1Executive Summary Measuring Quoting Strategies’ Financial ImpactManufacturing companies are capable of much greater The intent of this white paper is to explain the bestfinancial gains than they are getting today from their practices of complex manufacturers that are usingquote-to-order, order-to-cash, sales and product- financial metrics of performance to manage their quote-configuration strategies. These process areas centre on to-order, order-to-cash, sales and product-configurationhow manufacturers create, set and keep expectations in strategies. Manufacturers that use financial measures oftheir quotes for custom-configured products. performance are getting these kinds of results and more, clearly making a financial impact on their companies:Globally companies are adopting quote-to-order tostreamline how they sell customised products. Reasons • 95% reduction in costs to complete an orderfor pursuing these strategies include increasing factoryuse, developing related products to extend a product Nearly every manufacturing company has a roughseries’ life and often to up-sell and cross-sell their measure of how much an order costs to fulfill. Theexisting customer bases with products tailored to their payoff of using a quote-to-order, order-to-cash, salesspecific needs. Examples of how quote-to-order, order- or product-configuration strategy is that there is majorto-cash, sales and product configuration impact reduction in the costs of fulfilling orders formanufacturing, sourcing and product-management customised products.strategies abound throughout the spectrum of complex • Order cycle times reduced from 17-33 hours to 30manufacturing companies globally pursuing these minutesstrategies. From an AMR Research survey of best practices inGetting results from these strategies has to start with sales configuration, the median improvement in orderdefining financial measures of performance before cycle times dropped from the worst case, 33 hours, tochanging these processes ever begins. Too often less than one hour. In aggregate, the order cyclecompanies aren’t measuring the financial impact of times across all manufacturers were dropped to lessthese strategies – and leaving much of the cost savings than an hour.and incremental revenue unattained – because extra • 20% to 50% reduction in engineering support forsteps on these strategies are not taken. These presales tasksstrategies have to start with a series of financial metrics ifthey are ever going to accurately reflect the cost savings The cost implications of minimising engineeringand revenue contributions they contribute. 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.
2Quote-to-Order Business manufacturers is not in getting these process areas defined, working and even providing a median level ofChallenges returns – it’s in measuring the right financial metrics to show the value of these strategies over the long run.Background Figure 1 shows a series of the financial metrics that quote-to-order directly impacts for manufacturers.Manufacturers grapple with the challenges of bringing Taken together, the strategies of quote-to-order, order-increased revenue in while maintaining or best case, to-cash, sales and product configuration deliver a seriesdropping the cost per order. Too often manufacturers of financial contributions that span manufacturing, sales,find that pursuing a product customisation strategy production, engineering and finance.actually 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 Quote-to-order’s financial impact is significant.Orders InMargin In Products, Services, Profits Out Reduction in Order cycle Reduction in Decrease in 20% to 50% 95% 10% Days Sales order cycle times down incomplete order rework reduction in reduction in reduction in Outstandingtimes from 17- 65% orders of from 15% of engineering costs to warranty down on33 hours to 30 20% orders to support complete an costs average from minutes less than 2% order over 60 days to 29 daysFigure 1: Quote-to-order’s financial impact is significant.Source: Configuration Is the Heart of Customer Fulfillment forComplex Product Manufacturers, AMR ResearchLouis Columbus, March 31, 2003
3 Manufacturing’s Panacea for Pain Is Proving the value of any customer-facing strategy that includes the generation of quotes, proposals and Quote-to-Order responses to RFPs starts with a clear idea of what Managing how quotes, proposals and responses to RFPs metrics will be used for measuring performance. AMR are created, managed and fulfilled is what often Research and other research firms have for example separates more financially successful companies from seen a correlation between the accuracy of metrics used ones that struggle with managing the costs of sales, and the results achieved. fulfillment and service. What’s giving these successful Here are the places to start looking in your company for companies the edge is their ability to manage to a set of ways to trim quoting times and costs, order cycle times financial metrics and have greater insights into their and wasted resources in sales, engineering, production businesses relative to their competitors. and service. To build a long-lasting strategy in quote-to- order, look first at the areas in the table below:Table 1: Managing Quote-to-Order to MetricsAreas of Measurement Baseline: What to Measure Example of BenefitsCompany-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 customerSales Order cycle time Order cycle times reduction of 65% or more recorded with manufacturers 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 95% reduction in cost per order 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 70Warranty and returns Reduction in warranty cost on 10% reduction at a minimum customised products Labor cost reductions Decrease order rework from 15% to 2%
4Quote-to-Order Solution • Siemens Energy and Automation – Siemens is a multinational conglomerate with offices andStrategies operations in 190 countries and over 100,000 employees. The Siemens Energy and Automation Division produces Above NEMA class motors andSolution Case Studies relies on Engineer-to-Order (ETO) for 100% of its production. The division set the goal of streamliningThere’s an abundance of evidence surrounding the their quote-to-order process by enabling salesresults that manufacturing companies can achieve using representatives to generate certified specifications andquote-to-order, order-to-cash, sales and product- quotes for highly configured Above NEMA motors.configuration strategies. The results achieved at the Included in the quoting process was the requirementfollowing companies illustrate what can be of generating certified motor performance data andaccomplished when these strategies are combined with CAD drawings, required by Siemens customers. Aftera strong focus on financial measures of performance. implementing the Socrates® suite of applications and• Air Products and Chemicals – This international launching the revised quote-to-order system and supplier of industrial gases and related equipment and processes to the Siemens sales force, the following specialty and intermediate chemicals had to come up results were accomplished: with a solution for managing a large menu of options – Certified performance-data generation required in for its GASGUARD line, a product line for the quotes and proposal time dropped to less than one company’s electronics gas division. Its guided selling hour from between four and six weeks. and product configuration strategy included automating sales order entry, engineering design and – 100% of configured motors are buildable, leading to manufacturing information. The company faced a significant drop in rejected and inaccurate orders. significant challenges with its configuration strategy – The time it takes to create a quote has dropped and there was also a need to replace its ERP system at from between two hours to four days (depending on the same time. As a result, the company overhauled complexity) to less than an hour. both systems at the same time. The results included the following: – Bills of material for products tailored specifically to customers’ requirements are now directly loadable – Unit cost reductions of 28% due to better demand into Siemens’ ERP system. planning – Engineering knowledge of products is now captured – Lead time for engineer-to-order products from 14 so it can be quickly applied to customers’ unique weeks to six weeks requirements as defined in quotes and proposals. – Significant reduction in product configuration errors – Improvements in cost-per-unit price reductions
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 ProjectsManufacturers Order Cycle Time Days Sales Quote Creation (%) Reduction (%) Increase In Reduction (%) Outstanding (%) Time Savings Incorrect Orders Cross-Sell, Up-Sell Reduction (%) With QuotesElevators 35% 15% 120% 46% 5%High-tech 62% 25% 35% 67% 30%peripheralsComponents 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 23% 12% 27% 52% 37%equipmentAverages 33% 19% 59% 41% 24%