- Prices are set manually, and in case of price update in the middle of a production chain, all the subsequent links of the chain need to have their selling price updated to take into account the new unit cost of the impacted product.
- When managing prices in retail stores, the unit cost of a product merely represents the selling price (+ transportation fees) of the previous link in the chain, which might diverge significantly from the real unit cost (provided every link in the chain but the last one sell the product at cost, with no margin)
- If micromanagement is not done enough, costs might no be minimized when a product arrives at a retail store, where prices are the biggest adjustement variable. This is problematic, as IRL selling at a loss is sometimes forbidden. Remaining in control of costs would help using that mechanism in the last resort
Thus, if some raw resources bought from a third party were to change price (or if the supply stopped and was relinked to another one), all the links in the chain (either manufacturing, storage or retail) would see their selling price adapted to the new cost of the product, which would result in retail stores always buying said product at cost.
It allows managing the profit margin in a single place at all times: the end of the automatically tracking chain (and if every link is tracking automatically, that would mean the end - retail stores) :
- In case costs went up, the profit margin can be adjusted in a single place, making sure to intermediary link is having its profit being imapcted
- In case costs went down, the prices might also manually get adjusted in a single location (retail) in order to improve competitivity on the segment
- Negative: the facility is selling below costs
- Zero: the facility is selling at cost, adding the total costs from the previous link (+ transportation) and its own costs
- Positive: the facility is selling at 100% + the set percentage of the total costs, this percentage representing its profit margin