The Practical PLM Newsletter - Issue 9, September 2016
/Pursuing the Promise of Product Lifecycle Management
Issue 9, September 2016
IN THIS ISSUE
- Introduction - Who’s Using CPQ?
- Business - What’s the Value of CPQ?
- Best Practices - Integrating CPQ and PLM
- Application - BOM CPQ: An Interview with Mark Keenan of Technicon
Introduction
Who’s Using Configure-Price-Quote Solutions?
Part 3 of a 3 Part Series
Making the Customer Experience Effortless
Most of you as readers work at engineering and manufacturing companies. At first glance of the title, you may think we’ll be talking about the various industry sectors that are using CPQ. Yes, in part we are. But, the reality is that a significant number of users outside these companies are leveraging CPQ … prospects, customers and representatives of engineering and manufacturing companies. For example, companies like Dell.
During these past few months, we have talked to numerous end-users, consultants and vendors. Interestingly enough, the discussions are shifting from the internal and operational benefits to what CPQ means for the customer. Paradigm shifts can make the customer experience effortless. We contend that if you do this, your company will realize the many promises of CPQ.
This issue concludes our three part series addressing CPQ and PLM. Three parts were necessary to explore the many aspects of CPQ … an exciting capability that can’t be ignored in the quest for competitive excellence. But, you have to be able to trust the product data referenced by CPQ. That’s where PLM comes in. It’s a tag-team that further amplifies the importance of PLM.
In this spirit, we present the following topics.
In the Business section, we suggest Key Performance Indicators to measure the value of CPQ. As the expression goes … “You can’t manage what you can’t measure.”
In the Best Practices section, we explore CPQ and PLM integration alternatives and their respective implications. Previously, in part 1 of this series, we proposed running CPQ on top of PLM. What does that look like? Is the PLM environment just a repository? What about taking advantage of PLM capabilities such as workflow, document management and more?
Finally, the centerpiece of this issue is in the Application section. Mark Keenan, president of Technicon, a software provider of CPQ, chatted with us. He has spent the last 16 years helping customers achieve the benefits of CPQ technology. Here, he poses practical insights and perspectives. One comment in particular will catch your attention … but you’ll have to read the interview.
BUSINESS
What’s the Value of CPQ?
Identify Value through Key Performance Indicators
In part 1 of this series, we characterized the value of CPQ. We referenced an article that appeared in Forbes magazine, which did a great job of identifying the functional and operational benefits that a company could gain from CPQ.
However, we wanted to drill into this subject further and translate these benefits into specific metrics. As the expression asserts … “you can’t manage what you can’t measure.”
To do this, we have identified five key performance indicators (KPIs) that we believe represent the essence of CPQ. Each is readily accessible and can be extended to develop an ROI.
CPQ KPIs
1. Number of Quotes
As you will read in the interview with Mark Keenan, companies have been able to significantly increase the number of quotes by leveraging CPQ capabilities. Assuming the “close ratio” remains the same, generating more quotes will generate more revenue.
For this KPI, consider looking at historical data assembled over various periods. We suggest varied time spans to account for seasonal trends and activities in your industries.
2. Average Quoting Cycle Time
This metric might include the activities in engineering, manufacturing, planning, purchasing, etc. It is somewhat related to the first KPI. The focus here is on helping you understand what’s taking place within the various functional areas that contribute to preparing a quote.
Consider a KPI that is comprised of the individual processing periods consumed by the various functional areas.
3. Quote Accuracy
At first glance, you might ask how such a KPI is assembled. There are several ways to do this.
In the quoting process, the KPI could be related to the number of revisions needed before a prospect makes a buying decision.
The other end of the process is the actual manufacturing and shipment of the order and the resultant scrap, rework and additional technical support/infield service remediation work required. You would expect CPQ to enhance accuracy. Hence, the measure would be improvements in these areas.
4. Conversion Rates
Do quality and completeness drive conversion improvements? We think so. Thus, this KPI is a vital counterpart to the first KPI. Producing more quotes isn’t necessarily better if the conversion rate suffers.
