Every small manufacturer is part of a supply chain, and it depends on a set of successful business relationships with its own suppliers and customers. Many small manufacturers employ a small staff, and they rely heavily on their online order management systems. One organizational arrangement for a small manufacturing firm might look like this: business owner/manager, four sales reps, two office workers, and three people performing production tasks. This example includes a total workforce of ten people. Any task that takes the skeleton crew away from their regular duties could adversely affect the company's bottom line. Here, we look at the importance of price elasticity and its relationship to online order management systems.
Price Sensitivity
A small manufacturing firm makes a profit selling its goods through a supply chain to end consumers. It is common for such a firm to adjust prices for different companies that market its products, including wholesalers and retailers. One way to think of price sensitivity is the degree to which a company adjusts the price of a product up or down based on consumer buying patterns. In economic terms, one can calculate the price elasticity of demand for a product by dividing the percent of change in quantity demanded for a product by the percent of change in price. If a company has products with a high degree of price elasticity of demand, it makes sense that it will need a powerful online order management system that facilitates frequent price changes per customer. Much of this depends on the consumer behavior patterns within each of that manufacturer's markets. The bottom line is that a manufacturing firm must continuously provide competitive prices and provide enough products to satisfy the demand in each market. Having the wrong pricing structure can cause customers to order less or to stop placing orders.
Working Out the Kinks
In a small firm with ten employees, there is little time for a business owner/manager and nine workers to troubleshoot problems with the company's online order management system. The staff members must invest their time in specific business functions. If they have to deal with problems and can't do their jobs, then their customers could become dissatisfied. This kind of small organization benefits from an online order management system with features that accommodate price fluctuations and customer-sensitive pricing.
Breaking It Down
A small manufacturer could be content to use a tool such as Microsoft Excel to set up a pricing formula for each customer. This might include a formula that multiplies the unit cost of a product with a percent of markup. The firm might adjust the percent of markup for each customer. One retailer might get a package of wood pencils for a 15 percent markup and another wholesaler might get the same package of wood pencils at a 20 percent markup. A manufacturer should ensure that the price charged to the customer permits the product to be sold at wholesale or retail for a profit.
The Takeaway
Many small manufacturers cater to a pool of small retailers, and they need a reliable system to include features such as customer-sensitive pricing. Fortunately, there are software solutions that keep the supply chain realities between these small organizations in mind while providing some flexibility in pricing structures. Such software solutions are more advanced than Excel spreadsheets. In the end, whatever system that a manufacturer uses to fulfill online orders should benefit the end consumer while providing economic benefits to the company. Without considering the price elasticity of a demand, a manufacturer will not have an understanding of which of its products are most sensitive to the market. It's important for manufacturers to choose a system that keeps price sensitivity in mind and allows for easy price adjustments per customer account.
