Creating a winning financial strategy using quote-to-order and guided selling. WHITE PAPER Cincom in-depth analysis and review

Transcription

1 Creating a winning financial strategy using quote-to-order and guided selling WHITE PAPER Cincom in-depth analysis and review

2 Creating a winning financial strategy using quote-to-order and guided selling Table of contents Executive summary Quote-to-order vendor selection challenges Comparing quote-to-order and guided selling Getting away from guided selling misconceptions Quote-to-order and product configuration produce results WHITE PAPER Cincom in-depth analysis and review Scaling quote-to-order strategies Measuring results of quote-to-order strategies Manufacturers must focus intensely on eliminating unnecessary time and steps from quote-to-order processes. Conclusions and recommendations By Louis Columbus Cincom Manufacturing Business Solutions

3 Creating a winning financial strategy using quote-to-order and guided selling 1 Executive summary Manufacturers are short-changing themselves of all the benefits they could realize from their quote-to-order strategies by applying just enough effort to get the pain of broken processes to stop. There s much more to be gained from quote-to-order strategies that are integrated throughout all manufacturing operations of a company, with significant increases in performance possible across sales, marketing, finance and service. Manufacturers who only solve their quoting problems are leaving money on the table. The bottom line is that both guided selling and product configuration are designed for fundamentally different needs. These needs vary significantly by the level of product complexity of the products being manufactured, the sales strategies for each channel and the expectations management has for just how much quote-to-order and product configuration will contribute. The purpose of this white paper is to define when it makes the most sense to use a quote-to-order strategy in conjunction with product configuration. In addition, a comparison between quote-to-order and guided selling is provided in this white paper as Cincom is seeing manufacturers looking to replace quote-toorder instead of adding to that strategy with guided selling. There s a troubling trend of manufacturers relying on guided selling within both their direct and indirect channels for expediting quoting and proposals. However, in many cases, the complexities of the products being sold require a product configuration solution. Comparing the role of guided selling versus product configuration is one of the major goals of this white paper, as is defining the levels of product configuration manufacturers are relying on today as critical parts of their masscustomization strategies. Creating a winning financial strategy in manufacturing requires an intense focus on being ruthless about eliminating unneeded time and steps from quote-to-order processes. There s also the need to completely focus on how customized products can be produced in the most efficient manner possible. Too often manufacturers take guided-selling applications from their software vendors as part of a broader bundle of applications, hoping these applications will do the work required in much more complex workflows that involve configuring products and services interactively. Being able to define products by the constraints of their components is the hallmark of a strong product configuration application. Guided-selling applications on the other hand are purposely built for presenting combinations of products from catalogs; sales and product configurations are best used for streamlining the quote-to-order and configure-to-order processes in manufacturers. Guided selling is really a substitute for the best salespeople you have in your indirect channels it is quote-tofulfillment in one single process flow with your customers. It s not a product configuration strategy. Both AMR Research and Gartner have written extensively on this topic and have ample evidence of where manufacturers are using guided-selling applications to try and accomplish what product configurators are best used for.

4 2 Creating a winning financial strategy using quote-to-order and guided selling Quote-to-order vendor selection challenges Comparing quote-to-order and guided selling There s no simple series of rules for defining which quoting system makes the most sense for any given group or class of manufacturer. There s no such thing as a single right answer to a product configuration challenge each are unique not only by company but also by sales channel. There are, however, valuable lessons learned from successful implementations that many manufacturers have learned from their years of working to make their quoting systems as efficient as possible. Here are the key lessons learned from manufacturers that are using quoting systems today, and getting the best results. The costs and effort of consolidating quote-to-order systems pays big dividends. In the analysis completed from AMR Research in the report Defining Your Direction in Guided Selling, a key research finding is that companies with disconnected quoting systems minimize the impact of other online strategies as well including guided selling. Don t limit quoting systems to just high-margin, slowmoving products. This is a mistake that many companies make when it comes to how they use quote-to-order versus guided selling. They incorrectly assume that using quoting for only the complex products that generate high margins is the best strategy while guided selling makes sense only for the low-margin, high-inventory-turn products. In fact, the opposite is true. Quoting systems can increase commodity sales even faster than guided selling can. Guided selling tends to get used only for low-margin, price-inelastic products that are at the end of their product lives. Quoting systems and guided selling both get used in closeout strategies, leaving the most profitable and longest periods of time of a product s life to direct- and indirectchannel strategies that are much more expensive to support and manage. By going with a quote-to-order system, companies can dramatically reduce their cost of sales and costs per customer and generate greater sales over the life of a product. Cross-sell/upsell strategies need to see several layers deep into configure-to-order products. A guided-selling strategy has to look past the completed custom configuration toward the components that comprise the finished product. There are product dependencies, indicators of how the product is going to be used and prerequisites that a guided-selling strategy can capitalize on with forethought. Synchronizing guided selling across all sales channels globally is a must-have. There s no excuse for having disconnected guided-selling strategies by channel when a common business objective is being pursued globally. The immediate benefit is more efficient management of the creation and maintenance of cross-sell and upsell rules. The longer-term benefit is in changing how customers buy from you globally. Getting away from guided selling misconceptions Many companies are considering guided selling to cut all costs associated with capturing, tracking, fulfilling and communicating the status of orders back to their customers. But doing so doesn t create top-line revenue for commodity products that are sold best through taking an automated, order-capture approach to all channels. Squeezed by these user requirements, vendors are either aggressively dropping prices or laying claim to the promised land of low-end configuration. Saying a guided-selling application can transform into a configuration system is like trying to putt with a wedge you ll get results, but they won t be what you can predict or necessarily want. Here is how each strategy can deliver results: Configuration strategies often have quote-to-order and quote-to-cash workflows at the center of them. Attacking the inefficiencies of quoting workflows that involve channels, partners and direct sales forces outside a company s firewall is the goal. Guided selling excels at automating commoditized product sales that have predictable option selections. Looking for greater inventory turns of highly commoditized products that have little if any variation is where guided selling delivers the greatest benefit. Companies getting the greatest results use guided selling to front-end order capture in global pick, pack and ship business models. What s causing so much confusion for users are the guidedselling vendors who are anxious to get into the low end of the configuration arena. They re pricing at 20% of what a comparable configuration system would cost, yet they are delivering less than that in terms of comparable functionality. Don t be fooled. We have seen companies initially get tempted into jumping into a guided-selling application on price alone but later pay the price for integration and maintenance, ultimately having to reset expectations with internal and external stakeholders in the project. Define your business strategy first. If it is driving up inventory turns, driving down costs and dropping Days Sales Outstanding (DSOs), then guided selling is for you. However, companies that target quote-to-order and quote-to-cash and need extensive integration of product knowledge, SCM, ERP and sales systems will need to continue to look to configuration technologies to truly affect sales.

5 Creating a winning financial strategy using quote-to-order and guided selling 3 Quote-to-order and product configuration produce results Proving the value of any customer-facing strategy that includes the generation of quotes, proposals and responses to RFPs starts with a clear idea of what metrics will be used for measuring performance. AMR Research and other research firms have, for example, seen a correlation between the accuracy of metrics used and the results achieved. Here are the places to start looking for ways to trim quoting times and costs, order cycle times and wasted resources in sales, engineering, production and service in your company. To build a long-lasting strategy in quote-to-order, look first at the areas in Table 1. Managing quote-to-order to metrics Table 1 Areas of measurement Baseline: what to measure Example of benefits Company-specific Project costs and expenses Use as a baseline for defining ROI Number of orders per year Determine configuration s impact on inventory turns Current inventory and costs Customer data Inventory turn savings Lifetime cost per customer; average deal size by customer Sales Order cycle time Order cycle times reduction of 65% or more recorded with mftrs. contacted Cost of sales Days Sales Outstanding reduction from 60 to 29 days on average Cross-sell and up-sell revenue Increase of 33% on aggregate Average sales price per order Increase from 9% to 26% Quote and order Average costs to complete an order 95% reduction in cost per order Special pricing requests Over 100% ROI on automating special pricing requests Bad or incomplete orders Incomplete order reductions of 20% Customer service Number of customer complaints 98% reduction in cost of simple requests Revenue lost to churn 60% when cross-selling is used with quote-to-order Number of calls on order status Median level of 500 per week to 70 Warranty and returns Reduction in warranty cost on 10% reduction at a minimum customized products Labor cost reductions Decrease order re-work from 15% to 2% Sources: Cincom Manufacturing Business Solutions; Cincom Research; AMR Research Configuration Is the Heart of Customer Fulfillment for Complex Product Manufacturers, March 2003