It’s reasonable to assume that to produce a quote as quickly as possible, the quality and depth of detail have room for improvement. By leveraging CPQ functionality, pre-developed and recurring content associated with each product option and the variant is “cut and paste” as needed. Thus, data reuse is optimized, and insights derived from lessons learned can be readily incorporated in each quote created, thereby improving the quality.
5. Margins
We contend that this KPI coupled with KPI #3, Accurate Quotes, goes hand-in-hand. As the cost and pricing attributes are being developed and refined during the setup of a CPQ solution, an opportunity exists to structure product configurations that reflect consistency and repeatability in the way they are manufactured and shipped.
This metric can help drive the quality of the data being used to support the quoting process.
Bottom Line
We like these five KPIs because they all have a direct and noticeable impact on the P&L statement. They are driving both improving revenues and reducing the cost-of-goods-sold. And, of course, they ultimately contribute to profitability in no ambiguous terms.
Why then would you not implement a CPQ solution? Someone … argue with us!
BEST PRACTICES
Integrating CPQ with PLM
Data Synchronization in Real Time is Critical
In part 1 of this series, we stressed leveraging PLM as the underpinning for CPQ. In this last part of the series, we want to explore what this means and identify the related implications.
As a quick refresher, we have identified three primary categories of CPQ functionality. They include:
- Pricing engine
- Product configuration (BOM configurator)
- Design automation
A common need is to manage data and support processes. The data portion includes product data, their rules/options/constraints and associated documents such as 3D CAD used in the design automation aspect of CPQ. For processes, this implies mechanisms to move a quote through the various functional areas of the business such as engineering, finance, manufacturing, planning, purchasing, etc. Together, managing data and facilitating processes are the very heart of PLM.
Then, why not just build out CPQ fully integrated into a PLM platform? It turns out that CPQ functionality has matured over the past couple of decades and that vendors have developed significant vertical capabilities for their niche markets. There are over 50 vendors playing in the three industry segments we noted above. Also, there are strategic alignments such as relationships/integrations with Salesforce, the various ERP suppliers, CAD vendors and so on.
Hence, integration between PLM and CPQ amplifies their strengths and leverages what each does best. So what does this mean?
What’s Being Done Today?
Most CPQ platforms are self-contained. They have their own database structure and associated processes. Yes, there are some that are built on an ERP platform, but most vendors want the ability to be independent and not to be reliant on somebody else’s stack.
To capture available and released part/product data, CPQ solutions rely primarily on one-way data import operations. That is, product data are periodically kicked out of an ERP or PLM solution and imported into the CPQ environment. Can this work? Sure. If product data doesn’t change very often, this approach can make a lot of sense. In fact, this would be considered the simplest of the “integration” options.
Integration Options
We just identified a simple integration option – data import. In many cases, this involves exporting data from an ERP or PLM solution into a spreadsheet. A user might glance through the data to ensure some level of “quality” and then commit the data for import.
The import option is devoid of any real-time awareness of activities or changes that may be occurring on the data side. The most notable is when a part is in the change process and should no longer be included in future orders. The actual release may not be affected for days or weeks while orders are being placed that include a part soon to be obsoleted.
This later use case builds justification for a real-time integration. The pre-released and released product data are simply an extension of the CPQ environment.
Fortunately, the ability to achieve a real-time integration is very doable with proven technology available now.
APPLICATION
Bill of Material Configuration and CPQ
An Interview with Mark Keenan, President of Technicon
“But, probably the most important thing we’ve noticed over the last couple of years is that the manufacturers have focused on what they call the “customer experience.”
PPLM: Mark, give us a little background about you and Technicon.
Mark: I am an engineer by education with an electrical engineering degree from Georgia Tech. Right after Georgia Tech, I joined Intel Corporation doing sales and marketing and then later managed the business development group for Intel.
About sixteen years ago, I joined Technicon. At that time, we came out with one of the leading CPQ products for large manufacturers in North America. My background revolved around some of the aspects that can be associated with CPQ such as CAD and mechanical engineering. By selling Intel products, I also got a good feel for the complexities and issues in generating quotes and the proposal process for manufacturers. Since then, for the last sixteen years, we have been deploying systems for very large manufacturers in North America. Companies like Eaton, Borg Warner and Phillips are Technicon customers. Today, Technicon is a leading CPQ provider in North America.
