Quote-to-order: New Ingredients in the Recipe for Success

One of Technology Evaluation Centers' (TEC's) series of articles focused on an emerging class of front-office e-business and customer relationship management (CRM) applications aimed at managing what is being termed the lead-to-order, configure, price, quote (CPQ), or quote-to-order (Q2O) set of processes in the complex multichannel sales environment (see Q2O Systems: Solutions for Quotation Management and Pricing Configuration).

This software category has to do with much more than product configuration. As suggested by a 2002 article from Manufacturing Computer Solutions,

it automates the processes from "needs analysis" (what the customer wants and why), through option recommendations, to configuration and change management (including validation), pricing, quoting and financing. The emphasis is on right-first-time and business process web automation.

This applies equally within the context of business-to-business (B2B) and business-to-consumer (B2C) e-commerce. (See also The Perfect Order – Inside Out or Outside In?).

Why Such Demand for Q2O Systems?

The reasons for the recent healthy market interest in these applications are manifold. For one thing, there has long been the need for mass customization capabilities within manufacturers' operations. In a supply surplus economy, almost all products and services are made more customizable to meet customers' exacting needs.

The best example is the evolution in the automotive industry from Ford's 1914 Model T to today's Ford lineup and the ability for customers to even build their own cars online. To be fair, in the 1930s, the long defunct Duisenberg car manufacturer let "celebrity" (deep-pocketed) customers buy a unique, customized car; but the point here is that this has increasingly become a prerogative of the general population today.

The coffee shop industry is another great example of creating value via mass customization. While the ordinary, corner-store filter coffee still generally costs $ 0.99 (USD) a pop, a highly customized cup of coffee can easily amount to several bucks (or 50 cents per syllable, anecdotally). Those who prefer "an extra-hot, half-decaf, triple-shot, vente, sugar-free, low-fat milk, vanilla, extra-foamy dry latte" know all about this.

Furthermore, personal computer (PC) industry leaders are also moving from selling solutions with basic configuration to those that are more customized and higher value, while both hi-tech and industrial products are increasingly packaged into higher value-added customer hardware and software solutions and accompanying services.

Besides mass customization, some ill-fated "dot-com" ideas from the early 2000s are back now, but with a refined value proposition and backed by the latest technological developments. Thus, in 2007, the MFG.com Internet marketplace reported that in the preceding 12 months, the $2 billion (USD)–value was sourced on the site. Then, beside unstoppable globalization, as described in Don Tapscott and Anthony D. Williams's book entitled Wikinomics: How Mass Collaboration Changes Everything, there is a "perfect storm" (or "category six business revolution") in the market owing to Internet generation demographics, broadband pipes, and networks going on everywhere in the global playing field.

The mass collaboration phenomenon is the direct result of many online collaboration tools being readily available for shared innovation and development, forums and knowledge bases, and peer production. In fact, collaboration nowadays is rather about efficiency and driving costs down by maintaining win-win relationships and working together (with the idea of shared, paperless repositories of information). This differs significantly from the concept behind e-commerce tools in their first incarnation, which had everything to do with driving down supplier prices (and thus reducing costs).

According to a 2002 article from Manufacturing Computer Solutions, the vast majority of global manufacturers (about 90 percent) have a number of predominantly B2B relationships, while only about 20 percent sell directly to end consumers. Also, they have multiple sales channels, mostly with agents and distributors, necessitating (for example) slick and easy-to-use digital catalogs, portals, and product configurators for sales support.

Thus, being on the same page has become the name of the game; proposals and other similar documents must be clear, concise, and use acronyms and vernacular that rings a bell with decision makers.

Contemporary technology has rendered integration of formerly separate point solutions into more cohesive Q2O suites much easier. In other words, it is nowadays more feasible to standardize and integrate systems and customer-facing processes, such as generating multitier channel leads, taking and fulfilling customized orders (with highly configurable items), and coordinating warranty, spare parts, and other post-sale services.

Some realization of identifying and empowering a single "inquiry-to-cash" process owner (to provide a unified, single face to the customer) has also been helping to defuse the conflict of multiple functional groups traditionally claiming ownership of various parts of the process at most companies. Consequently, the inquiry-to-cash processes are no longer siloed by functional areas, such as sales, marketing, engineering, fulfillment, or finance departments.

As products and services become more complex, the work of internal sales people, partners and distributors, and direct sales forces has become more difficult than ever. Yet, today, the majority of customers using complex equipment still use cumbersome, manual processes to specify and purchase sophisticated equipment like pumps, compressors, or valves.

On the other hand, manufacturers (suppliers) also rely on manual processes (the so-called "quote-and-hope" or "if it passes, fine" methods) that thrive on fragmented product knowledge (the so-called "tribal knowledge" or "chasing the expert" phenomenon), long lead times, and costly and inefficient proposal generation. Not to mention the complication when dealing with the indirect channel with the lack of consistency and visibility, when multiple companies, functional departments, and people have to be involved. In addition, the complicated purchased equipment often has to be correctly sized and configured to meet the customer's application requirements, which requires process and related technology know-how.

In addition, the pricing and commercial terms can be quite complex as companies have multiple price lists and various channel- and customer-specific pricing policies. Thus, any process improvement solution must be able to fulfill both the technical and commercial requirements, as well as facilitate an efficient information flow and collaboration among all parties involved.

While technologies and tools like guided selling are critical elements of customer self-service sales, giving tools to salespeople is also crucial. Salespeople seem to fall into two proverbial categories: "eagles" and "journey-people." Eagles are the intuitive, fast-moving, high-flying minority, those who take to sales easily and excel in the role. Conversely, journey-people are pretty much everybody else, and although they make a comfortable living at sales, they need ongoing coaching and enabling tools to improve.

