Cincom in-depth analysis and review

Best Practices in GuidedSelling:Measuring QuotingStrategies’ Financial Impact

WHITE PAPER

SIMPLIF ICATION THROUGH INNOVATION®

Table of Contents

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Measuring Quoting Strategies’ Financial Impact . . . . 1

Quote-to-Order Business Challenges . . . . . . . . . . . . . . . 2

Manufacturing’s Panacea for Pain Is Quote-to-Order 3

Quote-to-Order Solution Strategies . . . . . . . . . . . . . . . . 4

Measuring Results of Quote-to-Order Strategies . . . . . 5

Conclusions and Recommendations . . . . . . . . . . . . . . . 6

About Cincom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Cincom in-depth analysis and review

Best Practices in GuidedSelling:MeasuringQuoting Strategies’Financial Impact

WHITE PAPER

Getting results from quote-to-orderstrategies begins with defining financialmeasures of performance.

By Louis ColumbusCincom Intelligent Selling Solution

1

Executive Summary

Manufacturing companies are capable of much greaterfinancial gains than they are getting today from theirquote-to-order, order-to-cash, sales and product-configuration strategies. These process areas centre onhow manufacturers create, set and keep expectations intheir quotes for custom-configured products.

Globally companies are adopting quote-to-order tostreamline how they sell customised products. Reasonsfor pursuing these strategies include increasing factoryuse, developing related products to extend a productseries’ life and often to up-sell and cross-sell theirexisting customer bases with products tailored to theirspecific needs. Examples of how quote-to-order, order-to-cash, sales and product configuration impactmanufacturing, sourcing and product-managementstrategies abound throughout the spectrum of complexmanufacturing companies globally pursuing thesestrategies.

Getting results from these strategies has to start withdefining financial measures of performance beforechanging these processes ever begins. Too oftencompanies aren’t measuring the financial impact ofthese strategies – and leaving much of the cost savingsand incremental revenue unattained – because extrasteps on these strategies are not taken. Thesestrategies have to start with a series of financial metrics ifthey are ever going to accurately reflect the cost savingsand revenue contributions they contribute.

Measuring Quoting Strategies’ FinancialImpactThe intent of this white paper is to explain the bestpractices of complex manufacturers that are usingfinancial metrics of performance to manage their quote-to-order, order-to-cash, sales and product-configurationstrategies. Manufacturers that use financial measures ofperformance 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 roughmeasure of how much an order costs to fulfill. Thepayoff of using a quote-to-order, order-to-cash, salesor product-configuration strategy is that there is majorreduction in the costs of fulfilling orders forcustomised products.

• Order cycle times reduced from 17-33 hours to 30minutes

From an AMR Research survey of best practices insales configuration, the median improvement in ordercycle times dropped from the worst case, 33 hours, toless than one hour. In aggregate, the order cycletimes across all manufacturers were dropped to lessthan an hour.

• 20% to 50% reduction in engineering support forpresales tasks

The cost implications of minimising engineeringsupport is significant, but the strategic payoff ofhaving engineering focused on new productdevelopment is a competitive advantage that takesyears to cultivate and grow. Having engineeringfocused on tactical versus strategic issues can cost anycompany a product generation.

• Days Sales Outstanding (DSOs) reductions from anaverage of 60 days to 29 days

This is a measure of how long it takes a company’scustomers to pay their invoices. Analysts see DSOreduction as a sign of increasing customer satisfaction.

2

Quote-to-Order BusinessChallenges

BackgroundManufacturers grapple with the challenges of bringingincreased revenue in while maintaining or best case,dropping the cost per order. Too often manufacturersfind that pursuing a product customisation strategyactually drives up costs – and that’s because the financialbenchmarks for performance aren’t set before any ofthese strategies are fine-tuned.

The time savings are well-known and easily measured foradopting and fine-tuning quote-to-order, order-to-cash,sales and product-configuration strategies. But to betruly effective, any of these strategies needs to start witha set of financial benchmarks. The challenges for many

manufacturers is not in getting these process areasdefined, working and even providing a median level ofreturns – it’s in measuring the right financial metrics toshow the value of these strategies over the long run.

