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Focus on the Customer!

Quote-to-Order beats the bear and others 

by Jim Hessin – Cincom Systems

Mark Twain once told a story involving two hunters who accidentally disturbed a sleeping bear while they were rabbit hunting. As both men turned and bolted, one of them yelled out in desperation, “It’s no use, we can’t outrun a grizzly!” Without skipping a beat, the quicker hunter replied, “It’s not the grizzly I’m trying to outrun!”

In today’s business world, being fast isn’t enough; you have to be faster than the competition and more effective.

Inward Facing Vs. Customer Facing

In the last twenty years, the focus in manufacturing has been on improving efficiencies. How can we get more products out the door faster? With the trends changing in recent years, for the first time in our history, supply is outpacing demand in many industries today. Sales-per-employee is going up consistently. However, excess plant capacity is also going up, which means companies are more efficient and effective than they’ve ever been but are now outpacing market demand. It doesn’t matter how efficient you are if you can’t gain enough market share to demand your products! The focus needs to shift toward how you can gain market share by taking it away from the competition.

Change the Focus

According to industry and financial analysts, manufacturers who address Quote-to-Order, one of the most critical customer-facing processes, can cut delivery lead times and order-processing costs by 20%-50%, improve product margins, product quality, customer satisfaction, and reduce unplanned order changes by an order of magnitude.  AMR Research, Forrester, Gartner Group and other research companies consistently report back from their research that quote-to-order is one of the biggest pay-off strategies any company can undertake.

Quote-to-Order is not just important; it is arguably the defining business process in the 21^st century that will separate the winners from the losers. Streamlining the Quote-to-Order process within a complex engineered products environment in a competitive market such as Truck and Bus or Industrial Equipment may actually be critical to survival. 

Getting Orders Right the First Time

As one engineer for a fire apparatus manufacturer struggled to explain to senior management, “What the customer wants, what sales quotes, and what manufacturing builds, while they should be one and the same, are often times vastly different. This situation costs us a significant amount of money in the form of increased labor, inventory, and time that could be used more effectively in new product introductions!”

The more difficult it is to validate, process, design, source, and build an order, the more opportunities there are for error and for customer changes. One auto manufacturer is on average taking seven orders from their dealers before they get the car right, and keep in mind this is just the average; the more complex the automobile the more changes to the quote. A more complex specialty vehicle manufacturer sells over 1,000 units per year and has over 200,000 changes. 

At multiple levels, changes are expensive, requiring time and resources to process, sometimes affecting goodwill, and increasing the chance for errors. The cost of change skyrockets as it gets closer to delivery, because manufacturers sometimes scrap nearly finished products due to misalignment with customers’ needs. This complicates build schedules, engineering, and manufacturing, and the total cost of change is seldom recovered with special prices. While some companies that have streamlined their Quote-to-Order processes find customer-initiated changes to be profitable, the majority never fully recover the costs of change and see their margins erode.

The problem starts with the sales process, when the features and options are selected and articulated by the customer. If the options selected are incompatible and dependent upon other selections, customers end up with quotes that are invalid or functionally not optimal. This is exponentially made worse when invalid quotes are manually turned into orders with invalid configurations, incomplete information, unsatisfied product outcomes, and unforeseen price discrepancies, all of which lead to lower margins or even losses on the sale.  Many managers dismiss these issues as insignificant or uncontrollable, when in fact they could turn these problems into a major competitive advantage and capture more market share!

Instead of looking at customer-facing processes as manual routines dictated by the customer, manufacturers need to view them with the same energy they employ to address manufacturing enterprise processes. They both affect the bottom line! In fact, there are more opportunities for greater profitability through the improvement of customer-facing systems that serve both indirect and direct channels than in upgrading inward facing systems that have already been streamlined over the last 20 years.

Protect Thy Market!

Why are you losing market share? World-class companies that are constantly looking for ways to improve are identifying the waste in their Quote-to-Order processes. 

What are some of the areas that need to be addressed?

• Generating quotes without complete information

• Validating orders that may not be accurate

• Getting the design right in engineering

• Scheduling the shop floor

• Purchasing materials

• Controlling inventory

All of these events can be helped or harmed by the Quote-to-Order process. Your customers realize this, so they pay close attention to how easy you are to do business with. They know that your Quote-to-Order process is a reflection of your overall competence and the easiest company to work with has probably the highest quality and is the most competitive. 

Winning With Quote-to-Order: A Gartner Case Study

For a $100-million manufacturer of complex engineered products, the typical cost of Quote-to-Order is about $7 million per year. According to Gartner’s research, improving just the configuration portion of Quote-to-Order for a complex manufacturer can improve the bottom line by 5% or more.  The table above shows the specific payoffs of moving to a quote-to-order strategy, as defined through interviews by Gartner Group.

The benefit is partly from cost reductions and partly from revenue improvements, both volume and margin.

Why Customer-Facing Systems Pay

Quote-to-Order integrates the entire enterprise; linking sales and marketing, engineering, production, contracts, pricing, planning, product development, and even extends to the supply chain and inventory. Because Quote-to-Order defines the customer experience, ignoring it or assigning it less attention than it deserves can undermine your business. Yet we see many companies that are oblivious to their situations. Rather than adapting their business to the customers' expectations, they train the customer to expect and accept the company’s limitations - a dangerous approach that a keen competitor will eventually exploit.

By ensuring valid and accurate quote specifications, and then electronically translating those specs into the format needed by manufacturing and engineering without having to re-key the information, companies are enjoying significant business benefits. One truck manufacturer stated that its dealers are 80% more effective. That’s the equivalent of adding 160 additional salespeople to its sales network. They also anticipate inventory turns increasing from the current level of five to something closer to 8 or 10.

Other companies have experienced a 60% reduction in manufacturing time while others reduced their order-entry error rate from double digits down to zero. By gaining access to the quotation before the quote is turned into an order and knowing the win/loss rate, companies are able to predict revenue, costs, and purchased parts requirements before the orders are placed!

In Conclusion

Just like the hunters in Mark Twain’s story, the goal for complex manufacturers is to outpace the competition and win more market share. While the cost of a typical implementation varies by project scope, number of products, complexity of products, project size, number of users, and time limits, companies can spend between $80k and $800k for software and an equivalent amount for the services. That’s a significant investment.

But, if the EVA (economic value added) is a year-over-year improvement of $5 million, the decision to invest in customer-facing systems is clear. In almost all cases, investment in Quote-to-Order is a more effective use of your capital than throwing more money at inward-facing systems.

About Jim Hessin:

Jim is a Cincom Manufacturing Business Solutions Senior Advisor in the Quote-to-Order practice.

Prior to Cincom, Jim was a Manufacturer's Representative for eight years specializing in electrical and electro-mechanical motion control solutions for special machinery OEMs and end-users. For more information, you can contact Jim at:

jhessin@cincom.com
513-612-2226 Office
513-379-8242 Cell
www.cincom.com/Q2O

About Cincom Manufacturing Business Solutions

Cincom Manufacturing Business Solutions for complex manufacturers deliver lean solutions to drive operational excellence. By identifying and automating complex manufacturers' most critical business processes, Cincom enables them to streamline quote-to-order processes, integrate product and process development, and achieve comprehensive enterprise management and fact-based performance management. Cincom leads the industry with over three decades of experience, providing deep domain expertise for rapid and continuous return on investment.