This is the first in a series of 4 articles aiming to share a point of view around the opportunities offered by Sales Accelerators Technologies (SAT) in the Manufacturing Digital Agenda. Focus will be on the CPQ (Configure-Price-Quote) and DCMS (Digital Content Management for Sales) technologies. During this short journey we will navigate the following topics:
Digital Sales CPQ as enabling technologies for Competitive Advantage.
The role and constraints of the Manufacturing Environments to make the right choice.
The challenges that can be encountered during a CPQ implementation and how to mitigate the risks for adoption.
How to maximize the benefits from your Digital Sales Journey.
Today we start with the first topic. Good reading!
The structure of IT investments in the last decades
Manufacturers in the last decades have focused their IT portfolio investments into MRP first and ERP framework next, aiming to get benefit from the integration of departmental applications, to manage increasing level of operational complexity, or consolidating operations acquired through vertical/horizontal expansion strategies or just for renewing their technological stack.
While MRP first, and ERP after contributed to manage the increasing levels of complexity associated with demand planning and the execution of internal operations around increasingly broad product ranges, there has long been a lack of packaged IT solutions to handle this increasing complexity during the sales process. In the best case, Manufacturers opted to develop customized IT solutions to help their sales departments to cope with complex configuration use cases. In most cases, the configuration and pricing intelligence has been embedded in complex and un-governed excel worksheets, growing completely disconnected from the surrounding IT landscape.
The rapid growth of SAT Technologies, and in particular of CRM, CPQ and DCMS technologies is a quite recent response to this compelling issue. Now, the availability of these solutions offered as SaaS represents a unique opportunity for Manufacturers to get access to these technologies to replace their complex and custom-made applications with reasonable investments, taking momentum to make new steps toward the acquisition of a competitive advantage.
Competitive Advantage and Competitive Priorities
Before entering in the merit of each technology, it is important to understand the link between three key concepts:
Competitive Advantage;
Competitive Priorities;
Order Winners and Order Qualifiers.
Competitive Advantage [1], as defined by M.E. Porter, is the ability of a company to achieve and sustain in the long term a certain level of performances ahead of the competition.
Porter has identified three pure strategies to achieve a competitive advantage:
Cost leadership: is the ability to offer products or services at a reasonable value and at a lower cost than other competitors;
Differentiation: is the ability to provide products or services that are perceived of higher value (different) from the competition and within a reasonable differential in term of cost;
Focus: this is an approach to achieve a competitive advantage (again in term of cost or differentiation) narrowing the scope over a more limited and segmented target (niche players). It can be a narrowed product scope or a narrowed market segment;
Later, Porter added the Best-Cost Provider Strategy. This strategy is a hybrid of the others and involves giving customers exactly the value they want. This value is created by delivering the functionality the customer wants at the lowest possible price.
Competitive priorities are “the critical operational dimensions a process or supply chain must possess to satisfy its internal or external customers, both now and in the future [2]”.
Literature agrees at identifying five common groups of competitive priorities namely: Cost, Quality, Speed, Flexibility and Innovation.
Order Winners and Order Qualifiers have been introduced by Terry Hill in his Manufacturing Strategy Model [3] and are also defined by the APICS Dictionary 15th Edition [4].
Order Qualifiers are “Those competitive characteristics that a firm must exhibit to be a viable competitor in the marketplace”.
Order Winners are “Those competitive characteristics that cause a firm's customers to choose that firm's goods and services over those of its competitors”
Although at first someone might think the opposite, it is important to point out that Order Qualifiers are not less important than Order Winners: they are just different, but both are necessary. A Manufacturer who consistently show a specific Order Winner but does not reach an acceptable level around some Qualifiers is likely going to lose in the competition.
These three concepts are strictly linked together as they are developed in stages while crafting the Competitive Strategy:
The definition of the competitive advantage statement is part of the overall Business Strategy definition;
At the next level of the strategic planning, while defining the Operations and Functional Strategy and further during the Market/Product/Process Design, the company should define its competitive priorities aligned to the strategic decisions around order winners and set the desired levels to meet the order qualifiers characteristics.
Order winners and qualifiers are clearly influenced by external forces like the market and customers, and other forces like the regulation and economic cycle.
The definition and the positioning of the company around competitive priorities, order winners and qualifiers is the operational declination of the strategy to success. Getting closer to the operational level, the understanding of order winners and order qualifiers helps then linking the operational investments, like the ones in IT technology, to the overall competitive business strategy.
While order winners and qualifiers may change over time and have specific declination for market segment / channel, it is possible to group them as follow, making evident the link to the competitive priorities.
Order winners and competitive priorities are in trade-off: it’s necessary to focus on one / maximum two order winners and achieve qualifier level on the other dimensions;
Order winners and qualifiers may change in time: what today is an order winner maybe tomorrow will be evaluated differently or, what today is a unique order winner tomorrow is evaluated as a "must have" characteristic that every competitor shows.
