Lasting change takes a series of gradual steps to accomplish, and that’s certainly true when it comes to fundamentally changing how any manufacturing company re-aligns its business processes for greater profitability. Cincom Systems sees the following progression of steps as delivering the most value over time when it comes to re-architecting core processes in your company:
Re-evaluate processes as they are today and set reasonable benchmarks. This is a critical first step since you need to have a baseline measurement of performance that accurately defines where you are today so that improvements can be measured from both the automation of tasks and the selective application of technology.
Define a set of core metrics that best represent your sales, operational and service needs. It’s critical to not set too many metrics of performance as the task of capturing and reporting them will start to outweigh your ability to do anything with the data. Instead, create a streamlined scorecard you can use for monitoring the improvement in quote-to-order, cash conversion cycle/assemble-to-order, build-to-order and engineer-to-order strategies.
Metrics to consider for your scorecard include the following. These are the ones that are most often used.
[For a complete table, visit http://www.cincom.com/lrc and view the whitepaper “Driving Information Closer to the Buyer.”]
Accuracy of orders – Companies have found that when orders have dropped below 60% accuracy, there is something systemically wrong with the order capture, fulfillment and service aspects. Monitoring this metric on a monthly basis gives you a very clear insight into what’s happening with your customer-facing order processes – or more plainly put, how you are serving your channels and customers with order capture.
Cost per configured customer order – While this isn’t a commonly reported statistic, it’s critical to do the hard work to get this figure and track it monthly. The extra effort is worth it because you get a great measure of before-and-after profitability in your order workflows when you define a process to capture the cost per configured order. Even manually redefining this process creates greater value, and having this metric of cost per configured customer order should drop because of your efforts.
Order cycle times for standard versus configure-to-order products – this is a telling statistic that will have a major impact on inventory turns for pick/pack/ship versus semi-customized products, versus the engineer-to- order products custom built to a customer’s exact specifications. Cycle times will show improvement even before any software is used to automate quote-to-order processes.
Days Sales Outstanding (DSO) – This is the average number of days your customers take to pay their invoices. Many companies will break this out for both standardized and customized, or to-order products. The reason companies will do this is that often DSOs for the to-order products are longer than DSOs for standardized ones. Often the bigger the gap the greater the potential for improvement. DSOs for configured products can be significantly improved through the use of quote-to-order systems.
Start re-architecting proposals, quote-to-order, pricing and any other process workflows that regularly impact your channels and customers. Both Cincom Systems and AMR Research have seen that even small improvements in customer-facing processes can yield big results. Getting these initial results first will validate that your selection of strategies is on track, and when software is selectively applied to these problems, progressively improving results are typically delivered.
Build a business including an ROI analysis for selectively applying software to quoting, proposals and pricing. By this time, you’re starting to build a track record of results from re-defining these customer-facing processes. The next step is to take a hard look at the software investment and its potential impact on the processes that are showing initial positive results. Cincom Systems can provide templates for handling ROI analysis of your specific to-order strategies. The bottom line on this point is that the larger the number of symptoms of broken processes the higher the ROI. AMR Research and Gartner Group have both defined sales configuration systems as having proven ROI.
This is an edited excerpt of “Driving Information Closer to the Buyer.” To read the full paper, visit http://www.cincom.com/lrc.
Photo: Entering Hyperspace by robotography