6 4 Creating a winning financial strategy using quote-to-order and guided selling Scaling quote-to-order strategies Cincom s expertise in serving complex manufacturers starts with a clear understanding of the market, its levels of complexity and the unique requirements customers have for each of these market layers. Table 2 shows these levels of product configuration strategies. Comparing product configuration strategies Table 2 Definition Assemble-to-order This is a product configuration strategy that is focused on taking manufactured components or subassemblies and creating a finalized assembly from them. Assemble-to-order product configuration strategies are often rules-based and define the interrelationships and compatibilities between components, subassemblies, and parts of a product. Industry examples An example of an assemble-to-order strategy is the definition of components in a laptop computer where the product is assembled from a series of stock components. It is found most often in high-tech, channel assembly, and electronics. Furniture, retail including DYI (Do It Yourself) stores, packaging, printing, healthcare and insurance are where this configuration strategy is used. Build-to-order Manufacturers that have a build-to-order strategy are customizing smaller portions of the customized product for the unique requirements of customers, with the majority of the products content being based on made-to-stock or standardized product. Examples of build-to-order strategies include auto manufacturers that offer several options on engines and interiors. High-tech, automotive, medical, and financial services are several of the verticals where this is used. Configure-to-order Manufacturers of complex products are using this Industries relying on configure-to-order are product configuration strategy for customizing their distinguished by their requirements of intelligence products to an exacting set of specifications from their around product constraints. Verticals relying on manufacturing customers. Configure-to-order products configure-to-order include telecommunications, heavy are comprised of both standardized and customized industrial equipment, turbine and pump production, components, with the majority being customized to the elevators and escalators, and complex cabling systems. needs of the customer. Engineer-to-order Where the majority, if not all, product components are Products that are manufactured using an ETO process specifically created to a customer s unique include aircraft, aerospace and defense products, requirements, it s referred to as an Engineer-to-Order power generators, HVAC equipment, specialty-use (ETO) strategy. Products manufactured as a result of an engines, and manufacturing equipment that is ETO strategy are defined with highly specific purposely built to support a specific manufacturing engineering documents, and often require that the process. sales configurators delivering quotes from these products have the ability to generate multi-level CAD drawings and specifications.

7 Creating a winning financial strategy using quote-to-order and guided selling 5 Measuring results of quote-toorder strategies Both AMR Research and Cincom s Manufacturing Business Solutions are finding that when benchmarks for financial performance are defined before manufacturers initiate a quoteto-order strategy, results comparable to those shown below are achievable. The extent of manual to electronic automation of core processes made an impact on these figures shown in Table 3. Financial performance of quote-to-order strategies in year one of projects Table 3 Manufacturers Order cycle time reduction (%) Days sales outstanding reduction (%) Quote creation (%) time savings (%) Reduction incorrect orders (%) Increase in cross-sell, up-sell with quotes Elevators 35% 15% 120% 46% 5% High-tech peripherals 62% 25% 35% 67% 30% Components 37% 40% 45% 31% 22% PCs and servers 52% 22% 150% 54% 47% Auto maufacturing 34% 12% 21% 18% 20% Industrial distributor (channel assembly) 12% 21% 67% 31% 23% Furniture 14% 7% 11% 27% 12% Network and LAN equipment 23% 12% 27% 52% 37% Averages 33% 19% 59% 41% 24%

