Quản trị kinh doanh - Chapter 13: Price determination

1Chapter 13:Price DeterminationPurchasing and Supply Chain Management 3rd edition, Copyright 2013 W. C. Benton Jr. All rights reservedContentsThe Purchasing Decision and Purchasing ProfessionalPriceDiscountsPricing Methods Cost Learning Curves Cost Structure AnalysisTerminologyThe Breakeven AnalysisThe Negotiation Process Price/Cost Analysis2Price of a Product or ServiceUsually based on a variation of cost and cover ProductionPromotionDistributionA reasonable profit Purchasing professionalResponsible for determining priceMust be aware of market conditions and prices associated with quality levels Must become an expert in the item being purchased Price is important but only one of many variables to consider3Price Setting Strategies (Economics)The formula for setting pricesDiffer between firm and industryE.g., chemical industry and computer industry General approaches:Cost-based approachMarket approach The most popular approach for competitive environments Target pricingThe price set by the buying firm that fits its competitive cost structure4Price Setting Strategies (Psychological)PowerThe major psychological influence in a buyer–supplier relationship A powerful buyer: Could force a supplier to eliminate its overhead from the ultimate priceCould drive the supplier out of business and reduce competition in the supply market5General Sources of Price InformationPublished price listsQuotationsOther buyers in the marketTrade journalsNegotiationsCompetitiveBiddingDistributionThe specific suppliers themselves may be the best sourceBuyers should always ask to obtain a cost breakdown6DiscountsPopular discount types:Cash Discounts When payments for goods and services are promptly remittedExample: Cash discount of 3/10, net 30If the buyer pays within 10 days of the shipment date of the invoice, it may deduct a 3 percent from the invoice priceTrade Discounts Buying firm splits the middlemen profit margin and buys directlyQuantity Discounts Granted to the buyer for buying larger quantities The Robinson–Patman Act7Pricing Methods (cont.)Competitive bidding Must begin with an assessment of the suppliers’ pricing strategies Takes from four to eight weeks for most industrial firmsConditions for competitive bidding:The dollar value of the spend must be large enough to justify the expense of the competitive bidding processThe specifications of the product or service must be precise enough for both the buying and selling firms to accurately estimateThere are enough selling firms in the marketThere is adequate time to use this form of bidding8Competitive Bidding A probabilistic bidding strategyBuying strategy for competitive bidding processBased on the profit-maximization strategyAssumes that the buying firm will select the firm with the lowest bidUsed by the most well-managed selling firms that use the competitive bidding An estimate of a reasonable bid amountBased on:The dollar value of previous bidsThe expected profit from previous bids9CostsCost components:Direct costsCosts are not incurred if the unit is not producedE.g., direct labor, direct materials costs Indirect costs Non–manufacturing-related costsE.g., insurance, managerial salaries, property taxes, and depreciation expenses10Learning CurvesA method for predicting the efficiencies of increasing outputsReflects a systematic improvement of labor per unit as a function of cumulative units produced1180 % learning curveLearning Curves (cont.)Characteristics:Exponential A constant percentage reduction of labor as a function of cumulative units producedEspecially important in various assembly operationsUses:Cost estimatingPricingNegotiating contractsEstimating the major implications of changes in design12Cost Structure TerminologyDefinitions:Gross margin The difference between the price of the job and the costs to build a jobIncludes overhead and profitNet margin Refers to profit aloneMarkup A job costs times a factor that covers direct costs, overhead cost, and profitGross margin and markup are not the same13Margin versus Markup Conversion Chart14ContentsCost Structure AnalysisTerminologyThe Breakeven AnalysisThe Negotiation Process Price/Cost Analysis15The Negotiation ProcessThe negotiation process is a learned behaviorWin-win for both buyer and the seller Each and every aspect of a business transaction is negotiableThere exists a possibility for negotiation of pegged costsUse price/cost analysisExcellent candidates for negotiationsDirect labor, overhead, and administrative costs Setup and tooling costs16Price/Cost AnalysisA buying firm must:Consider the price variation in order to understand:Various design specificationsAssociated costsObtain reasonable cost comparisons based on: Historical data of similar equipment Experience with conditions in the specific industry17Questions?18