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A Business Case - Assembly To Order Pricing

Implementation Issues

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A Business Case - Assembly To Order Pricing

Postby bigbusideas » Wed Apr 15, 2015 4:38 am

Hi guys,

I hope I can get some help from you here. Here is my case:

I have a customer, who is a computer assembly business - purchases different computer parts, assembles them and sells the computer to a customer. Here is how he makes the price of the ready to sell computers. Is he doing it the right way (from a business perspective) and how can this be implemented in SAP?

1. They get a purchase order form the customer for a product "computer AB".
2. They assess the computer parts needed:
Hard disk 500 GB
RAM 2 GB
Processor 3.4 AMD
Then, to form the price of the computer they put a markup on every material's standard cost:

Hard disk 500 GB USD 100 +5% 105
RAM 2 GB USD 50 +10% 55
Processor 3.4 AMD USD 10 +15% 11.5
Total Price = 171.5 USD

Every time they make an offer for a computer, they choose what markup to put on each part and this is how they form the price. They say that this way they are more flexible and can offer the best price for the customer, because there are parts that may have bigger markup than other. This way they control the markup more precisely.
They assemble the computer and sell it to the customer, but form its price adding different markups on each material. Is that a correct way to work and if not, how can this be done correctly? How can this be implemented in SAP?

Thanks in advance!
bigbusideas
 
Posts: 3
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Re: A Business Case - Assembly To Order Pricing

Postby Sharpshooter » Wed Apr 15, 2015 6:31 am

IMO, 'cost plus' pricing is only used by companies who do not know their market.
Selling price should be determined by the value of the product in the marketplace.
An example: If I have a really good purchasing department that gets a price reduction from a supplier, should I simply give away that cost reduction to the customer even though the value of my product justifies the current price? In your scenario, the lower my costs, the less money I make - that's absurd!
Good luck!
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Re: A Business Case - Assembly To Order Pricing

Postby bigbusideas » Wed Apr 15, 2015 6:58 am

This is not cost plus pricing. In cost plus pricing you add a markup to your total costs. Here, they add different markups for each material/part of the computer. And the markups are different every time, for the same parts.
bigbusideas
 
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Re: A Business Case - Assembly To Order Pricing

Postby bigbusideas » Thu Apr 16, 2015 3:45 am

Anyone?
bigbusideas
 
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Re: A Business Case - Assembly To Order Pricing

Postby Sharpshooter » Thu Apr 16, 2015 8:54 pm

Then, to form the price of the computer they put a markup on every material's standard cost


This is not cost plus pricing.


Ummm, OK. Which is it?
Good luck!
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