A global commodity chemical company, with operations in Asia Pacific,
Europe and the Americas, was struggling with profitability and
competitiveness. The company was unable to compete on a price basis
with its larger competitors and was unable to capitalize on niche
applications where it had a performance advantage.
It was determined that an inaccurate product costing system was a root
cause of the company's problems. The misinformation generated by the
costing system caused the company to execute a fundamentally flawed
pricing strategy. Orr & Boss spent 14 months working in the
company's Asia Pacific, North American and European operations to
develop a new product costing system that incorporated actual direct
costs and properly allocated indirect costs.
- Several of the company's basic assumptions about product
profitability were found to be false.
- Using new and accurate cost data the company's entire
pricing policy was revised. This policy allowed the company to be more
competitive with its larger rivals, particularly in Asia and Europe,
and to leverage performance attributes in select applications.
- The company is now able to make informed, more effective
decisions regarding investment in and divestiture of customer accounts.