Beyond Sales: Why Manufacturers Need to Look at CPQ through a New Lens

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By Lou Washington

You’ll learn:• The two missions of CPQ

• Five back-end processes where business breaks down

• How business can rethink CPQ implementation to affect these processes

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Start a conversation about CPQ at a business meeting andchances are colleagues willassume you are going to talkabout selling and sales tools.

Isn’t that what CPQ is? Isn’t it a system that preventsinaccurate quoting, impossibleproduct configurations or flat-outmaking product promises to thecustomer that your enterprisecan’t keep?

The short answer to the question is yes; that is part of CPQ. But, the fact is, CPQ goes way beyondassisting the sales rep with pricingand configuration problems.

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The Two Missions of CPQConfigure-price-quote (CPQ) technology performs twooverarching critical missions for manufacturing companiesand their customers.

The first mission of CPQ is to Get the Right Product. Thismeans, in a high-level sense, that the sales rep and thecustomer are of a single mind in terms of a product beingquoted, sold and manufactured. It means you are sellingwhat you meant to sell and buying what you meant to buy.This is what most people think of when they hear CPQ.

The second mission of CPQ is to Make the Product Right.This is where CPQ moves beyond the point of sale. It hashuge implications for the manufacturer and for the overallsatisfaction of the customer. This is a side of CPQ that hasbeen previously overlooked, but is perhaps thetechnology’s greatest utility.

Manufacturers are starting to see CPQ beyond the pointof sale—something more akin to a strategic utility. Butwhat’s driving this new view of CPQ?

How Business Slips through Process CracksThere is ample opportunity between the conclusion of thesale and the delivery of the product for an order to getmessed up. And even if the order is fulfilled to the customer’sexpectations, there are still areas of efficiency and productivitythat manufacturers need to examine to ensure they aremaximizing the value of every sale. These issues include:

• Seeing valuable engineering, product management oroperations managers spending hours every week vettingorders in lieu of doing their own jobs.

• Unintended interruptions of production schedules toaccommodate troubled, inaccurately specified jobs thatrequire special parts, supplies or manufacturing processes.

• Wasted inventory and excess supply-chain expenses dueto misunderstood specs or inaccurate configurationsand requirements.

• Excessive expense on returns, field repairs andmodification of defective products delivered to customers.

A recent study estimates that engineers alone spend almosta third of their time doing non-productive work. Engineersare too valuable to waste on these types of activities. Thereare considerable lost-opportunity costs associated withengineers who are checking orders instead of innovating.1

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When you look beyond the sales execution element, youwill see how CPQ is now able to perform as a:

• Resource that liberates back-office, expert personnelfrom the drudgery of checking orders and vetting

• Planning tool that gives manufacturing a heads-up onplanning and scheduling

• Facility to streamline the supply chain and control inventory

• Way to combat waste in the form of unfinished goods, factory returns, expensive product recalls andexcess inventory

• The primary system to ensure customer satisfaction

Additionally, companies are relying on CPQ as the criticalelement in implementing global strategies because itprovides scalability control for pricing, product content andformat over multiple channels. CPQ enables the mining ofdata useful to decision-makers in the product-planning andmanagement areas. This is why CPQ usage, adoption androles are growing at an accelerating rate.2

There is much more to CPQ than helping sales reps quotethe right price. There is more to it than making surebicycle tires aren’t ordered for cement mixers and pricedas automobile tires. There are five critical ways CPQ canimpact the organization beyond sales.

1. Making the Product RightManufacturing 4.0 or Advanced Manufacturing is driven by technology and data. Together these two elementscombine to deliver on the promise of the lean, productive, demand-driven and customer-responsivemanufacturing enterprise.

CPQ is where the data begins. The data comes from thecustomer, is guided by sales and it feeds themanufacturing process the information it needs to Makethe Product Right. CPQ acts as a proxy for engineering,finance and manufacturing during the earliest phases ofthe process.

Making the product right starts with Getting the RightProduct. You can’t gather parts and supplies or scheduleproduction cycles and logistical arrangements for a finishedgood without accurate, correct product specifications.

Making and delivering a product that is 98% correct isfailure. The customer will not be satisfied with a well-madeproduct that does not fully address their needs.

Consider Fassi Cranes. Fassi makes custom-made cranes foruse all over the planet. It is an extremely complex, highlyvariable (30,000 configurations) product. Using CPQ, Fassi isable to achieve 100% configuration accuracy. They are ableto instantly move configurations from the field directly intotheir ERP 24 hours a day with perfect accuracy.

Making and delivering a product that is 98% correct is failure.

By ignoring these issues, manufacturers arejeopardizing future business opportunitiesand putting profit margins at risk. It’s thisgap between front- and back-end processesthat businesses need to bridge, and theyshould be looking to CPQ to do it.

