Engineer-to-order (ETO) businesses have a unique challenge in the manufacturing space: When your business model depends on mass customisation, sales is never routine. Each project requires precise complex calculations as well as engineering resources and input due to the singularity of the final product or project.
During the sales process, that can surface in problematic ways. To close a project in the ETO world does require a lot of people, a great amount of time, and a lot of precision.
Delays can occur anywhere. Competition is stiff, but at the same time, differentiating factors will depend on two things: the proposed solution, and the cost of that proposed solution.
Knowledge Retention in ETO
When it comes to the proposed solution, it needs to be 100% tailor-made for the customer. A customer will not be interested in the lowest price if the proposed solution doesn’t match the requirements.
The productivity and success of a sales rep or sales engineer will not just depend on capturing the exact requirements of the customer. It also includes maintaining an extensive knowledge of technical factors and engineering constraints to be combined into an RFQ or tender.
As per a study by the International Journal of Industrial Engineering and Management (IJIEM) titled ‘How To Identify Possible Applications of Product Configuration Systems in Engineer-to-Order Companies (2017)’, ‘the solution space is undefined in ETO companies and thus the number of possible configurations can be close to infinite.’
The Margin Dilemma In ETO
When you include margin retention into the complexities of an RFQ, it makes the situation even more complicated for the sales engineers. Just as with any other industry, ETO businesses have to contend with competitors, and there’s a need to quote quickly, and accurately.
However, due to time limitations and competitive pressure, often cost estimates of similar projects are being used. In ETO businesses, that cost estimate can lead to wildly-varying results: from undercharging for materials to overcharging for the final product.
As cost estimation by default does not deliver the expected accuracy, it could even lead to the loss of the tender. Repeated negligent conduct here will also affect the company’s reputation as a leading ETO provider.
Depending on historical data will hence only work so far in determining how to calculate costs. To cut off the problem at its root would require empowering the engineering and sales team to create accurate proposals and quotes in a very short amount of time.
The Applications Of A CPQ: Making Production Data Available In Real-Time
According to another research paper in IJIEM titled ‘Automatic Identification of Similarities Across Products to Improve the Configuration Process in ETO Companies (2017)’, a product configuration system (PCS) can help, especially in one crucial area: A PCS keeps all historical data and previous designs within one system that can be easily and quickly managed by sales engineers.
All previous quotes and information are available in a PCS or CPQ; this means that engineering knowledge or understanding can thus be accessed and reused, especially if it's an Excel sheet that is only understandable by that specific creator.
With a CPQ, teams don’t have to waste time manually comparing designs and projects to find similarities or converting data extracted from the ERP system. A CPQ provides transferable knowledge that is uninhibited by physical space or time, creating that all-important step: repeatability.
At the same time, a CPQ helps to speed up the configuration and calculation process to get around the need for cost estimates; the sales platform would allow access to all materials, components, and products data in real-time. Rules set up in the CPQ would make the configuration and calculation process much faster, making for quicker RFQs generated.
Other Benefits For ETO Businesses
Besides the preservation of knowledge, the IJIEM papers discuss other benefits of a CPQ for companies that use mass customization:
- Use of fewer resources in each project
- Less routine work in sales and engineering processes
- Reduced lead time in generating proposals and other specifications
- Improved quality of product specifications with the reduction of errors and the increase in accuracy
- Improved certainty of delivery
- Reduced data redundancies thanks to the integration across the front and back office
In the next article of this series on CPQ for ETO businesses, we will discuss the features that support the actual project calculation directly in the system.
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