Best Practices in Guided Selling: Measuring Quoting Strategies Financial Impact. WHITE PAPER Cincom in-depth analysis and review

Transcription

1 Best Practices in Guided Selling: Measuring Quoting Strategies Financial Impact WHITE PAPER Cincom in-depth analysis and review SIMPLIFICATION THROUGH INNOVATION

2 Best Practices in Guided Selling: Measuring Quoting Strategies Financial Impact Table of Contents Executive Summary Measuring Quoting Strategies Financial Impact Quote-to-Order Business Challenges Manufacturing s Panacea for Pain Is Quote-to-Order 3 WHITE PAPER Cincom in-depth analysis and review Quote-to-Order Solution Strategies Measuring Results of Quote-to-Order Strategies Getting results from quote-to-order strategies begins with defining financial measures of performance. Conclusions and Recommendations About Cincom By Louis Columbus Cincom Manufacturing Business Solutions

3 1 Executive Summary Manufacturing companies are capable of much greater financial gains than they are getting today from their quote-to-order, order-to-cash, sales and productconfiguration strategies. These process areas center on how manufacturers create, set and keep expectations in their quotes for custom-configured products. Globally companies are adopting quote-to-order to streamline how they sell customized products. Reasons for pursuing these strategies include increasing factory use, developing related products to extend a product series life, and often to up-sell and cross-sell their existing customer bases with products tailored to their specific needs. Examples of how quote-to-order, order-to-cash, sales and product configuration impact manufacturing, sourcing and product-management strategies abound throughout the spectrum of complex manufacturing companies globally pursuing these strategies. Getting results from these strategies has to start with defining financial measures of performance before changing these processes ever begins. Too often companies aren t measuring the financial impact of these strategies and leaving much of the cost savings and incremental revenue unattained because extra steps on these strategies are not taken. These strategies have to start with a series of financial metrics if they are ever going to accurately reflect the cost savings and revenue contributions they contribute. Measuring Quoting Strategies Financial Impact The intent of this white paper is to explain the best practices of complex manufacturers that are using financial metrics of performance to manage their quote-to-order, order-to-cash, sales and product-configuration strategies. Manufacturers that use financial measures of performance are getting these kinds of results and more, clearly making a financial impact on their companies: 95% reduction in costs to complete an order Nearly every manufacturing company has a rough measure of how much an order costs to fulfill. The payoff of using a quote-to-order, order-to-cash, sales or product-configuration strategy is that there is major reduction in the costs of fulfilling orders for customized products. Order cycle times reduced from hours to 30 minutes From an AMR Research survey of best practices in sales configuration, the median improvement in order cycle times dropped from the worst case, 33 hours, to less than one hour. In aggregate, the order cycle times across all manufacturers were dropped to less than an hour. 20% to 50% reduction in engineering support for presales tasks The cost implications of minimizing engineering support is significant, but the strategic payoff of having engineering focused on new product development is a competitive advantage that takes years to cultivate and grow. Having engineering focused on tactical versus strategic issues can cost any company a product generation. Days Sales Outstanding (DSOs) reductions from an average of 60 days to 29 days This is a measure of how long it takes a company s customers to pay their invoices. Analysts see DSO reduction as a sign of increasing customer satisfaction.

4 2 Quote-to-Order Business Challenges Background Manufacturers grapple with the challenges of bringing increased revenue in while maintaining, or best case, dropping the cost per order. Too often manufacturers find that pursuing a product customization strategy actually drives up costs and that s because the financial benchmarks for performance aren t set before any of these strategies are fine-tuned. The time savings are well-known and easily measured for adopting and fine-tuning quote-to-order, order-to-cash, sales and product-configuration strategies. But to be truly effective, any of these strategies needs to start with a set of financial benchmarks. The challenges for many manufacturers is not in getting these process areas defined, working, and even providing a median level of returns it s in measuring the right financial metrics to show the value of these strategies over the long run. Figure 1 shows a series of the financial metrics that quoteto-order directly impacts for manufacturers. Taken together, the strategies of quote-to-order, order-to-cash, sales and product configuration deliver a series of financial contributions that span manufacturing, sales, production, engineering and finance. Quote-to-order s financial impact is significant Orders In Margin In Products, Services, Profits Out Reduction in order cycle times from hours to 30 minutes Order cycle times down 65% Reduction in incomplete orders of 20% Decrease in order rework from 15% of orders to less than 2% 20% to 50% reduction in engineering support 95% reduction in costs to complete an order 10% reduction in warranty costs Days Sales Outstanding down on average from over 60 days to 29 days Figure 1: Quote-to-order s financial impact is significant. Source: Configuration Is the Heart of Customer Fulfillment for Complex Product Manufacturers, AMR Research Louis Columbus, March 31, 2003