The different stages in the product life-cycle have a major influence on the perception of order winners and qualifiers;
What is less evident is how the investments in IT technologies can support and sustain Manufacturers achieving their targets while building their positioning around competitive priorities and order winners and qualifiers.
The role of Digital Sales technologies to achieve and sustain Competitive Advantage
A DCMS system is intended here as the capability to promptly, effectively and efficiently store and distribute relevant content for sales and marketing purposes.
A CPQ system is intended here as the capability to configure the right offering (product/order configuration), determine the right competitive price and produce a high-quality quote up to the conversion of the quote into a binding contract.
Both technologies can be a major enabler and have major impacts to achieve and sustain competitive advantage around different types of order winners and order qualifiers. It is evident that a DCMS and CPQ are expected to impact on the "top line", but at the same time they may enable important optimization in the utilization of sales resources, as summarized in the Exhibit below.
Let’s focus now on each possible group of order winners and qualifiers to see how CPQ and DCMS may contribute.
Quality
An important order winner in the 80's and early 90's, quality is now mainly considered a must have and thus to be classified as an order qualifier. This does not mean that quality has become less important: this means that quality is expected but quality alone - in most cases - is not enough to win a deal.
Being a must have attribute, quality at source must be perceived not only in the final products being delivered, but a qualitative customer journey should start from the initial interaction when sales are involved with a prospect to close a deal. This implies:
sharing to the customer professional company presentation, effective product catalogs and exhaustive technical data sheets. The easiest the research of the right document in front of a prospect, the more effective is the impression that the supplier is structured in high quality process: try to imagine a sales rep who frantically searches in a huge paper file the technical data sheet requested by the technical buyer, and then imagine a sales rep of a competitor that can accommodate this request with few clicks on his tablet;
providing a smooth configuration and quoting process, eliminating configuration and quote inconsistencies and errors. When the process is carried on in interactive face to face meetings with customer, the sales rep must show the capability to smoothly come to a desired configuration and pricing providing a qualitative journey to the customer. Imagine a sales rep that uses the first visit to collect the inputs, takes notes, then goes to the office, calls a technical sales support, try to configure a product, then - as some requirements have not been captured clearly - calls again the customer for clarifications..... while time ticks away and days of efforts got wasted. Then imagine again the fancy competitor's sales rep that can run his CPQ on his tablet and involve the customer in the product configuration in real time at the first meeting.
providing a good quality quote as output, with exhaustive documentation of scope and service level agreed, and technical attachments: a good quality quote helps reducing the necessity for amendments in the future.
Making effective presentations, providing a great user experience and delivering quotes and documentation in a professional manner is a demonstration of the attention to the details and is our "business card" for quality that shall be expected when asked to fill an order.
The efforts to achieve the above quality objective increase proportionally with the increasing breadth of the product catalog, becoming almost impossible to be handled - if not supported by a solid DCMS and CPQ - in complex environments like MTO / ATO / Mass Customization. CPQ and DCMS technologies provide rooms for simplifying this complexity along the entire sales cycle, reducing process variability through standardization and thus – as per the Six Sigma approach– enabling for higher levels of quality:
by standardizing and assuring that the content that can be presented to customer is always updated and available and assuring that sales reps use the official documentation prepared by the Marketing team, avoiding draw-back on the brand and corporate identity;
by incorporating technical rules and commercial policies in the CPQ tool, reducing variability and harmonizing behaviors in the configuration, quoting and contracting process;
by enabling a better control of the process both “ex ante” (by incorporating policies and rules in the tools) and “ex post”, by enabling control steps and approval workflows;
by decoupling the complexity to handle many product codes (each variants of the end items) into a streamlined catalog of main products configurable in modules and options with a modular approach driven by rules;
by assuring a perfect linkage between quotes and contracts that are automatically updated with the quote data leveraging templates already approved by the legal department.
It is important to note that while higher level of quality can be achieved, at the same time cost can be reduced as these benefits are accompanied by increased level of productivity and reductions of wastes.
Data quality is an important enabler for a smooth CPQ journey: CPQ exchange many data from/to ERP and it is crucial to establish a robust integration with ERP (Modular Planning BOM, Price lists, Order intake, etc.) and a robust data governance to assure the quality of the master data used in the process.
As shown in Exhibit below, DCMS and CPQ enable the adoption of the "Five Ss" principles of Lean within the sales process.
Five Ss: Five terms beginning with 'S' used to create a workplace suitable for lean production: sort, simplify, scrub, standardize, and sustain. Sort means to separate needed items from unneeded ones and remove the latter. Simplify means to neatly arrange items for use. Scrub means to clean up the work area. Standardize means to sort, simplify, and scrub daily. Sustain means to always follow the first four Ss. Sometimes referred to by the Japanese equivalents: seiri, seiton, seiso, seiketsu, and shitsuke [5].
Speed & Flexibility
Flexibility in Manufacturing is often intended as the ability for a supply chain to accommodate – at acceptable costs – for sudden changes in demand (volumes and product mix). Customer values supplier flexibility to accommodate for change in demand forecast, commercial policies for cancelling order and for returns, but also for accepting unplanned orders in their frozen zone. It's clear that this kind of flexibility is mainly connected to the planning and execution of operations, and the ability to adjust the capacity and rescheduling the load on work centers quickly. Here a major contribution is expected form the ERP/APS.
But coupled with flexibility, customers also value for speed for many reasons, the main being that shorter purchasing lead times allows for reduction of inventory carrying cost.
For Manufacturers that focus on speed as a major order winner, it is important to exploit this characteristic from the very beginning of the customer journey. A customer starts evaluating the speed of a potential supplier at the first interactions, when a supplier is inquired to provide a quotation for a given RFQ. A supplier is expected to perform at its best when it is called to convince a potential customer to award a contract: poor performances at this stage may generate the perception of a risk of getting even worst performances when it comes to deal with orders fulfillment.
CPQ and DCMS technologies offer room for improvement of speed in the sales process in different ways:
using DCMS, sales reps can avoid wasting time to find the right documentation or, even worst, to self-produce documentation simply because they have not been able to find the right source. Updated documentation can be easily pushed by Marketing department in real time to the expected audience;
CPQ technology dramatically reduces the configuration, quotation and contract generation lead time by providing powerful tools and functionalities to sales reps: guided selling, automatic configuration, reuse of preferred or saved configurations, content management, faster approval process, quick revision and amendment of a quote, compliance check, automatic conversion of a quote into a contract and into sales order, etc. All these aids and functionalities help reducing the process lead times from days to minutes (and sometimes to seconds). When CPQ is supported in mobile apps then the show can be run directly in interactive sessions with the buyer; and when integrated with bio-metric digital signature closing a deal in a face to face meeting can become even faster;
Embedding complex rules within the CPQ reduces the risk of mistake and rework time and other low value-added activities.
Speed in the sales process becomes crucial when it comes to deal with changes in the customer requirements. Let's imagine a customer issuing an RFQ for a given product configuration and suddenly changing his requirements one day before closing the bidding process. If the complexity of the configuration and quoting is not supported by technology, changing a quote can take a long time: change the configuration; validate the configuration; re-run and approve the pricing; amend the quote document, etc. A competitor with a well-configured CPQ solution can reduce its response times from hours into minutes getting a huge competitive advantage in situation like this.
Again, the benefit of CPQ and DCMS technologies to achieve higher level of speed and thus higher order conversion rates is directly related to the manufacturing environment complexity.
Costs
A cost-based strategy should pursuit both direct and indirect costs optimization in every process, increasing productivity and value for the customer by eliminating:
any form of waste ("muda"),
any non-value adding process or overburden ("muri")
any form unevenness or variability ("mura").
These principles can be applied not only to the factory and shop floor, but to every process in the value chain including the supporting activities. The sales cycle shall not be an exception.
CPQ and DCMS technologies help reducing muda, muri and mura in many phases of the sales process, increasing productivity and reducing the unit cost per dollar sales.
In short: less time spent on configuration and review with customer, less time to approve, less meeting and less travels to close a deal.
The increase in productivity can be extremely high: activities requiring many hours of work, idle times and inefficient processes can be converted into seconds per quote. Those savings can be easily compared to the subscription fees to determine the overall return of the investment.
Improvement
The potential of DCMS tools can be widely used to trigger continuous improvement processes. For instance:
while with paper-based marketing documentation only major changes and revisions triggers for a reprint (due to its cost), DCMS enables for continuous improvement of the documentation as the delivery and dispatching cost are marginal;
it allows for rapid sharing of procedures and best practices;
it can trigger improvements through data collected via surveys of customer visits;
it helps reducing training costs as training material can be always accessible to new sales reps.
The continuous improvement of the product catalog and changes in the options available is also drastically simplified with the adoption of CPQ technology. For instance:
changes in the variants and the product catalog can be automatically embedded in the configuration rules to be available in real time for the sales teams, minimizing the needs for incremental training;
contextual analysis of quote data enables quick identification of possible improvements to be made to the combinations of variants available for configuration.
Brand / Corporate Identity
Now that we have walked through the five competitive priorities, let’s have a look to the other sources of order winners/qualifiers, starting with the Brand/Corporate Identity.
