Improving quote-to-order process proven method
In the last 20 to 30 years, the focus in manufacturing has been on improving quality and efficiencies. How can we get better products out the door faster?
But trends have changed in recent years. The focus has shifted from how to build products more efficiently to a more effective approach to capturing market share.
For the first time in our history, supply is outpacing demand in many industries. Sales-per-employee is going up consistently. However, excess plant capacity is also going up, which means that while companies are more efficient and effective than ever in order to compete in the global market, there is more competition than ever competing for the same customer base.
It doesn’t matter how efficient you are if you can’t keep the customer base. Our industry’s focus needs to shift toward how you can gain market share.
One way to do this is to have your customers view you as easier to work with than your competitors. A simple strategy to accomplish that is by improving your quote-to-order process.
Improving quoting processes
According to analysts, complex manufacturers that address quote-to-order processes can cut delivery lead-times and order processing costs by 20 percent to 50 percent; improve product margins, product quality, and customer satisfaction; and reduce unplanned order changes.
Quote-to-order is not just important; some argue that it is the defining manufacturing business process of the 21st century, the one that separates the winners from the losers. Streamlining the quote-to-order process within a complex engineered-products environment such as specialty vehicles or special machinery may be as critical to survival as outrunning an angry grizzly bear in the forest.
What we find common in complex manufacturing is that, what the customer wants, what the sales organization quotes, and what manufacturing builds – while they should be one and the same – are oftentimes vastly different. This situation causes a significant amount of upheaval and extra costs per order to get the customer what they want.
The more difficult it is to validate, process, design, source, and build an order, the more opportunities there are for error and for everyone – including the customer – to change the order. One company that sells more than 1,000 units per year has more than 200,000 changes.
At multiple levels, change orders are expensive, requiring time and resources to process while increasing the chance for errors. The cost of change skyrockets as it gets closer to delivery. This complicates build schedules, engineering, and manufacturing, and the total cost of change is seldom recovered with special prices. While some companies find changes profitable, the vast majority never fully recover the costs of change and see their margins erode.
Rather than shaping its business to the customer’s expectations, [complex manufacturers] train the customer to match the company’s limitations – a dangerous approach that a keen competitor will eventually exploit.
The difficult sales process
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 options, customers end up with quotes that are invalid or functionally not optimal. This is exponentially made worse by manually turning invalid quotes into orders with invalid configurations leading to unexpected change orders, unanticipated schedule delays, unsatisfied product outcomes, and unforeseen price changes. Many managers dismiss these issues as unimportant or uncontrollable. World-class companies that want to stay ahead of the market are addressing these issues head-on.
What causes these broken processes?
- Winning the business is the first challenge.
- Validating orders is also difficult and time-consuming.
- 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 that the easiest company to work with is probably the highest quality and most competitive.
Quote-to-order integrates the entire enterprise, linking
- sales and marketing
- contracts
- pricing
- engineering
- planning
- product development
- production
- supply chain
- inventory
Because quote-to-order shapes the customer experience, ignoring it or paying it less attention than it deserves can undermine your business. Yet many companies are oblivious to their situations. Rather than shaping their businesses to the customer’s expectations, they train the customer to match the company’s limitations – a dangerous approach that a keen competitor will eventually exploit.
Many companies can enjoy a significant business benefit by ensuring valid and accurate quote specifications, then electronically translating those specifications into the format needed by manufacturing and engineering – without having to re-key the information. One company stated in their annual shareholder meeting that its dealers are 80 percent more effective since improving its quote-to-order process. They also anticipate inventory turns increasing from the current level of five to something closer to eight or ten.
Other companies have experienced a 60 percent reduction in manufacturing 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 their revenue, costs, and purchased parts requirements before the orders are placed.
Today’s goal for complex manufacturers is to outpace the competition. Improving your quote-to-order process is a relatively easy first step in reaching this goal. Try it and your customers may just “thank you.”
By Jim Hessin, Cincom Systems
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