8 6 Creating a winning financial strategy using quote-to-order and guided selling Conclusions and recommendations Selecting between quote-to-order and product configuration versus guided selling first requires taking a close look at the type of product configuration strategy you need to accomplish your goals. Don t become myopic and just focus on guided selling because it s less expensive. Consider the factors in Table 4. Comparing quote-to-order and guided selling Assemble-to-order Build-to-order Configure-to-order Definition Suited for volume purchases. Quotes should be automatically generated. Quote engine is more of an option selector. Product interrelationships and model bills of material created automatically for prospects. Taking advantage of pervasive integration with SCM, CRM, and ERP systems when best practices have been attained. Reports back key measures of supply-chain performance so that customers production, services, and operations departments can in turn define their project plans. Industry examples High-volume, low-margin products that require minimal assembly. New product introduction strategies that capitalize on rapidly declining pricing. Ideal for the online and indirect channels. However, to get the most from this strategy, product training is required. Guided selling makes the most sense here as a lead-generation tool. Cincom advises companies to avoid guidedselling strategies for these products, as there is no data model and underlying constraint engine. Engineer-to-order All items from build-to-order and the integration of CAD applications and PLM workflows. Cincom advises companies to avoid guidedselling strategies for these products, as there is no data model and underlying constraint engine.

9 Creating a winning financial strategy using quote-to-order and guided selling 7 Table 4 Here are some additional recommendations: Define the measures of quote-to-order performance that are most relevant to your company. While this white paper has provided several key metrics or measures of performance, it s important to also find the ones that are the most relevant to your company. Start by going through the quoting process with the customers of that process those groups include sales, operations, manufacturing and service. Start measuring the impact of your quote-to-order strategies today. Don t procrastinate about measuring the current, relative levels of efficiency or inefficiency in your quoting processes. Start scoring out how long it takes to complete an order, how often you have to re-work orders, and start a trend line on these key metrics. You don t have to spend thousands of dollars to do this. Start at least by getting a measure of how your company is performing. Only after getting this baseline measure will all the efforts to improve start showing up. You ll have to start somewhere, and this benchmarking gives you the chance to define where that starting point is. Fix quoting processes first by attacking wasted steps and inaccuracies. Go after the most broken processes and manually fix them first. Don t just automatically think that ripping and replacing processes will make a difference. Get a strategy together based on solid measures of performance and move forward from that point. Get away from having a multitude of quoting systems as disconnected islands. At one point, one of the world s most well-known computer systems companies had 11 different quoting systems, some delivering Available-to-Promise (ATP), some providing delivery time frames, and some delivering nothing in the way of commitment and delivery dates. One of the best possible actions you can take is to consolidate quoteto-order systems to ensure that customers get a common set of expectations delivered to them using reliable processes to accomplish that task. Fine-tune pricing and quoting systems together if you can. Just revamping quoting systems alone can yield major cost reductions and increase efficiency of your sales, operations, manufacturing and services organizations. Adding in pricing can bring a level of fine-tuning around margin enforcement and analysis that is spelling the difference between competitive strength in one market versus another. Bottom line: There s room for improvement in how quote-toorder processes are managed inside any company. Improving these processes starts with defining a series of measures of performance first so that improvements made can be tracked over time. Only through finding this cause-and-effect relationship will investments in software pay off.

10 8 Creating a winning financial strategy using quote-to-order and guided selling Notes:

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12 10 Creating a winning financial strategy using quote-to-order and guided selling About Cincom For nearly 40 years, Cincom's software and services have helped thousands of clients worldwide simplify the management of complex business processes. Cincom specializes in the areas of business where simplification brings the greatest value to managers who want to grow revenue, control costs, minimize risk and achieve rapid ROI better than their competitors. Cincom serves thousands of clients on six continents including BMW, Citibank, Boeing, Northwestern Mutual, Federal Express, Ericsson, Penn State University, Milacron, Siemens, Rockwell Automation and Trane. For more information about Cincom's products and services, contact Cincom at CINCOM (USA only), send an to info@cincom.com, or visit the company's website at Cincom, the Quadrant Logo, and Simplification Through Innovation are trademarks or registered trademarks of Cincom Systems, Inc. All other trademarks belong to their respective companies. 2005, 2006 Cincom Systems, Inc. FORM CM /06 Printed in U.S.A. All Rights Reserved World Headquarters Cincinnati, OH USA US CINCOM Fax International info@cincom.com