PPLM: Mark, we have heard numerous terms used to describe what you and the industry are doing. Talk about the terms that folks might latch onto.
Mark: Yes, indeed there are different terms. CPQ, which stands for Configure-Price-Quote is the most commonly used term. Other terms we use a lot are Design Automation and Product Configuration. Those particular terms are all related. However, there are important differences between Configure-Price-Quote, Design Automation and Product Configuration.
You’ve talked about CPQ in your previous newsletters, so I won’t drill in on that. But, the term Configure-Price-Quote typically suggests a solution that enables sales people to “configure” order requirements. A proposal is developed and often will be routed through an organization before it is delivered to the customer.
The term Design Automation is fundamentally associated with CAD Automation. That is, the requirements specified by a customer are processed and used to modify the actual geometry, material properties and behavioral characteristics. I noticed you interviewed Scott Heide a few weeks ago. Scott’s company focuses on design automation technologies. Interestingly enough, these days, many systems deployed combine both CPQ for quoting and design automation functionality. I was mentioning Scott because his firm, Engineering Intent, and Technicon often deploy systems at the same time that have both of those elements and the same system.
Product Configuration tends to mean systems that are designed for end-users. By that I mean, browser-based systems provided by Dell, Nike and automotive vendors to empower end users to configure a computer, sneaker or maybe a car.
PPLM: That is a nice way to describe the segments. Let’s talk more about the CPQ area, not the Product Configurator, but the CPQ functionality. What are customers using that for or applying it to in their businesses?
Mark: First, CPQ is automating the process of generating a quote or proposal, and as the name indicates, there is configuring that goes on. By selecting the different aspects of a product such as its options and variations, the CPQ solution will crank out possible configurations.
“Price” means, producing a price or monitoring the pricing as it goes through various configuration options. The “quote” refers to generating the actual document or proposal.
Let me drill in further on the “configure” portion of this. For example, you could have a packaging product line that can be configured into hundreds of different options. As the configuration is being developed, that CPQ solution could be used to optimize performance, pricing, weight, etc. For example, a salesperson may say, “Optimize this quote, so it’s the least costly quote.” In another example, a customer might want a quote to deliver the highest throughput on a manufacturing line.
The last aspect of what CPQ is doing for our customers is what I call Life Cycle Management. A manufacturer might allow sales people to quote products. However, certain aspects of the quote might trigger reviews or special processes such as a credit review for new customers, the need to spec out special tooling, or to get purchasing feedback for long-lead times.
PPLM: You’ve stated most of your comments in a sales context. It would seem to me that CPQ could be used elsewhere in a business. Are folks using CPQ for other activities beyond sales such as new product evaluation or engineering?
Mark: You know they could, but I see that less often. But, perhaps somewhat related is the fact that many customers use it with their distribution or representative channels. This tactic is ideal when there are complex configuration options and consistency is critical.
PPLM: Let’s move into implementation considerations. Highlight for us the key steps that you and your customers go through to establish a CPQ capability.
Mark: One of the nice things about CPQ is that many solutions today offer functionality pretty much out of the box. Of course, there are times when professional services are required. Some of those areas include application integrations with ERP or CRM systems, training, and loading customer product data and their rules. We do follow a typical deployment methodology, going through different stages of the deployment, doing a defined proof of concept and then a deployment phase.
PPLM: When you say it’s “out of the box,” it almost sounds like there’s some kind of wizard in capturing data. You’re being prompted for things like product data, potentially some options and variances, pricing, etc. Talk about that just a tad more.
Mark: Let me answer that in two stages. One aspect is the front end. We may spend a few days setting some configurations so the user interface meets the style of what the manufacturers will want when they are using the user interface.
The second aspect is related to product data. All these systems rely on product configuration driven by “rules.” This product data and associated rules define valid product configurations. Let me give you two simple examples. A car may be configured with 15-inch wheels, or it may be configured with 17-inch wheels. Yet, that car cannot have both options. That is a rule. A different example is a fuse box that may have room for 20 fuses. That box could not be quoted with 21 fuses. Again, that is simple. In general, the “fuses” are of different shapes and characteristics and can require complex rules.
