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"Access Commerce is an international provider of Multichannel Commerce & Configurator Software
that simplify the sale of complex and configurable products and services. "
Source : Access Commerce
Optimizing the Lead to Order (LTO) Process
Lead-to-Order (LTO) process is also known as :
L2O process,
lead management,
lean manufacturing,
lto manufacturing,
lead generation management,
made-to-order product,
build-to-order product,
lead-to-order workflow,
lead management system,
sales lead management system,
lto process,
lto optimization,
lead management practices,
lead-to-order process,
lto application,
lean production,
lean manufacturing software,
lead management software,
Also stood for:
lead time optimization,
chain supply management.
Making Complex Commerce Simple
Contents
- Preface
- Purpose of this Paper
- The Lead To Order Process: Introduction
- The Lead to Order Process: The Steps
- Benefits of Optimizing the LTO Process
- Return on Investment Analysis
- The Competitive Advantage: LTO Process with Lean
- Manufacturing
- Conclusion
- The Author
- About ACCESS COMMERCE
Preface
How often do you hear comments like these?
"Oh, oh, another
customer is on the phone " and is not happy ... The product feature
checklists just aren't right ... We don't even know if we can build the
requested configuration ... I can't trust these outdated product catalogs ...
Our spreadsheets don't match ... You're joking, they want it when?"
These
types of complaints are symptomatic of an ineffective and inefficient sales
process that results in lost revenue and excessive costs. Meanwhile, the
competitive environment is rapidly changing. In some industries, mass
production of identical products is no longer acceptable. Customers are
demanding: "I want it my way and I want it now."
To cope with this
product-unique and time-compressed environment, leading companies are
striving to implement Mass Customization " the ability to design, sell,
produce and deliver high quality, unique product configurations for a
customer's specific needs " but at mass production low prices and faster
delivery.
A successful Mass Customization strategy, however, requires vastly
improved business processes throughout the company, supported by
Information Technology (IT) systems that lead to a closer relationship with customers,
suppliers, and all sales channels.
Forward thinking companies are taking
action by focusing on the Lead-to-Order (LTO) process " the continuous cycle
that begins with recognizing a prospect and identifying needs, continues
through configuring a unique product, pricing, quoting, booking an order, and
ends with passing the order from sales to manufacturing and the subsequent
generating of bills of material and routings for manufacturing execution.
Purpose of this Paper
This paper is written specifically for non-IT
executives, with the following primary objectives to:
- Describe the LTO
process and how software provides value to these business process
improvements
- Recognize configurator software as the core supporting IT
functionality
- Identify the benefits to be achieved with an improved LTO
process, and also its relationship to Lean Manufacturing
The Lead To
Order Process: Introduction
Most companies manufacturing complex products
that are configured "To- Order," have a LTO selling process in some form. Too
often, however, it is ill defined, with disjointed steps, only semi
automated, and with a nonintegrated flow of information. Stand-alone "silos"
of information are commonly found.
These conditions cause lengthened
quoting and ordering lead times, unacceptable error rates, and higher costs,
to cite a few; a process that is neither effective nor efficient.
A prime
example of unnecessary inefficiencies in legacy selling processes is the
struggle to develop customer-unique bills of material (BOMs). This
semi automated
activity, using spreadsheets, little black books, and out-dated product
catalogs is fraught with possibilities for errors. It is a major drain on the
time and use of product-knowledgeable personnel, particularly engineers,
often requiring back and forth steps to validate the required product
configuration. Additionally, it causes sales personnel to distrust the legacy
process, and, accordingly, to cope as best they can.
From the customer's
viewpoint, the results are even more devastating: Lengthy quote cycles, days
and weeks instead of hours or minutes, may tempt the prospect to resort to
competitors.
For these, and additional compelling reasons, a paramount goal
is to transform the legacy sales process to a superior LTO process " one that
is effective and efficient.
The goal of a superior LTO process demands a
fresh approach " facilitated with advanced IT capabilities " mandatory to
manage the massive amount of product, pricing, and customer information in
the time compressed environment of Mass Customization. Mandatory, yes, but
the entire process also must be a logical, smooth flow of related steps. In
addition to software, it must include the essential elements of clearly
articulated policies, procedures, and defined roles and responsibilities for
personnel actions in using the process.
