Pricing Strategies (Part One)

Does Your 2024 Budget Set You Up For Failure?

By Barry Hudson and Steve Franklin

In the first of this two-part series, the authors state the challenge and offer initial advice. In part two, they identify solutions. – Ed.

For such an operationally focused industry, quarry operators are very poor at planning, specifically sales and operational planning (S&OP). It’s hardly surprising as producers would rather be out in the quarry making products or in the market selling them instead of analysing data and sitting down and making plans, however, S&OP is key.

Here we look at why S&OP is key and some of the common issues we experience. More frequently than we should, as an industry we get a general “fail” score in this category.

S&OP is essentially about matching supply with demand to reduce uncertainty. The sales part is about understanding demand or more simply sales forecasting. It’s where S&OP starts.

The operational part is about “knowing what you have in the ground, how much and of what quality and when it is available, which then drives inventory and supply chain management (e.g. product flow, production modes, stock levels and pit balancing decisions).”

Just like our previous articles on the key business activity of pricing, only when you take time out to consider the pitfalls of not doing S&OP well, do you realize the serious impact it can have on your business, namely, destruction of value and unhappy stakeholders due to high stock levels, increased by-product waste, missed higher pricing and market opportunities to name a few.

What is surprising is that doing S&OP well only requires discipline around a few key factors to avoid such pitfalls creating happy stakeholders and wealth. So let’s take a look at these starting with sales forecasting and its operational essentials.

1. Know thy customer and market. Any forecast requires pertinent knowledge and a sales forecast requires good knowledge of demand from each customer in the market. It also needs to be driven by an understanding of where the quarry is in its lifecycle e.g. there is no point in the sales team pushing high quality aggregate sales if the site has a backlog of overburden material that must be sold first.

It sounds easy but how many sales teams have really “good” knowledge of their customers (and what is happening in operations) and ideally their customer’s customer and capture the information on even the most basic system or an advanced Configure, Price, Quote (CPQ) system like

This is often the place where the sales forecasting process begins to fail – having a good grasp of buying behavior (from volumes and prices by product type by quarry as a basic minimum to how they tend to negotiate and demand discounts by product/project, etc.) is critical especially in the case of large/multiple tenders or where the customer’s customer can change or influence specifications.

Understanding this “supply chain” is invaluable especially in highly fragmented and dynamic markets. Great teams use technology to capture sales and other buyers’ intentions and triggers consistently, and just like a supermarket they know what you generally buy and how you respond to certain incentives.

2. Establish a sound, reliable process. A robust process only needs some basic elements, but again we often find these are either missing or poorly thought out. The first is knowing what you have to sell. The second is customer and product classification and segmentation. It often surprises us how often these are not in place and not only highlights crucial gaps in customer knowledge but also a lack of common understanding/language of products between production and sales.

The third combined element is both time horizon and frequency of review/update. The decision of how far ahead to forecast for operational planning reasons is most often linked to the budgeting process. This standard approach is yearly and if you’re lucky reviewed quarterly, but the nature of the customer base, order patterns and delivery lead time in dynamic markets with a high percentage of small project work may need bi-weekly and even daily updates.

When reviewing how well is your forecast tracking reality and do you learn and correct as you go? In fact, does anyone actually review and on what basis – do they use rolling 12 months to improve smoothing effects, or remove exceptions? The final element is the sandbagging …. when top-down targets meet bottom up analyses to settle on a number.

3. Involve a diverse range of independent thinkers. It has been shown in many industries, most notably fast moving consumer goods, which is arguably harder than building materials to forecast accurately, that involving a diverse group helps to remove biases and group think and challenge poor assumptions made in most forecasts.

The classic lazy assumption is to increase last years’ sales by a few percent to match budget numbers and that’s it, forecast done. This laziness is often a precursor to bias when you get a group of salespeople together who have similar types of customer base, one says “my sales should be roughly 5% more than last year” because they have seen their targets and the other person just simply agrees “yep, that’s about right.” Job done, let’s move on.

Involving a diverse group to test assumptions robustly helps teamwork, you will be surprised at how clearly they need to have some knowledge of the market and business but what we mean here is involving people for example, from operations, credit control or even the weighbridge to broaden the view and tap into their often good insights on market dynamics.

4. Accept a degree of inaccuracy. When we talk about forecasts there is one caveat we must accept – you will never be 100% accurate, but don’t use that as an excuse to not bother, we have seen forecasts more than 90% accurate, but never 100%, so it’s a trade off in terms of gathering pertinent knowledge and the time/effort put into capturing it. In general it is better to be approximately right than precisely wrong! The more transparent and factual the information from customers, such as forward order books, etc., the greater the degree of accuracy.

5. Make the forecast a key part of the business routine and cycle. A great forecast on its own is useless. It should not be isolated and like a budget put in a drawer and not looked at again until budget review time. It is an essential tactical decision tool especially when jointly signed off and reviewed with operations/production (The Eltirus Quarry Operations Plan methodology is a good example of this) as this leads to both an optimally balanced pit while maximizing sales and formalization of decisions like when to say no to a customer.

The sales forecast will also become more firmly established and used if it is linked to sales and marketing plans at the tactical as well as at the strategic level when it is used to develop and validate not only budgets as discussed but portfolio decisions and consolidation of supplies when two, three or more pits are close together or used to supply the same customers, such as in ready mixed concrete.

Part two of this article will appear in the May issue of Rock Products.

Barry Hudson is the co-founder of Price Bee, a culmination of experience and ideas forged together over five years to become a powerful tool to streamline your sales process and increase revenues in the construction materials industry. He can be contacted at [email protected].

Eltirus is a global consulting company that works to help the construction materials, cement and industrial minerals industries better understand what’s in the ground, how to extract it sustainably and how to ensure compliance to plan and statutory requirements. Contact Steve Franklin at [email protected].

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