New Web Technology Developments Certainly Help

On the B2C side, turning casual online shoppers into buyers takes a personal touch, and that is where the latest generation of e-commerce personalization tools comes in. As a recent article in the Wall Street Journal points out, this software produces product recommendations "behind the scenes" that cater to individual tastes and needs on a supplier's web site. Compared with earlier versions, the latest tools, besides being much more affordable, perform more (predictive) analysis of buyer activity, and the resulting recommendations are more likely to reflect the interests of individual customers.

The article goes on to say that personalization is an increasingly used tactic on the Web, since it often results in significant improvement in conversion rates (i.e., from "just browsing" to "now buying"). Thus, tools for analyzing individual buying and browsing habits have existed for some time. However, early tools—in spite of a steep price tag—were simply not robust enough to transform this analysis into useful or accurate results.

Such analytical tools are now both cheaper and more powerful, some even featuring the ability to operate in "hands-free" mode (in other words, without necessitating human intervention; see also Using Predictive Analytics within Business Intelligence: A Primer).

Helping to Establish Cross-departmental Metrics

For its part, the B2B environment requires even more special analytics (metrics and key performance indicators [KPI]) and sophistication (see Differences in Complexity between B2C and B2B E-commerce). In addition to logically expected improvements of quote and order accuracy (to eliminate costly and unnecessary customer service intervention before the order can be processed, which in turn contributes to lengthened lead times beyond the typical forecast window, while in some cases, erroneously omitted components need to be added in at a supplier's cost), other potential benefits can be derived from deploying a Q2O system. AMR Research's report Sales Configuration—From Efficiency to Excellence (from late 2007) suggests that such benefits include the ability to use the data gathered during the configuration process to feed the demand (forecasting) signals; to make better decisions on future product features and options, configuration constraints, and recommendations rules; and even to determine entire product lines across seasons and geographies.

The report goes on to say that manufacturers increasingly realize the need to improve demand visibility as a driver for sales tools like guided selling and configuration, since a well-deployed Q2O system can determine demand variability and product variants' profitability.

Also, in the spirit of mass customization, the report claims that pushing historical configuration data back into the product lifecycle management (PLM) process can lead to products with broader appeal and lower production costs. AMR has identified a broad trend of manufacturing organizations becoming interested in using insights gathered in the sales process for demand forecasting, product development (including rationalization and parts standardization), field service, and overall improvements in the customer experience.

"Leaning" the Front End Too

Additionally, while most lean initiatives start on the manufacturing floor, the time has come for best-in-class manufacturers to apply the basic philosophies of lean (in other words, continuous improvement and waste elimination in business processes while delivering more value to customers; see Lean Manufacturing: A Primer) to other parts of the enterprise. Many manufacturers that made improvements in their back-end manufacturing processes have meanwhile recognized that significant opportunity still exists to reduce manual effort and costly errors in the front-end selling and services.

According to Godard Abel, chief executive officer (CEO) of BigMachines (to be featured in parts two and three of this series), the same lean thinking can be applied to complex product specification, quoting, and ordering processes, by mapping the steps and identifying those that add value and those that are wasteful. Some of the most apparent examples of wasteful steps include

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repeatedly clarifying and checking prior work due to incomplete information flow
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re-entering (re-keying) order data multiple times in various systems
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fixing specification and engineering errors after an order has been placed
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re-work, warranty, and plant rescheduling costs caused by faulty process and application engineering

Lean initiatives have recently driven some cutting-edge manufacturers to identify objectives for a more effective front-end process, specifically to eliminate manual processes and the need to rely on a wide variety of paper-based tools (such as catalogs, price books, and sizing tables), as well as homegrown software such as that for sizing compact discs (CDs). Many existing quotation and order-entry processes involve many redundant steps and labor-intensive manual processes that only add lead time and complexity to the value chain, as noted in a 2007 case study (Case Study: Rolling Out Lean) published in Quality Magazine. The case study also notes that

given the complexity of some products, the processes used to create quotes and orders become slow and error-ridden, and manufacturers realize the need for a technology enabler that meets the challenges of this lean front-end vision to reduce non-value-added activities, leverage best practices and knowledge, and develop a "mistake-proof process" for product selection, configuration, pricing, quoting, and ordering.

In addition to analyzing their current customer-facing processes, companies need to analyze the tools and systems that support front-end information flow during these processes.

Broad Enterprise Systems Providers Largely Coming Up Short

Moreover, traditional enterprise application software packages have not easily supported the management of end-to-end inquiry-to-cash processes. Enterprise resource planning (ERP) systems, for instance, have traditionally been weak in their ability to handle sales, marketing, and product configuration tasks. Another weak spot for ERP products is in generating proposals, whereby manufacturers can set up Web tools to automatically generate proposals online, complete with all of the technical and commercial data the customer needs to evaluate the quotation. This can include cover letters, product descriptions, technical datasheets, performance graphs, drawings, and commercial terms and conditions.

Consequently, a slew of well-funded start-ups have flooded the market with integrated modules that can be mixed and matched, so that enterprises can assemble a package of tools that suit their needs instead of committing to a single product with flaws that they're unlikely to be able to fix. The latest Web 2.0 technologies have helped in that regard, like so-called "mashups" that enable two on-demand Web applications to work seamlessly as one via Web-services integration.

SOURCE:http://www.technologyevaluation.com/research/articles/quote-to-order-new-ingredients-in-the-recipe-for-success-19361/