Parker Hannifin Corporation
Strategic Pricing
Richard Braun, Vice President
Corporate Strategic Pricing
October 19, 2010
Parker’s WIN Strategy
Vision
Goals
S
T
R
A
T
E
G
I
E
S
The #1 Motion & Control Company
#1 Premier
Customer Service
♦ Delivery of Quality
♦ Suppliers ⇒ Strategic
♦ Value Added Services
♦ Operation ⇒ Lean
♦ Best Systems-PHconnect
♦ Customers ⇒ Strategic
Products on Time
Profitable
Growth
Financial
Performance
Procurement
Pricing
♦
Internal
Acquisitions Globalization
♦ Innovative Products
♦ Systems Solutions
Empowered Employees
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
When You Do Lean Pricing
Selling Prices
Margins Go
Win Rates
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
Strategic Pricing Diagnostic
¾ Parker Has a Complex Pricing Environment
¾
¾
¾
¾
¾
¾
¾
>125 Divisions
>40 Sales Companies
~900,000 Products
~600 Product Families
~400,000 Customers
~1,200 Markets
Infinitely Configured Product Portfolio
¾ Pricing Control Widely Distributed to Sales, Engineering,
Customer Service, Product Management, Marketing
¾ Complexity Managed Poorly … Homogeneous Cost Plus
Strategies Dominate
Analytics - List
LIST Prices V Compeition
30%
Competitive Premium
20%
10%
0%
$0
$50,000
$100,000
$150,000
$200,000
-10%
-20%
MRO Opportunity:
Small Order Charges
Rush Order Charges
Order Pattern Analysis
Core/ Non Core Analysis
Life Cycle Analysis
-30%
Annual Sales
CM% at List Price
110%
100%
R2 = 0.0053
90%
CM%
Variance Reduction:
Competitive Alignment
Bad Factor
80%
70%
60%
50%
40%
1
10
100
1,000
Part$Volume
10,000
100,000
1,000,000
Analytics - Quotes
Discount on Exception Deals
Variance Reduction:
Incremental Discount
11.0%
y = 1E-07x + 0.0891
R2 = 0.0139
10.0%
9.0%
8.0%
7.0%
Excess Discounts
Customer Scoring
Part Scoring
Annual Quote Review
6.0%
$10
$100
$1,000
$10,000
$100,000
$1,000,000
Growth Opportunity:
Order $
OEM Price Index vs Annual Sales
Market Price Segmentation
Data Recommended Prices
Price Volume Trade Offs
Account Planning Integration
1.5
Price Index
1.25
1
0.75
y = -2E-07x + 1.107
R2 = 0.0334
0.5
10
100
1,000
10,000
Annual Sales
100,000
1,000,000
Integrated 3 Pronged Divisional Strategy
Pricing Audits
Kaizen Events
Inf
ras
tr
Goal: PLAN FOR EVERY
CUSTOMER
Hu
ma
n
•
CA
Detailed Analytical Reviews
Variance Reduction
Tied To Journey Assessment
Strategy Development
PD
•
•
•
•
uc
tur
e
Variance Reduction
•
•
•
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
Pricing New Products to Value
Pricing New Products to Value
¾Understand Financial Drivers For Your
Customers
¾Energy
¾Safety
¾Life
¾Purity
¾Operating Costs
Pricing New Products to Value
¾Evaluate Parker Performance vs Next Best
Alternative
¾Verify Performance via In Depth Customer
Interaction
¾Explore & Document Pros and Cons of
Parker Vs Alternative … Financially in Use
From Customers Perspective
Pricing New Products to Value
¾Drive to Per Unit or Per Year Savings
¾Price So Customer AND Parker are Better
Off
Strategic Pricing Results
¾Disciplined, Measured Price Delivery
¾Tools Created to Enhance Performance
¾Driving a Common Parker Process
¾Capturing the Value we are Creating
Effective Pricing is Headline News
Thank You
16
CHANGING THE FORMULA
Seeking Perfect Prices, CEO Tears Up the Rules
By TIMOTHY AEPPEL, WSJ
March 27, 2007; Page A1
http://online.wsj.com/article/SB117496231213149938.html
(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].