Have your delivery personnel ever had to go to a job and pick up materials because the customer ordered the wrong materials? Have you ever delivered the wrong materials when the customer ordered the correct materials?
Materials are tangible, and making a delivery mistake costs money on both ends of the distribution channel. However, I would like to present an error that can cost more than mis-delivered goods: What does it cost a company that prices materials incorrectly on orders? In other words, do you measure your pricing accuracy?
So, when I ask are we measuring twice, I am asking this: Is there a procedure in place to verify that we are pricing products correctly? Do we not only check the prices quoted, but also measure the accuracy of the pricing?
Here is the problem with mispricing items: You only get one chance. If you price products incorrectly for your customers, they begin checking every single price and then comparing these to your competitors. However, if you get it right, meaning the price on the invoice matches the price quote on a bid, the customer then places more value and trust on other parts of the business, like quality of materials, delivery, and personnel. Plus, the cost of time on the accounting side to correct the prices can be 10 times the amount of time required to input the initial order.
Let me share with you an event that happened a few years ago. I traveled with reps from a construction supply company to a builder's office to kick off an electronic data communications EDI project. After questioning the builder about database standard, their inventory files, and if they were practicing good data hygiene, we concluded sadly that they were not ready to exchange EDI transactions. But the trip wasn't a total loss. As we exited the meeting, the accounts payable clerk noted passionately that she was pushing all of her jobsite foremen to do more business with my customer, the supplier. Surprised, I asked why. Her exact words were "In the last few months, they [the supplier] have priced almost every order correctly, and it makes my job easy in accounts payable."
So while we had gone there to discuss EDI, we came out learning about the effectiveness of pricing accuracy. I can tell you that since this supplier began measuring the accuracy of its pricing and has taken steps to reduce the number of errors, it has grown sales with its existing customer base, not to mention a reduction of people in the supplier's accounts receivable department, and achieved a higher level of customer satisfaction.
The company had to make some changes and work with its salespeople and inside coordinators and make it easier to input quotes into their system. The supplier's strategy was to make pricing products faster and more efficient while locking in prices on bids.
Additionally, the supplier measured the number of lines of accuracy per salesperson and posted the results monthly to all salespeople and managers. Salespeople that didn't reach the target were penalized.
The supplier also created a quick load board to expedite the loading of orders. Builders could call in via cell phone on the way to the branch and find their materials waiting to be loaded in a bay.
I challenge you like I have challenged my client: How about getting to one line error per 500 lines and then let's push beyond 1,000 lines. Do you shop at stores that use bar code scanners that have incorrect prices? Do you get your oil changed at places that leave the cap off of the engine? Do you fly on airlines that forget to put down the landing gear on approach? Of course not. Then why should builders buy from you when you price items incorrectly?
If you would like a plan to address these issues, please access my Web site at www.radersolutions.com/pricing.
Remember: Measure twice, cut once, and watch your profits soar.