The volatility in today's poultry market creates a complex set of problems that have negatively affected processors’ performance. Considering the unpredictability of swinging broiler prices, the rising cost of corn and soy meal along with SKU proliferation, tight competition and excess capacity, pricing on all of the SKUs in a poultry processing operation is a stiff challenge. The market is beginning to understand that processors must take price increases, but processors have difficulty raising prices fast enough to keep up with the rising costs of their inputs. Those that can do it most effectively in this environment stand to survive this precarious market and even improve their financial performance.

The challenge is to process the right products to meet customer demand and determine the best prices to achieve profit targets. To make these decisions right every day requires sizeable amounts of information and intuition, both of which are fragmented and dispersed throughout most organizations. Reaction to various scenarios can be critical: Proper reaction, for example, when the Georgia Dock goes up 15 percent or a customer’s order is cut back dramatically or a customer requests a promotional quote is especially critical in the current market. In many cases, making the wrong decisions can force a sell off of excess volume in the spot market at lower-than-expected margins.

Poultry processors no longer have to rely on gut feelings to make pricing decisions when the market is shifting and operating costs are skyrocketing. New software technologies have been developed that use advanced mathematical algorithms to analyze the comprehensive factors, including excess capacity and rising input costs, impacting profitability for poultry processors.

With science-based margin optimization solutions, poultry processors can assess customer demand for every product, measure volume commitments in this lagging market, factor in market data like Urner Barry and Georgia Dock forecasts, and determine the best use of capacity and prices to optimize margins. Processors can incorporate data from market, customer, and internal sources into the software’s core demand, supply and cost optimization engines to generate optimal prices to charge for each customer served. Processors can take that information and make the right decisions on price and product mix every time, even in unstable market conditions.

Commodity-based, value-added and branded poultry processors can significantly improve margins using a margin optimization solution. Determining an appropriate product mix – frozen or fresh, amount of product targeting foodservice or retail – is critical. While consumers are learning to expect higher food costs, ensuring profitability requires a strategy more sophisticated than just increasing prices.

With price optimization technology built specifically for the poultry processing industry, processors can analyze the true profitability of each pricing decision, knowing for certain that pricing reflects all relevant inputs, achieves corporate objectives, and contributes to margin.

The author is Mike Neal, CEO of SignalDemand, a San Francisco-based firm providing meat and poultry processors with optimization software to maximize profitability by using econometric models, optimization algorithms and activity-based costing techniques (www.signaldemand.com).