Title: Supply chain services contract pricing framework - a case study of electrical distributor

Authors: Bimal P. Nepal; Naveenan Arjunan; Pradip Kumar Krishnadevarajan; F. Barry Lawrence

Addresses: Industrial Distribution Programme, Texas A&M University, College Station, TX 77843, USA ' Global Supply Chain Laboratory, Texas A&M University, College Station, TX 77843, USA ' Karpagam University, Coimbatore 641 021, Tamil Nadu, India ' Industrial Distribution Programme, Texas A&M University, College Station, TX 77843, USA

Abstract: Distributors provide supply chain services to customers through traditional sales channel and contract bidding. While there have been efforts in developing pricing models for traditional sales channel, the extant operations management literature lacks such a model for service contracts dealing with bid prices. This paper presents a structured framework for determining bid pricing by dividing overall bid into two parts: product price and supply chain services price. Opportunities for product and supply chain services are defined and quantified as pricing coefficients. Strategic pricing rules are developed to compute the product pricing opportunity coefficient by considering multiple factors including priority, pricing risks, cost sensitivity, and profitability. Similarly, services pricing opportunity is quantified by developing pricing rules based on cost-to-serve, pertaining to supply chain services contract. Opportunity coefficients are multiplied by desired markup to determine final bid price. The framework is demonstrated through a real world case study of an electrical distributor.

Keywords: contract pricing; product prices; services prices; supply chain services; service contracting; case study; electrical distributors; pricing opportunity coefficient; supply chain management; SCM; bid pricing; priority; pricing risks; cost sensitivity; profitability.

DOI: 10.1504/IJSOM.2015.072740

International Journal of Services and Operations Management, 2015 Vol.22 No.4, pp.469 - 494

Received: 02 Jul 2014
Accepted: 04 Jul 2014

Published online: 28 Oct 2015 *

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