Are jaw-dropping order error rates the norm? Make CPQ your new standard
Surprisingly, the answer seems to be yes
A couple of weeks ago I was excited to meet one of the bigger global brands in complex machinery for a discussion on configuration. A couple of hours into the meeting I heard something that makes it possible for me to use one of my favorite English words - flabbergasted.
And the reason for my surprise? Well, my host casually explained that the error rate of the company’s manufacturing orders was around 50%.
50%! Half the orders were wrong! He went on to explain that sometimes these errors were minor, but sometimes they could also generate incorrect purchase orders and cause manufacturing errors. The sales person would have to go back to the customer and explain that they had to change the order - sometimes even at a cost to the customer.
This problem apparently generated a lot of friction with the resellers. No wonder! I couldn’t help but start to crunch the numbers in my head. How much of the company’s margin was being lost this way? Huge numbers, percentage points on the bottom line.
So, what was the underlying problem?
Engineering change orders were frequent, customization was an important sales argument and resellers were working with a sales configuration tool that was not properly integrated into the back-end systems. There was no real connection between the different product representations in product management, product development, sales, and manufacturing. It was a disconnected information chain.
Maybe I shouldn’t have been that flabbergasted (twice in one text!) since I know that another of our customers reduced their quality cost (cost caused by bad information) from 2,5% to 0,5%. These are percentage points that go straight to the bottom line. What CEO wouldn’t love to present such a margin change to his board?
How to get the order right - first time, every time
This is increasingly a discussion we are having with our customers. What companies don’t need is another point solution disconnected from the rest of the business information.
What they do need is transparency in product definitions between the different stages of product development all the way through to manufacturing. And a common language that allows engineering to update product information and make it available to sales – without weeks of delay. This way, quotes will always be based on accurate information. And when the sale is made, the information gets automatically transferred into orders - orders that are correct!
An initiative with a significant bottom-line impact that is entirely within your grasp
I sincerely hope that my kind host will enlighten his CEO on the potential he has to increase his margins. He doesn’t have to expand into a new market, spend money on an expensive ad campaign, or rebuild a factory to make more money for his company. He just has to connect the information flows and empower his resellers with the right sales portal solution.
This is easy to say, and I’m not suggesting that it can be achieved without a lot of work. But it is a potential for improvement so big that few companies can afford to ignore it.
If you want to know how Tacton can help you slash your order errors by more than 80%, watch this video: