Six Sigma Pricing > Analyze: Identify and Understand Opportunities to Grow Margins and Create Reporting Tools to Identify Defects
This is the fourth in a six part blog series on how manufacturers and distributors can apply Six Sigma methodology to the pricing function to generate repeatable margin gains. This blog covers the importance of effective analysis of the right measurements and metrics to identify the root causes of defects in your pricing process.
All pricing practice leaders know a disciplined process is needed to create and maintain Pricing Excellence – effective defect analysis must cover these five areas which can be major sources of variation across commercial processes:
- Tools / Systems
This crucial step leverages the measurements and metrics you have mindfully constructed to identify what needs improvement and what/where are the sources of defects in the process.
A company must properly analyze anything that impacts pricing performance and then use these insights and data to make meaningful improvements that will help you achieve your business goals. The following lays out some effective methods for the analysis phase.
Cause and Effect Analysis:
- Diagram the relationship of the 5 sources of variation
- Build a Cause and Effect Matrix to quantify impact of each process step
- Select key sources of variation throughout the process
- Capture 2-3 potential root causes from diagram
- Dig deep into controls and compensation
- Ask why multiple times
Process Map Analysis:
- Diagram the process and hunt for bottlenecks or other defects of each process step
- Chart metrics to see if the process appears stable or not
- Use Pareto Charts, Histograms, Box plots, Scatter Plots, etc. to visually determine data distribution and variation
Six Sigma Program Overview
Six Sigma Master Blackbelt Greg Preuer, of SPA has created the first course designed to apply time tested Six Sigma methodology to pricing. Those who study with Greg will learn not only how to drive the pricing process but how to sustain the gains and automate the process. They will become Six Sigma experts (Blackbelt) in business process with a focus placed squarely on price management.
Graduates from this course will learn to chart a clear path to pricing improvement. They will learn each of the following steps:
- How to design and design goals which are consistent with their company’s pricing strategy.
- How to measure and identify characteristics critical for pricing success.
- How to analyze the current situation and steps along the way.
- How to design an improved alternative which moves closer to the desired result.
- How to verify that actions taken create the right results.
A Pricing Process founded on SPA’s Six Sigma Program includes the following:
- Negotiating strategy and tactics
- Value-based pricing
- Automated decision making tools
- Customer Profitability improvement plans
- Sales team selling value
- Pricing strategy and leadership
- Consistent and fair pricing architecture
- 2 to 4% growth in GM%
- Pricing based on customer sensitivity
- Continuous improvement focus
To learn how you can realize the benefits of SixSigma Pricing, contact SPA today at firstname.lastname@example.org or 216.455.1545.
The following are the two remaining areas we will dive into in future articles in this blog series that will help illuminate the path to Six Sigma Pricing Excellence.
- Improve: build processes, systems and tools to assist teams and create reporting tools to track improvements
- Control: set and enforce pricing authority levels and repeat previous steps as continuous improvement never stops
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