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CPQ is the bridge between customer desire and theefficient and profitable making and delivery of high-qualityproduct in fulfillment of those desires. CPQ does this by:

• Eliminating “illegal” or improper configurations frombeing created and entered into the ordering andmanufacturing process

• Gathering all specifications, BOMs and WBSrequirements in advance. This eliminated surprises forengineering, production scheduling, shop floor, supplychain, distribution or aftersales support

• Fostering efficiency and lean practices in relation toinventory levels, supply-chain interactions andproduction scheduling

• Facilitating reduced time-to-market for new products bysupplying better data and inputs directly from the customer

2. Order Accuracy Driven by CustomerWants and NeedsCustomers have specific expectations. These includeproduct functionality, reliability and performance, deliveryrequirements and pricing. Right there in the customer’soffice, the sales rep is wired into the configuration andpricing engine. Together, the customer and the sales repwalk through the specifications. These are documentedand plugged into the pending sales order.

Getting this right is where being customer-driven starts,and that is really what being “lean” is all about. Deliveringvalue to your customer is delivering what the customerwants, when they want it, how they want it and at a pricethat reflects their perception of that value.

CPQ accomplishes all of this this by:

• Rationalizing the customer’s view

• Identifying and Isolating customer value drivers

• Eliminating order-entry errors

• Equipping the sales rep with specialized internalknowledge to ensure relevant and proper product-selection choices

• Bringing guided-selling functionality to bear to facilitatethe identification of specific customer needs and desires

• Eliminating internal bottlenecks associated with order-entryerrors, improper application of product solutions andgetting customer inquiries and questions quickly answered

• Helping the buyer visualize the product solution prior tocommitting to an order

Defining lean: “A lean organizationunderstands customer value andfocuses its key processes tocontinuously increase it. The ultimategoal is to provide perfect value to thecustomer through a perfect valuecreation process that has zero waste.” – Lean.org

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All sales channels can benefit from this technology.Indirect sales can use CPQ with the same facility and resultthat your direct sales force experiences. Distributors anddealers value reliability and consistent performance on thepart of suppliers. CPQ ensures loyalty and betterperformance from your indirect channel because you are areliable partner that is easy to do business with.

This is where CPQ really delivers value in the back office.Before CPQ, engineers, product managers and productionmanagers would need to review each order beforeaccepting. Not only does this delay the processing of thecustomer’s order, it means these resources are notperforming the work they are paid to do.

For PANalytical, a European-based analytical instrumentmaker, streamlining this process saved them €180,000annually. Andre Balogh de Galantha, Business ImprovementManager for PANalytical, stated, “Our aim is to have ‘zerotolerance’ for technical errors. …” CPQ made this goalattainable and saved substantial money as well.

3. The Price Is RightPricing has the same critical impact. If you average 96%accurate pricing over the course of a year and if you areworking with a 20% margin on list, your 96% accuracy iscosting you $4 for every $20 of margin. A four-dollarpricing error translates into a 20% reduction in margin; youcan’t afford that. Getting the price correct is essential tomaking your profit number.

In real numbers, Carrier Refrigeration used CPQ to cut itsquotation errors by 50%. According to Alexis Amblard,Controller for Carrier, this alone resulted in an annualsavings of €250,000.

By integrating the pricelist with the configuration system,the sales rep is able to provide a firm quotation for thecustomer for their specific finished product complete withthe configuration-driven pricing changes. This ensures thatthere will be no surprises when the invoice hits thecustomer’s payables desk.

You and your customer will know that the price is right,and you will know why the price is right. Accurate pricingdriven by customer value perception is reinforced with

CPQ regardless of how your product is priced. Value canbe perceived by product functionality, usage level, usageconditions or any number of variables. CPQ will supportany pricing model.

Pricing must support profitability, customer satisfactionand the delivery of value. CPQ does this by:

• Nurturing trust on the part of the customer byeliminating pricing mistakes

• Handling complex pricing such as CTO and ETOproduct projects with accuracy and speed

• Making sales more efficient and less likely to incurunnecessary costs

• Freeing up internal resources such as engineering andproduction operations by building their expertise intothe CPQ technology

• Eliminating wasted actions by leaning out the front-end process

The link between pricing and value must be evident to yourcustomer. When these two elements are not linked, thepricing issues are more likely to turn into an arm-wrestlingmatch designed to obtain discounts and pricingconcessions. These discussions become moot in light oflinked value and price.

Carrier Refrigeration used CPQ to cut its quotation errors by 50%.

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4. Quality Built into Products and ProcessesKnowing what is to be built before initiating the buildingprocess ensures that there will be less waste and fewerdefects during the production process. CPQ enables thisby defining acceptable tolerances, unique usagerequirements, capabilities and limits in advance.Production defects are reduced or eliminated by providingadvanced notice to the production line that will allow forthe accommodation of unique needs associated with aspecific project.

The customer’s definition of quality is also understood inadvance. This is essential to a positive customerexperience. You can’t satisfy a need that is notunderstood. The customer’s needs, expressed in terms ofquality requirements, should never be a surprise. Theseneeds are as important as any product spec or otherexpectation the customer may have.