For Manufacturers focused on achieving a competitive advantage by differentiating their Brands or their Corporate Identity, every step of the customer journey must show adequate levels of excellence, starting from the initial interaction with the customer. The capability should demonstrate:
responsiveness: lack of responsiveness in the CPQ interaction (where the attention to customer is expected to be at its maximum) can put at risk the perception of a Brand built and supported by the quality of the product: an excellent product (order winner) but not supported by adequate supporting processes (lack in order qualifiers);
quality: the customer journey must be qualitative since the very beginning. This is a must for competitive strategies where the Brand and the Corporate identity is a synonym of quality: high quality materials, high quality product, high quality aftermarket services... requires high quality pre-sales approaches;
control: ex ante with adequate policy-based behavioral control and ex-post to enable corrective actions and continuous improvement of processes;
costs at an acceptable level to achieve the above level of excellence.
It is evident how CPQ and DCMS enable the possibility to pursuit all the above dimensions in the lead conversion process.
Product ranges and supporting services
Manufacturers that decide to compete offering a wider product range than competitors do, are aware that they must handle higher level of complexity: the wider the product and service catalog, the more complex the supply chain and sales cycle management is. A wide catalog and the number of possible variants and combinations and bundles increases the complexity for the sales team to configure e presents to customer the possible offerings and to make a quote.
CPQ & DCMS technologies contributes greatly for simplifying this kind of complexity:
CPQ, when built around a "Modular Planning BOM" with options and attributes, greatly simplifies and streamlines the catalog reducing the cost of complexity in the sales cycle;
the use of configuration rules (inclusion/exclusion/quantity, etc.) guides the sales reps in the configuration of complex products, streamlining the navigation of a large options catalog;
CPQ also helps sales reps to navigate within the bulk of complex commercial policies needed to control the process, as the policy can be applied automatically to the pricing and to the quote.
At the same time, the wider the product range, the higher the costs of managing and distributing specific sales content for each product line if not supported by adequate DCMS technology.
The contribution of CPQ becomes even more crucial as Manufacturers are moving toward increasing level of “servitization” of their offering:
inclusion of aftermarket services
opportunity to activate extended warranty options
access to financing services options
up to the extreme of result oriented product-service-system agreements where the buyer is paying to get the performances of the products with subscription based commercial model without getting the ownership of the product.
Dependability
Dependability, intended as resilience at fulfilling the customer commitments, identifies the ability of the manufacturer to meet and exceed the operational standards agreed with the customer:
delivery schedules;
level of quality;
service level agreements;
aftermarket services;
etc.
It is evident that the main sources of competitive advantage to compete in terms of dependability shall be identified into operations and supply chain. But the basis and criteria to define the targets should be set at the deal shaping stage (the definition of the proper standards of performance committed to the customer; how those performance will be measured; penalties for failures, etc.). These expectations, the proper configuration, costing and pricing of those standards must be captured in the quoting process. A fairly stated and clear contract is the starter for a transparent relationship and a dependable service.
A well designed CPQ framework should keep in consideration the underlying processes that helps the sales team making achievable commitments (e.g.: integrate the ATP check in the quote confirmation; select appropriate T&C according to the shipping location, etc.).
Product design
The complexity, duration and efforts for the product design are strictly correlated to the manufacturing environment:
in an MTS environment the design of the product is done and standardized well before receiving an order: apart setting the quantity of the order, defining the place of delivery and setting the terms and conditions, there is no really demanding and complex configuration process in place here;
in MTO / ATO and Mass Customization environments the customer can chose within many options and variants, with those variants and options being typically defined and designed before receiving an order: in this kind of environments the benefit of CPQ & DCMS reaches its maximum extent as they simplify widely the complexity of the configuration process;
in ETO each product has its own specification as it is largely customized and engineered on unique customer specifications. The design is part of the delivery lead time and it is executed when the order is won as part of the order fulfillment cycle. In this context the principles of project estimates apply to the quotation process (e.g. similitude to similar kind of projects; driver-based estimates, etc.).
The contribution of CPQ technologies varies within each manufacturing environment. This will be the focus of the next article of this series.
Summary
We have introduced around the competitive advantage and the competitive priorities that must be set in the operations and functional strategy
We have described how the competitive advantage must be translated into order winners and qualifiersWe have analyzed the contribution of DCMS and CPQ technologies at building and sustaining competitive advantage around competitive priorities and order winners and qualifiers.
In the next article of this blog series we will analyze deeply the influences of each manufacturing environment on the choice and set up of the CPQ.
Bibliography and Notes
[1] Porter, Michael E. (1985). Competitive Advantage. Free Press.
[2] Krajewski, Ritzman, & Malhotra, 2013
[3] T. Hill, Manufacturing Strategy-Text and Cases, 3rd ed. Mc-Graw Hill 2000
[4, 5] The APICS dictionary, 15th edition
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very interesting article. nice reading