Figure 1 shows a series of the financial metrics thatquote-to-order directly impacts for manufacturers.Taken together, the strategies of quote-to-order, order-to-cash, sales and product configuration deliver a seriesof financial contributions that span manufacturing, sales,production, engineering and finance.

Figure 1: Quote-to-order’s financial impact is significant.

Source: Configuration Is the Heart of Customer Fulfillment forComplex Product Manufacturers, AMR Research

Louis Columbus, March 31, 2003

Orders In Margin In

Quote-to-order’s financial impact is significant.

Products,Services,Profits

Out

95%reduction in

costs tocomplete an

order

Order cycletimes down

65%

Reduction inincomplete

orders of20%

Decrease inorder reworkfrom 15% of

orders toless than 2%

20% to 50%reduction inengineering

support

Reduction inorder cycle

times from 17-33 hours to 30

minutes

10%reduction in

warrantycosts

Days SalesOutstanding

down onaverage fromover 60 days

to 29 days

3

Manufacturing’s Panacea for Pain IsQuote-to-OrderManaging how quotes, proposals and responses to RFPsare created, managed and fulfilled is what oftenseparates more financially successful companies fromones that struggle with managing the costs of sales,fulfillment and service. What’s giving these successfulcompanies the edge is their ability to manage to a set offinancial metrics and have greater insights into theirbusinesses relative to their competitors.

Proving the value of any customer-facing strategy thatincludes the generation of quotes, proposals andresponses to RFPs starts with a clear idea of whatmetrics will be used for measuring performance. AMRResearch and other research firms have for exampleseen a correlation between the accuracy of metrics usedand the results achieved.

Here are the places to start looking in your company forways to trim quoting times and costs, order cycle timesand wasted resources in sales, engineering, productionand service. To build a long-lasting strategy in quote-to-order, look first at the areas in the table below:

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 Inventory turn savings

Customer data Lifetime cost per customer; average deal size by customer

Sales Order cycle time Order cycle times reduction of 65% or more recorded withmanufacturers contacted

Cost of sales Days Sales Outstanding reduction from 60 to 29 days onaverage

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 anorder

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 oncustomised products

10% reduction at a minimum

Labor cost reductions Decrease order rework from 15% to 2%

Table 1:

Managing Quote-to-Order to Metrics

4

Quote-to-Order SolutionStrategies

Solution Case StudiesThere’s an abundance of evidence surrounding theresults that manufacturing companies can achieve usingquote-to-order, order-to-cash, sales and product-configuration strategies. The results achieved at thefollowing companies illustrate what can beaccomplished when these strategies are combined witha strong focus on financial measures of performance.

• Air Products and Chemicals – This internationalsupplier of industrial gases and related equipment andspecialty and intermediate chemicals had to come upwith a solution for managing a large menu of optionsfor its GASGUARD line, a product line for thecompany’s electronics gas division. Its guided sellingand product configuration strategy includedautomating sales order entry, engineering design andmanufacturing information. The company facedsignificant challenges with its configuration strategyand there was also a need to replace its ERP system atthe same time. As a result, the company overhauledboth systems at the same time. The results includedthe following:

– Unit cost reductions of 28% due to better demandplanning

– Lead time for engineer-to-order products from 14weeks to six weeks

– Significant reduction in product configuration errors

– Improvements in cost-per-unit price reductions

• Siemens Energy and Automation – Siemens is amultinational conglomerate with offices andoperations in 190 countries and over 100,000employees. The Siemens Energy and AutomationDivision produces Above NEMA class motors andrelies on Engineer-to-Order (ETO) for 100% of itsproduction. The division set the goal of streamliningtheir quote-to-order process by enabling salesrepresentatives to generate certified specifications andquotes for highly configured Above NEMA motors.Included in the quoting process was the requirementof generating certified motor performance data andCAD drawings, required by Siemens customers. Afterimplementing the Socrates® suite of applications andlaunching the revised quote-to-order system andprocesses to the Siemens sales force, the followingresults were accomplished:

– Certified performance-data generation required inquotes and proposal time dropped to less than onehour from between four and six weeks.