CPQ facilities and enables quality by building productsthat are perfect and preventing the construction ofimperfect products. This is accomplished by:

• Connecting and automating the entire sales process

• Delivering accurate and complete data to CRM, ERPOrder Management and Production Scheduling inadvance and in accordance to contractual expectationsof the customer

• Streamlining approval and vetting processes to eliminatewaste and costly, time-consuming sign-off processes

• Eliminating material waste from defective builds

• Promoting lean inventory practices to prevent cash frombeing tied up in shelf inventory

• Assuring products are delivered on time and inalignment with customer expectations

• Eliminating expensive field fixes and factory returns bygetting it right the first time

Quality is a word that almost every company loves to tossinto their promotional discussions. CPQ is the manifestationof real quality in practice, production processes, productperformance and customer expectations.

5. Delivery – When, Where and HowWhen the product rolls off the assembly line, the job is stillnot done. There is still the matter of getting the productinto the customers’ hands. Most customers will havespecific needs in this area.

All special delivery requirements as defined by thecustomer should be entered into the order and againunderstood well in advance. This is another role for CPQ.

As finished goods are completed on the product line,packaging and delivery are adjusted to meet thecustomer’s requirements. These details are all part of thecustomer experience, and it is indeed a place whereotherwise flawless performance can fall down and destroya positive customer experience.

Nothing will destroy a customer relationship faster thanignoring deadlines, delivery hour requirements andspecifics regarding delivery location. A perfect product isno longer perfect if it is not delivered as required.

CPQ helps to ensure that this critical end-of-process taskis performed flawlessly by:

• Including packaging specifications in the sales order andcommunicating those requirements to all interested parties.

• Including specifics regarding delivery locations.Delivering a large piece of machinery to an executivesuite will ensure that you get the kind of attention youdon’t want.

• Making sure that delivery hour restrictions are well understood and communicated through yourlogistics operation.

Delivery is part of quality, but it is too often left out of theplanning and order fulfillment processes. It’s like havingthe proper follow-through in a golf swing. The customerwill not see it as an unimportant detail. It is critical to thesatisfactory completion of the initial stage of the sale.Don’t hook or slice the delivery.

Understanding the customer’sdefinition of quality is essential to a positive customer experience.

A perfect product is no longer perfectif it is not delivered as required.

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Takeaway: Limited Views Limit GrowthCPQ impacts business enablement far beyond the confinesof helping sales match the right price to the right product.CPQ facilitates lean, efficient manufacturing by eliminatingerrors. It enables Sales to spend more time closing businessand less time chasing expert knowledge around theenterprise. CPQ ensures that customers have a positive andrewarding experience when doing business with yourcompany. Collaboration across the entire process will notjust happen on its own.

Mary Shaklett, President of Transworld Data and anauthority on marketing and technology, calls for two specificrequirements to instill seamless cooperation between frontand back office: collaborative planning and an orderfeedback loop. CPQ provides both of these requirements.3

CPQ is, of course, useful in its traditional role, but it cando so much more when it is utilized across the entirebusiness-process spectrum. By only limiting CPQ to asales role, companies looking to utilize the technology, orthose needing to bridge dangerous gaps in themanufacturing process, are only limiting themselves, theirbottom line and their ability to grow.

Lou WashingtonSenior Marketing Manager, CincomLou has had multiple roles in his 30 years in themanufacturing industry, including product management,field sales support and customer implementation, as wellas pricing, contract management and product security inthe software business. He currently works with Cincom,offering his expertise and perspective on issues relevantto complex manufacturers and enterprise businesses alikevia the Cincom blog and other popular trade publications.

About CincomSince 1968, Cincom has helped world-leading companiesby delivering enterprise applications and services thatenable them to win more business, operate moreefficiently and deliver as promised. Cincom is theMicrosoft Dynamics® Global Strategic Partner forManufacturing and a Microsoft® Global IndependentSoftware Vendor (GISV). To learn more about Cincom, visitus on the Web at www.cincom.com.

Specific actions recommended will vary withalmost every company, but a few initial commonsteps would be to:

• Measure engineering and product-managementeffort related to order review

• Measure inventory waste in terms of unfinishedor returned goods

• Measure expense related to installed ordelivered product that’s found to be defectiveor unsatisfactory

Cincom, the Quadrant logo and Cincom CPQ are trademarks or registered trademarks of Cincom Systems, Inc. Microsoft and MicrosoftDynamics are registered trademarks of Microsoft Corporation. All other trademarks belong to their respective companies.© 2015 Cincom Systems, Inc. FORM CPQUS1601016 12/15 Printed in U.S.A. All Rights Reserved

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1. Reducing Non-Value-Added Work in Engineering, Tech-ClarityPerspective, 2014, Tech Clarity, Inc.

2. Louis Columbus, Why CPQ Continues to Accelerate, April 12, 2015,www.forbes.com

3. Mary Shaklett, Foster Seamless Cooperation between Sales andOps, Tech Republic, September 11, 2014

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