Technicon’s CPQ platform is driven by “constraints,” rules that tell the system what the restrictions are for a valid product configuration. The manufacturer’s product marketing people are the ones who typically understand those product constraints. We train those people how to load that information so that the system will then have those constraints for the sales people to keep in mind. One reason for doing it that way is that manufacturers like to have control. Typically, they are adding new products or changing products. If they are the ones that loaded the system, they will be in the best position to quickly add new products or make changes to them.
PPLM: Talk about sourcing data from ERP or PLM systems. What are you retrieving?
Mark: Our system is driven by rules; it is NOT the system for maintaining any product data. We would expect manufacturers to have this data in a variety of other systems. Typically, those systems are systems of record for product data. ERP systems have released product information, pricing, approved vendors, etc. In generating a quote, you definitely want the costing information from ERP. We don’t want to manage data that’s best left to other applications.
Believe it or not, another common source of information is Excel spreadsheets. It’s common for manufacturers to have multiple spreadsheets tracking information about their products and different attributes. The rules and constraints are not dependent on any of that product information. So, that product information can change on a daily or hourly basis and not affect the validation process.
PPLM: Talk about documented outcomes, benefits, values, competitive edges, etc. that a company may enjoy because they have done these things.
Mark: Sure, there is a lot of documentation in the market place about CPQ improvements, but there a couple of key benefits worth highlighting here.
The first is shortening the time to get a quote produced. It’s common for the time to go from weeks to literally hours or minutes once a system is in place. As a result, it’s not just the speed of the quote; companies are improving efficiencies … taking less labor and time.
Second, the benefit is the consistency enforced in the quoting process. We have manufacturers who talk about random variability in their quotes. What they are referring to is salespeople tend to quote what they know or what they like. But, if you have a hundred sales people, you can have a hundred different types of things you are quoting. So, one of the efficiencies that manufacturers pick up with a CPQ system is they get more standardization around their quotes. If you take variability out of what you are manufacturing then, that leads to lower costs associated with manufacturing and delivery.
But, probably the most important thing we’ve noticed over the last couple of years is that the largest manufacturers in North America have really focused on what they call the “customer experience.” They put it in different terms, but the notion is how can they enhance and deliver a compelling customer experience. If you had asked me five years ago, I would have said that manufacturers wanted to manage cost. Costs are still important, but manufacturers want their customers to have a frictionless experience in easily and quickly configuring their orders. Naturally, this results in producible products, accurate costs and shorter time to delivery.
PPLM: That is a nice recap. I want to go back to the first item, which was accelerating the quoting cycle. Would it be fair to say that the ability to accelerate the quoting cycle allows companies to do more quotes, and hence drive additional revenues?
Mark: Oh, absolutely. Think about it … companies can do more with the same or even fewer resources. We have a customer with over 300,000 users on their system in a year. They win 80% of the specifications they develop. There is no possible way they could have a large enough sales force to service 300,000 customers.
PPLM: That is a great example; the readers will enjoy getting this perspective from you. Are there any other comments that you may want to add that we didn’t talk about?
Mark: The biggest thing is that there are a lot of acronyms being used: CRM, ERP, Design Automation and CPQ, with big differences among these tools. So, we as vendors need to help customers find the right tool for their applications. The analogy is that there are probably 50 different applications on my phone today. Everybody has a different phone and a different set of applications. The trick is to have the right applications for the problems the manufacturer has. So, to the extent that we can find the right application for the manufacturer, we can make a huge difference in their day-to-day business.
Contact
This Practical PLM newsletter is authored and edited by The vdR Group, Inc. along with contributions from selected partners. It is scheduled to be published the second Tuesday of every month. Delivery dates may vary.
Your editors are Martin van der Roest and Dick Bourke. We welcome your comments/questions. You can direct them to martin@vdr.com or dickb@bourkeconsulting.com. If applicable, we will respond in a following newsletter.
Mission
Our mission is to help engineering/manufacturing companies achieve the promise of product lifecycle management (PLM). We do this by exploring practical action steps that drive business value and that yield measurable revenue contributions and reduced expenses.
PLM is a combination of business strategies, best practices and technology. Hence, this monthly newsletter looks at the business drivers, best practices, applications and education.
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