The right configuration
CPQ solutions fail engineer-to-order manufacturers. By Lydia Di Liello
Traditional CPQ (Configure Price Quote) software is an unacceptable sales automation tool for companies offering highly configurable products. CPQ fails complex product manufacturers because the required engineering rules, geometry, and calculations far exceed the capabilities of traditional CPQ systems. An inordinate amount of potential profitability is lost reviewing, correcting, and re-engineering inadequate configurations. Companies manufacturing extraordinarily complex products experience these limitations and the follow-on engineering costs.
Complex manufacturing by its nature defines a system with highly integrated, specific requirements that are interdependent and sophisticated. Standard CPQ systems are not designed to manage nor support this hyper complex environment. When complex manufacturers attempt to utilize standard CPQ systems, the software becomes a custom build disaster incurring skyrocketing costs and extending implementation timelines.
Engineering-to-order (ETO) manufacturers currently live with the pain of creating a quotation. Quotes frequently demand weeks of non-billable work in complex product configurations, a delay that frequently derails a sale. Hours of expensive engineering time makes no sense when a sales close rate rarely reaches 50 percent.
CPQ typically ignores engineering
CPQ was never designed to support or even acknowledge engineering changes. CPQ can support yes/no decisions; it does not manage engineering tolerances, rules, nor specifications. Attempting to code this information into the software is ineffective and very costly.
The quotation process is the bottleneck
Salespeople can rarely increase the volume of quotes to increase the likelihood of winning projects due to the complexity of RFQs. Done manually, there is no way to deliver more quotes without simultaneously increasing risks of costly, inaccurate quotations. Misquoting configurations translates into pricing miscalculations that potentially kill profitability.
Exacerbating this inefficiency are the multiple internal approvals required during quote development – engineering, purchasing, operations, and more have to touch the quote draft. These added layers of approval slow the proposal process even more. By the time the prospective customer receives the proposal, a competitor may have already won the bid.
CPQ quotations are designed to expedite and increase the volume of standard quotes. They are produced on a high frequency with minimal variation and generally have a small number of options with one or two levels of pricing approvals. Variables of color, size, and shape where the options are limited to small finite choices and are not interdependent define hallmarks of CPQ. Conversely, complex manufacturers may have thousands of choices, variables, and iterations making CPQs a poor fit.
EPQ (Engineer Price Quote)
Scott Heide (pictured left), founder of Engineering Intent, believes the only workable approach for ETO manufacturers is EPQ, Engineer Price Quote. It is specifically designed for the technical and procedural must-haves in complex manufacturing industries.
The “E” in EPQ ensures that prices remain valid in real-time as a custom solution’s design comes together. Because EPQ can link design data to costs, it automatically escapes constant iteration of price-changing as custom configurations change during development. Instead, pricing is automatically updated with each change in configuration, material, or process.
Expediting approvals and guaranteed margins
Too often salespeople offer discounts to win the job. In commodity (mass) manufacturing, margins are known, and acceptable levels of deal-sweetening can be pre-approved. That stable margin is why CPQ is fine for those types of off-the-shelf products.
CPQ allows salespeople to take over and hit bonuses; that cannot happen for complex manufacturers. Unless specifically designed and coded to prohibit sales discounting behaviors, CPQ systems accept whatever price is entered into the system. Governance or workflows that are built into standard CPQs assume that there are few approvals and that they are “standardized.”
Since the majority of salespeople are incentivized on revenue targets rather than profitability, hitting a goal number for the quarter is paramount. This leads to frequently discounted prices.
In contrast, a change in an ETO bid often requires supervisory approval. Only an EPQ solution can truncate this approval process by seven to ten days by eliminating the delays in back-and-forth approvals, time-savings that frequently translate to winning the sale.
EPQ defines the approval process for ETO manufacturers
Heide argues that in EPQ, when engineers create valid configurations based on engineering standards, approval is literally built into the result. If the engineering and pricing are correct, supervisory approval should not even be required. This kind of automatic approval can be risk-free when technical and business rules from engineering, production, costing, and other departments are automatically applied. It is an outcome that ensures rapid, precise quotes buttressed by reliable margins. The quotation process shrinks to hours rather than weeks and the result is improved quote productivity, velocity, and revenue.
Closing percentage of sales is driven by EPQ
EPQ goes beyond CPQ by applying engineering rules to highly configurable, complex products. CPQs cannot change material composition and designs based on structural calculations around load, temperature, volume, or other requirements – EPQ can.
When needed, EPQ can replace standard product assembly structures with fully custom ones in seconds. The result: new configurations that meet non-standard operating conditions. In EPQ, complex engineering calculations drive the selection of product options and geometries. During development engineering teams appreciate that EPQ allows a drag and drop repositioning of product elements – with every element still constrained by product performance and engineering rules.
A new level of automation
ETO manufacturers often need to do even more with automation, such as generating customized, dimensioned, detailed drawings that give customers the information needed to make fully informed buying decisions.
ETO RFQs are complex, and prospective customers may ask that two or more configurations be provided, each one fully costed, documented, and detailed. The expectation from the prospect is that this bid will happen within days of the request – an expectation that can be met with EPQ.
Unlike CPQ solutions, EPQ solutions like Knowledge Bridge calculate the true cost of a proposed product configuration, using dead-on cost roll ups that take every design detail into consideration.
Scott Heide, Founder and CEO of Engineering Intent drove the development of Knowledge Bridge, a cloud-based comprehensive EPQ (Engineer Price Quote) and visual configuration platform. Heide is a member of the Forbes Technology Council and can be reached at LinkedIn.
Lydia Di Liello
Lydia Di Liello is CEO and founder of Capital Pricing Consultants, a revenue management and business consultancy. Di Liello brings more than 25 years of global revenue management and pricing expertise. She is a member of the Professional Pricing Society Board of Advisors and holds an MBA from Youngstown State University. She is a two-time recipient of the Supply & Demand Chain Executive Pros to Know. Di Liello can be reached at LinkedIn.