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Technology Case Study: Managing Complex Pricing

to do the transactions but they couldn’t do it quickly enough.” Two weeks later, after additional training, the test was successful. “Going live was basically a non-issue,” Ludwig says.



The Bottom Line




  • HTI’s ERP system supports rapid growth, enabling the company to incorporate new acquisitions.

  • The company has greater visibility into supply, demand and changing costs.
  • HTI has seen a major reduction in cycle count and physical inventory count times due to the deployment of related bar code and RF technology.
  • The system’s open technology allows e-commerce initiatives that bring the companies closer to customers and suppliers.

See other technology case studies here.

react quickly to changes.


“The driving force is: How well can we manage and analyze the changing costs and find the market so that salespeople are generating the best margins they can for the material we have on hand?'” Ludwig says.


“We grade our salespeople on their ability to hit their sales targets. We want that continual feedback to improve the pricing model. If the model is generating prices that are not in line with the market, then we need that feedback so that model can be adjusted. Our software allows us to do that.”


Data-Sharing as a Differentiator
HTI uses SAP’s NetWeaver program as an open platform to share data with channel partners, including vendors, customers and logistics providers. Stock availability and price can be accessed from various sources. HTI is also working with SAP on a system that would more closely integrate the company’s systems platform with its customers’ buying systems.


“As more of our customer base starts to embrace technology, they’re looking for ways to reduce the costs of procuring material,” Ludwig explains. “They don’t want their purchasing staff to go out and make 4-5 different phone calls and get 4-5 different prices. They want this to be very streamlined. They want inventory availability to be in their system, they want to hit a button, get updated prices and create purchase orders on the fly so they can procure material more quickly and efficiently.”


Ludwig says he hasn’t seen a lot of interest in Internet-based buying portals, though he believes there will be a need for that in the future. Right now, he says, it’s a part-numbering issue. “There are no universal part numbers for fasteners, so it’s a challenge just to say this is exactly what I’m looking for.”


Challenges
“People don’t like change, especially if they don’t know what that change brings,” Ludwig says. HTI has seen that in its own implementation of technology solutions.


The company, more than 50 years old, used to run a legacy system it had developed before deploying SAP. “The thought of going to an off-the-shelf, packaged software system scared a lot of people,” Ludwig says. “They didn’t know how to deal with that sort of change. Even the idea of using a mouse some people didn’t know what that was.


“Your management may know exactly what you want, but if the people aren’t along, they will find a way to sabotage it or at least making it very hard to implement.”


The solution: Get employees involved from the get-go. Make them part of the process.


Also, the message has to come from the top. “I’ve never seen a project of this magnitude be successful if the president himself wasn’t saying, Yes, we need to do this.'”


Training
One way to make users part of the process is through adequate training, Ludwig says.


When HTI put in SAP they put training front and center and planned to go live all at once not branch by branch.


The company brought in key users from around the country to form a training team and used the “Train the Trainer” approach. The team worked with consultants to put together training material, including paper-based manuals, online training and a class syllabus. The training was broken into three parts:



  1. Performing individual transactions, step-by-step. Here each user was given specific training on the transactions they needed to perform. They were then tested on each transaction.

  2. Performing scripted business processes at specific branch. At each branch, the company tested employees to ensure proficiency of a process, such as Quote to Shipment.

  3. Performing a company test at the speed of business. HTI simulated a business day on a Saturday and had non-salespeople call in as well as send faxes to simulate customers with orders. “The first test we did was a pretty big failure,” Ludwig says. “Everybody knew how
    When the steel market went crazy in 2004 and again this year, this master distributor of fasteners was able to stay on top of costs and keep pricing where it needed to be relative to the market, thanks to its business platform. HTI is also using technology to better interface with its vendors, customers and logistics providers.


    The Company
    Heads and Threads International, Carol Stream, IL, is a master distributor of industrial fasteners. The company has more than 4,000 customers, more than 100 suppliers and more than 50,000 SKUs stocked sold from 12 branches in the U.S.


    Although most of its inventory is purchased for off-the-shelf sale, a growing part of HTI’s business is specialty stock, which can vary slightly from the standard or is built for a specific customer’s use. HTI imports most of its stock from Asia, doing the majority of its business with China and Taiwan.


    HTI’s customers are distributors and serve a wide variety of industries, including the automotive sector, big-box retailers, and construction and MRO industries.


    While HTI used to focus on mostly just-in-time inventory, in the past 5-10 years the company has implemented inventory programs for its customers. Customers are saying, We want to own the inventory or have a say on that inventory ahead of time or we want you to store that inventory over several months,'” says Rob Ludwig, HTI’s CIO and vice president for operations. “In many cases we manage stock-for-release programs or do consignment.”


    Systems Upgrade
    HTI runs its business on SAP. HTI originally purchased SAP to improve business operations and support a long-term growth strategy. HTI went live in 1998 and the next day acquired Garden Bolts International. Two years later the company acquired Reynolds Fasteners. The platform permitted smooth conversions with the acquired companies.


    “By 2001 we had grown quite a bit through acquisitions and the question then came, do we upgrade SAP or look somewhere else?” Ludwig says. Eventually the company decided to stick with SAP and upgraded in 2003.


    HTI deployed the program’s enhanced pricing functionality at that time, to allow more complex pricing based on various factors. “We could adjust to the market very, very quickly,” Ludwig says. “Around that time in 04, the steel market went crazy. Yet we were able to very closely align our costs with our list prices to our customers. We were always where we needed to be relative to the market.”


    Price Adjustments
    For HTI, proper price adjustment is one way to keep a step ahead of competitors, Ludwig says. The company sells commodity items, and competitors’ fasteners often come from the same suppliers. To be profitable, HTI must identify the right market, understand supply and demand conditions, and make the sale more quickly than its competitors.


    This is especially important when selling a product line hit by recent spikes in steel prices. How does this work? HTI’s system allows it to show its salespeople information associated with the amount of sales from customers and item velocity. The system also shows regional differentiation since some items sell better in some areas than in others.


    The computer system tracks all sales opportunities, successful and unsuccessful. “We are able to monitor and analyze the pricing differences and take immediate action. If for whatever reason, sales have dropped off on an item, we can determine why,” Ludwig says. “Or if demand is exceptionally high in another area, it may be due to being under market on price. By correctly setting pricing, you gain maximum profit margin for your inventory.”


    The system also allows HTI to track multiple costs: at the inventory level, in-transit, on-order and replacement. The company is constantly soliciting price quotes. The software tracks the cost trends, as well as sales success rates, and lets HTI

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