That’s it. Price management. Surprised? Industrial gas supplier and distributor Airgas said in a statement today that price management was expected to be its biggest benefit of implementing SAP, to the tune of $60 million. It might not be what you would expect from such an operations-focused company in a highly regulated industry, but when you hear more, you’ll start nodding your head like I did.
Prior to the start of its implementation, Airgas conducted a pilot pricing study in one of its regional companies to baseline the variation in its pricing performance across its wide variety of branches, customers, product lines, and sales representatives. What it found was not good, but it was also a clear opportunity. “The results of the pricing study indicated that a minimum of $5 million and a mid-point estimate of $8 million in operating income could be derived from within the single regional company in the test,” Airgas said. While it might have been surprising to Airgas, it turns out they are not alone. “To further validate this conclusion, the company consulted not only with large industrial distributors that had realized price management benefits from their own SAP implementations, but two major chemical companies as well. The responses received were supportive of Airgas' conclusions.”
Multiply those pricing variances across Airgas’ globally expanding network (it bought six companies in fiscal 2010) and they’re looking at between $40 million and $60
million in price management upside by implementing SAP. And that’s not the only top line benefit it's expecting from its SAP implementation. Airgas is also able to expand its telesales organization targeting the small to midsize market as a result of its SAP implementation. When all other benefits are included (think accounting systems, administrative redundancies and supply chain systems) Airgas is forecasting total bottom line improvement of $125 million from its SAP implementation.
While most companies (hopefully) won't have that much variation in their pricing, the takeaway from this story is clear: When it comes to building the business case for ERP, don't spend all your time looking only at efficiency savings and cost reductions. Be sure to give your top line benefits enough weight before finalizing your business case and ROI calculations.