– 100% of configured motors are buildable, leading toa significant drop in rejected and inaccurate orders.

– The time it takes to create a quote has droppedfrom between two hours to four days (depending oncomplexity) to less than an hour.

– Bills of material for products tailored specifically tocustomers’ requirements are now directly loadableinto Siemens’ ERP system.

– Engineering knowledge of products is now capturedso it can be quickly applied to customers’ uniquerequirements as defined in quotes and proposals.

5

Measuring Results of Quote-to-Order Strategies

Both AMR Research and Cincom are finding that whenbenchmarks for financial performance are definedbefore manufacturers initiate a quote-to-order strategy,results comparable to those shown below areachievable. The extent of manual to electronicautomation of core processes made an impact on thesefigures shown in Table 2.

Table 2

Financial Performance of Quote-to-Order Strategies in Year One of Projects

Manufacturers Order Cycle TimeReduction (%)

Days SalesOutstandingReduction (%)

Quote Creation(%) Time Savings

(%) ReductionIncorrect Orders

(%) Increase InCross-Sell, Up-Sell

With Quotes

Elevators 35% 15% 120% 46% 5%

High-techperipherals

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%

Industrialdistributor(channel assembly)

12% 21% 67% 31% 23%

Furniture 14% 7% 11% 27% 12%

Network and LANequipment

23% 12% 27% 52% 37%

Averages 33% 19% 59% 41% 24%

6

Conclusions andRecommendations

There’s more to quote-to-order, order-to-cash, guidedselling and product-configuration strategies than just re-architecting workflows. To get the true financial benefitsof these strategies, you need to first look at the financialmeasures of performance that you want to impact. Themetrics provided in this white paper are just thefoundation of what needs to be a much broader andmore comprehensive listing of the financial measures ofperformance 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 performancethat are most relevant to your company. While thiswhite paper has provided several key metrics ormeasures of performance, it’s important to also findthe ones that are the most relevant to your company.Start by going through the quoting process with thecustomers of that process – those groups includesales, operations, manufacturing and service.

• Start measuring the impact of your quote-to-orderstrategies today. Don’t procrastinate about measuringthe relative levels of efficiency or inefficiency in yourquoting processes today. Start scoring out how long ittakes 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 getting a measure of how yourcompany is performing. Only after getting thisbaseline measure will all the efforts to improve startshowing up. You’ll have to start somewhere and thisbenchmarking gives you the chance to define wherethat starting point is.

• Fix quoting processes first by attacking wasted stepsand inaccuracies. Go after the most broken processesand manually fix them first. Don’t just automaticallythink that ripping and replacing processes will make adifference – get a strategy together based on solidmeasures of performance and move forward from thatpoint.

• Get away from having a multitude of quoting systemsas disconnected islands. At one point, one of theworld’s most well-known computer systems companieshad 11 different quoting systems, some deliveringAvailable-to-Promise (ATP), some quoting systemsproviding delivery timeframes and some deliveringnothing in the way of commitment and delivery dates.One of the best possible actions you can take is toconsolidate quote-to-order systems to ensurecustomers get a common set of expectationsdelivered to them using reliable processes toaccomplish that task.

• Fine-tune pricing and quoting systems together if youcan. Just revamping quoting systems alone can yieldmajor cost reductions and increase efficiency of yoursales, operations, manufacturing and servicesorganisations. Adding in pricing can bring a level offine-tuning around margin enforcement and analysisthat is spelling the difference between competitivestrength in one market versus another.

Bottom line: There’s room for improvement in howquote-to-order processes are managed inside anycompany. Improving these processes starts withdefining a series of measures of performance first so thatimprovements made can be tracked over time. Onlythrough finding this cause-effect relationship willinvestments in software pay off.

Cincom, the Quadrant Logo, Socrates and Simplification Through Innovationare trademarks or registered trademarks of Cincom Systems, Inc. All othertrademarks belong to their respective companies.

© 2011 Cincom Systems, Inc.FORM CM041113-3-A4 1/11Printed in U.S.A.All Rights Reserved

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