade Offs Account Planning Integration y = -2E-07x R 2 = ,000 10, ,000 1,000,000 Annual Sales

9 Integrated 3 Pronged Divisional Strategy Pricing Audits Detailed Analytical Reviews Variance Reduction Tied To Journey Assessment Strategy Development Goal: PLAN FOR EVERY CUSTOMER Variance Reduction PDCA Human Infrastructure Kaizen Events Transformational Events Tied To Standard Work Creation Process Control Goal: PRICING CELLS 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 Awareness

10 Pricing New Products to Value

11 Pricing New Products to Value Understand Financial Drivers For Your Customers Energy Safety Life Purity Operating Costs

12 Pricing New Products to Value Evaluate Parker Performance vs Next Best Alternative Verify Performance via In Depth Customer Interaction Explore & Document Pros and Cons of Parker Vs Alternative Financially in Use From Customers Perspective

13 Pricing New Products to Value Drive to Per Unit or Per Year Savings Price So Customer AND Parker are Better Off

14 Strategic Pricing Results Disciplined, Measured Price Delivery Tools Created to Enhance Performance Driving a Common Parker Process Capturing the Value we are Creating

15 Effective Pricing is Headline News

16 16 Thank You

17 CHANGING THE FORMULA Seeking Perfect Prices, CEO Tears Up the Rules By TIMOTHY AEPPEL, WSJ March 27, 2007; Page A1 (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].