How CPQ Addresses the Challenges of Industrial Manufacturing
CPQ can help the industrial equipment manufacturing sector address many of its most daunting challenges. Industrial manufacturing has had a tough time of it over the past 20 or 30 years. Global competition, more regulation at home and abroad and a diminishing pool of qualified labor all make this market brutally difficult to succeed in.
Not so long ago, a manufacturer could specialize in a couple of products and bang out thousands of copies of those products in a highly repetitive, low-variance manufacturing process. Margin was ensured by buying large volumes of inventory at high discounts and keeping the workforce productive and happy with good wages and decent benefits―mass production at its finest!
Customers’ Demands Dictate Production
Today, this is a recipe for failure. The market requires manufacturers to deliver many different and highly varied products, and each of these must be made to the specifications required by the buyer. The model is much more closely aligned with a contract manufacturing process that features less repetition, higher product variance and lower volume.
Buyers aren’t inclined to settle for solutions that meet “most” of their requirements. The manufacturer has to be able to address each stated need and deliver efficacious solutions to all pains identified by the buyer.
Additionally, customers expect prices that are competitive, and stockholders expect margins that support a profitable operation.
Key Requirements for Manufacturing Success
For industrial manufacturers, this translates into several key success requirements.
Mixed Mode Capability
Manufacturers must have the ability to handle many different manufacturing processes and have them ready to go without major re-tooling or plant modifications.
Advanced scheduling should allow manufacturers to switch between processes and production technologies with a minimum of delay. This facilitates and assures the continuous smooth and steady flow of product through the production process.
CPQ helps manufacturers obtain this level of flexibility by maintaining comprehensive part and assembly data on all products produced by the enterprise. As prospects and Sales discuss options and product solutions, bills of material (BOMs) are created and communicated to manufacturing operations.
This data will trigger inventory checks and supply orders, advance scheduling of production cycles and reserve slots in the logistical process. CPQ helps to ensure that everything is available for the build process and after completion for delivery to the customer.
High Product Variability
This gives manufacturers the ability to address multiple markets with the same basic product, instead of building every product from the ground up. Products are designed under a “product family model,” which extends the applicability of the base model to address needs associated with many different requirements, pains and customer applications.
CPQ takes advantage of the product family model to organize parts and assemblies into logical structures. These are further reflected in the scripted interactive interview process that prospects and Sales engage in during the buy cycle.
As requirements are revealed during the interview, options and part selection menus are updated automatically to ensure that the product being configured matches the needs of the buyer. Artificial intelligence (AI) within CPQ removes the need for sales reps to memorize vast amounts of parts data, limiting conditions and other minutiae.
Business rules drive the CPQ engine to create the right product perfectly aligned with the needs of the buyer. The resulting BOM ensures that the production process builds the product to specifications.
Volatile/Dynamic Supply Chain
Manufacturers can no longer depend on one supplier located two blocks away from their plants for supplies and parts.
Supply chains must provide variable sources globally. Replenishment orders may be made based on price, quality and availability. Redundancy minimizes wait times and helps eliminate supply chain interruptions.
CPQ integrates with other business-critical systems. The CPQ application can communicate pending part and supply needs to the supply chain management system early in the buy cycle and continuously throughout. Needs are anticipated much earlier than when a firm order finally appears.
Additionally, supply limits and inventory issues can be communicated back into the CPQ system to alert sales and the buyer that an issue may exist. Back-up sources may be brought in, and redundant resources may be called upon to fulfill the needs associated with a given order.
Demand for specific products will almost certainly vary over time. Some demand spikes and valleys are easy to anticipate while others are more unpredictable. Agility plays a central role in the manufacturer’s success. The ability to move from market to market as demand dictates is essential.
CPQ helps overcome issues associated with demand variability. Having the ability to configure and sell multiple product variations mitigates market-specific demand issues. Lawnmowers are replaced with snow blowers in the order-and-production schedule.
Tribal knowledge related to one market is not lost through lack of activity; those esoteric rules and knowledge bytes are built into CPQ’s rules engine and the scripted interviewing process. Those rules may be invoked 100 times per day or once every 10 years with equal consistency and accuracy.
Multiple Pricing Models
Manufacturers must expand their markets, and this means doing business with different types of customers located in different countries and under a variety of contractual vehicles.
How products are priced; the currency used; and price-impacting contractual features such as delivery target dates, guaranteed quantity purchase discounts and other unique, customized features, create a unique business relationship between manufacturer and buyer―one that must co-exist with all of the other maker/buyer relationships that both parties maintain.
CPQ has the ability to maintain and control access to multiple price lists based on multiple factors. International currencies and customer status such as national accounts or target-market customers can be combined into various combinations of price lists.
Additionally, contracting vehicles authorizing fixed discounts, such as General Services Administration (GSA) or state and local buying contracts, can be built into the price lists within CPQ. Even customer-specific contracts can be addressed within CPQ.
CPQ mitigates confusion, missed discounts and illegal discounts and enables auditable contract compliance.
CPQ Helps Manufacturers and Distributors Compete Globally
CPQ helps manufacturers compete globally in multiple markets using competent, generalist sales forces and modular product families. Profitability, customer satisfaction and successful performance become achievable in this most competitive manufacturing marketplace.