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 realigns its business processes for greater profitability. Cincom Systems sees the following progression of steps as delivering the most value over time in redesigning the core processes in your company:
Step 1: 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.
Step 2: Define a set of core metrics that best represent your sales, operational needs, and service needs. It’s critical not to 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 that you can use for monitoring the improvement in quote-to-order, cash conversion cycle and assemble-to-order, build-to-order, and engineer-to-order strategies. Consider the following often-used metrics for your scorecard.
- Accuracy of orders – Companies have found that when orders have dropped below 60 percent 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 – Although this isn’t a commonly reported statistic, it’s critical to do the hard work to get this figure and track it monthly. The reason the extra effort is worth it: 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 with this metric, the cost per configured customer order should drop with your efforts.
- Order cycle time 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 even show improvement 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 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.
Step 3: Start redesigning your proposal, quote-to-order, pricing, and other process workflows that regularly impact your channels and customers. Cincom Systems and AMR Research both 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, typically deliver progressively improving results.
Step 4: 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 redefining 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 analyzing the return on investment (ROI) 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.
Step 5: Select a vendor who can deliver. The sales configuration marketplace is populated with both best-of-breed and ERP vendors, yet neither category completely dominates the market. At the intersection of product, process, and technology, there are vendors that have the strong ability to execute on process-centric workflows. There are several key takeaways to consider when looking at a sales configurator:
- Vendors whose products excel in just one of the three areas are either facing consolidation or using another core business to finance their sales configuration products.
- Vendors in two overlapping areas have referenceable customers and are at risk of being consolidated out of the market.
- Vendors, including Cincom, that dominate all three areas have the best track record at translating to-order strategies into an increase in financial performance, as measured by a core set of metrics established early in their strategies.
This is an edited excerpt from the white paper “Getting Results with Quote-to-Order Strategies.”