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

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.