5 3 Manufacturing s Panacea for Pain Is Quote-to-Order Managing how quotes, proposals and responses to RFPs are created, managed and fulfilled is what often separates more financially successful companies from ones that struggle with managing the costs of sales, fulfillment and service. What s giving these successful companies the edge is their ability to manage to a set of financial metrics and have greater insights into their businesses relative to their competitors. 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 in your company for ways to trim quoting times and costs, order cycle times and wasted resources in sales, engineering, production and service. To build a long-lasting strategy in quote-toorder, look first at the areas in the table below: Table 1: Managing Quote-to-Order to Metrics 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 Current inventory and costs Customer data Determine configuration s impact on inventory turns 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 manufacturers contacted Cost of sales Cross-sell and up-sell revenue Average sales price-per-order Increase from 9% to 26% Days Sales Outstanding reduction from 60 to 29 days on average Increase of 33% on aggregate Quote and order Average costs to complete an order Special pricing requests 95% reduction in cost per order 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 customized products 10% reduction at a minimum Labor cost reductions Decrease order rework from 15% to 2%

6 4 Quote-to-Order Solution Strategies Solution Case Studies There s an abundance of evidence surrounding the results that manufacturing companies can achieve using quoteto-order, order-to-cash, sales and product-configuration strategies. The results achieved at the following companies illustrate what can be accomplished when these strategies are combined with a strong focus on financial measures of performance. Air Products and Chemicals This international supplier of industrial gases and related equipment and specialty and intermediate chemicals had to come up with a solution for managing a large menu of options for its GASGUARD line, a product line for the company s electronics gas division. Its guided selling and product configuration strategy included automating sales order entry, engineering design and manufacturing information. The company faced significant challenges with its configuration strategy and there was also a need to replace its ERP system at the same time. As a result, the company overhauled both systems at the same time. The results included the following: Unit cost reductions of 28% due to better demand planning Lead time for engineer-to-order products from 14 weeks to six weeks Significant reduction in product configuration errors Improvements in cost-per-unit price reductions Siemens Energy and Automation Siemens is a multinational conglomerate with offices and operations in 190 countries and over 100,000 employees. The Siemens Energy and Automation Division produces Above NEMA class motors and relies on Engineer-to- Order (ETO) for 100% of its production. The division set the goal of streamlining their quote-to-order process by enabling sales representatives to generate certified specifications and quotes for highly configured Above NEMA motors. Included in the quoting process was the requirement of generating certified motor performance data and CAD drawings, required by Siemens customers. After implementing the Socrates suite of applications and launching the revised quote-to-order system and processes to the Siemens sales force, the following results were accomplished: Certified performance-data generation required in quotes and proposal time dropped to less than one hour from between four and six weeks. 100% of configured motors are buildable, leading to a significant drop in rejected and inaccurate orders. The time it takes to create a quote has dropped from between two hours to four days (depending on complexity) to less than an hour. Bills of material for products tailored specifically to customers requirements are now directly loadable into Siemens ERP system. Engineering knowledge of products is now captured so it can be quickly applied to customers unique requirements as defined in quotes and proposals.

7 5 Measuring Results of Quote-to- Order Strategies Both AMR Research and Cincom are finding that when benchmarks for financial performance are defined before manufacturers initiate a quote-to-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 2. Table 2 Financial Performance of Quote-to-Order Strategies in Year One of Projects 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 62% 25% 35% 67% 30% peripherals Components 37% 40% 45% 31% 22% PCs and servers 52% 22% 150% 54% 47% Auto maufacturing 34% 12% 21% 18% 20% Industrial 12% 21% 67% 31% 23% distributor (channel assembly) Furniture 14% 7% 11% 27% 12% Network and LAN equipment 23% 12% 27% 52% 37% Averages 33% 19% 59% 41% 24%

8 6 Conclusions and Recommendations There s more to quote-to-order, order-to-cash, guided selling and product-configuration strategies than just rearchitecting workflows. To get the true financial benefits of these strategies, you need to first look at the financial measures of performance that you want to impact. The metrics provided in this white paper are just the foundation of what needs to be a much broader and more comprehensive listing of the financial measures of performance that are relevant to your specific business. The following recommendations apply to manufacturers, resellers, distributors and service companies: 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 relative levels of efficiency or inefficiency in your quoting processes today. Start scoring out how long it takes to complete an order, how often you have to rework 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 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 quoting systems providing delivery timeframes and some delivering nothing in the way of commitment and delivery dates. One of the best possible actions you can take is to consolidate quote-toorder systems to ensure 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-to-order 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-effect relationship will investments in software pay off. Cincom, the Quadrant Logo, Cincom Acquire, Socrates, and Simplification Through Innovation are trademarks or registered trademarks of Cincom Systems, Inc. All other trademarks belong to their respective companies. 2004, 2005, 2006, 2008 Cincom Systems, Inc. FORM CM /08 Printed in U.S.A. All Rights Reserved World Headquarters Cincinnati, OH USA US CINCOM ( ) International Fax info@cincom.com About Cincom Cincom and its partners deliver and support innovative software and services to simplify complex business processes. Cincom Acquire simplifies complex selling by delivering critical product, pricing and process knowledge to the point of sale. For 40 years, Cincom has empowered thousands of clients worldwide to transform their businesses and outperform the competition by providing ways to increase revenue, control cost, minimize risk and achieve rapid ROI. Cincom serves clients on six continents including American Power Conversion, Air Products, BMW, Boeing, Ericsson, Rolls-Royce, Rockwell Automation and Siemens. For more information and additional resources, contact Cincom at (USA only) send an to acquire@cincom.com, or visit the company s website at