Pricing it Right with End-to-End Product Cost Simulation

To make a profit, manufacturers need more visibility into the cost of goods to sell at a price that reflects the value to customers. And that transparency has been lacking to date. From flour to fuel – and now baby formula – the cost of commodities has skyrocketed while availability has plummeted and no one knows when things will turn around.

Clearly, things have gotten out of control. So the leaders at Clariant International, a leading specialty chemical company, decided to build a tool that would monitor and analyze future price changes on finished goods instantly so they could make pricing decisions that pass-through costs to the value chain.

What does a specialty chemical company make?

Modern chemistry delvers solutions and revolutionary products, and Clariant supports global production in everything from home care to vehicles, energy, electronics, mining, agriculture, and cosmetics – even your kid’s brightly colored toys (with safe, stable paint) to the stain-trapping polymers that protect their favorite Star Wars t-shirts.

Plus, to feed a hungry world with higher crop yields, there are “adjuvants” – biological enhancers of herbicides and pesticides that increase effectiveness and sustainability by preventing wind drift in farmers’ fields.

Development is a cause for celebration but getting revolutionary products into the market quickly is another. Here’s how Clariant — an SAP Innovation Award Winner — built a cost forecasting tool that simulates costs end-to-end from procurement and operations, to finance and sales.

In the chemical production industry, nothing stands still

Clariant’s legacy solution for pricing simulation allowed only a single, manual simulation that took several weeks to process making it outdated by the time it reached the business decision makers.

The need for real-time pricing forecasts was driven by the costing complexity of bills of materials (BOMs) and finished products from multiple group companies – not to mention currencies based on tens of thousands of raw materials operating in volatile markets around the world.

Clariant required a robust product costing solution that could simulate finished goods costs for multiple scenarios using data from a wide array of sources. It also needed to offer intuitive reporting and analytics that procurement teams could apply instantly to resolve the many challenges they were facing.

But the biggest drawback for the forecasters was the cumbersome, labor demanding, and error-prone calculation required for 20,000 finished goods, 50,000 materials used, 18 production levels, 67 production sites, and 18 months of forecast simulation.

To move this mountain, Clariant built an end-to-end cost simulation forecasting tool with full visibility to enable proactive pricing and margin management across a variety of factors.