Other criteria, a blend of
policies, procedures and IT functionality, include:
- Customer-facing " It must
be highly user-friendly, with an intuitive interface throughout all the
steps, described below; one that provides a positive buying experience that
continually energizes customer loyalty.
- Relevant " It must be relevant to
every sales channel: direct and all forms of indirect " dealers,
distributors, and also end customers configuring and ordering products
directly on the Internet - all in a guided selling mode, without in-person
assistance from an expert product specialist. Thus, the process applies to both the
B2B
(business-to- business) and B2C (business-to-consumer) modes.
- Flexible " It
must assist customers to uniquely configure a product to satisfy their needs,
allowing users to easily adjust the LTO process for the simplest to the most
complex products " the complete spectrum of To-Order products.
Various IT
software functionalities are required to support the LTO process. However,
the core software functionality is a configurator " a software tool to
create, maintain, and use electronic product models that completely define
the range of variations and options of a product without the need to
predefine all possible combinations with unique part numbers and BOMs, and
with a minimum of data entry.
As described in the following section, during
the LTO process the underlying power of configurator software is drawn on
early and often.
The Spectrum of To Order Products
Pick-to-Order (PTO) - products usually shipped
from stock inventory; for example, catalog items with optional accessories
shipped with the catalog item.
Assemble-to-Order (ATO) - products with
standard sets of predefined features and options, from which unique product
configurations are developed by the customer, usually in a guided selling mode;
for example, computers ordered over the Internet.
Configure-to-Order (CTO) - products based on
consultative dialogue with the customer to address specific requirements. The
products have been predesigned in computer-aided design
(CAD) models or parameterized documents, but not predefined with specific
part numbers; for example, products with dimensional and spatial requirements,
such as hydraulic actuators, and windows and doors.
Engineer-to-Order (ETO) - the most complex
products that during configuring must interface with product development
activities and tools, such as CAD software, design rules and other expert IT
systems that can support development of configuration, pricing, and complete
documentation over a typically iterative proposal cycle; for example, electrical
distribution systems.
The Lead to Order Process: The Steps
The LTO process,
which spans the designing and selling of complex products in a Mass
Customization strategy, consists of the following steps to ensure the highest
level of customer service.
Lead Management " assigning the initial sales
contact, qualifying the prospect and needs, and acting upon the results."
The desired goal is to keep qualified prospects in the sales pipeline, while
at the same time passing on only high-quality leads to the best qualified
sales person. This means assigning prospects to either direct sales
representatives or indirect channel partners.
Customer Needs Assessment "
gathering and analyzing customer product and service requirements. "
This is
the first activity to identify a customer's true product or solution
requirements; accordingly, the configurator capability is initiated, and
customer interaction begins.
The user can browse on-line product catalogs
with visualization, compare products and options to target needs, and quickly
view alternatives, which can also trigger up-and-cross selling. These
activities are often referred to as "guided selling," and apply regardless of
whether the "user" is a customer ordering directly over the Internet, or a
sales representative, direct or channel.
As a user starts identifying product
options, a configurator will provide two needs assessment methods, either
individually or in combination. They are: Selecting options from a myriad of
choices, as displayed by the rules of the product model; or, identifying
performance requirements that the configurator logic then automatically
translates into specific product variations to satisfy the customer's stated
performance requirements.
Product Configuration "developing and validating a
unique product configuration, and displaying the results for final customer
evaluation and approval using configurator software, described above. "
Using customer responses to the needs assessment, the configurator software
validates the configuration.
As a result, a customer is able to quickly and
automatically configure a complex product in an absolute minimum of time "
often minutes. Gone now is the classic barrier to a timely response, "I will
get back to you in a few days after I validate your requested configuration
with engineering."
To reemphasize, a configurator is required core
functionality because of the complexity, perhaps even the impossibility, of
developing unique product configurations without adequate IT tools.
Importantly, the steps of needs assessment, product configuration, and
pricing optimization are almost indistinguishable.
Moreover, the subsequent LTO steps rely totally on a valid product
configuration to develop a complete, accurate, and timely response to
customer inquiries.
Pricing Optimization "creating a valid price
quotation, once the user develops a specific product configuration. "
In
addition to pricing the selected product configuration options, pricing must
also take into account a wide mix of factors to determine a final price;
conditions such as various contracts, customers, promotions, discounts,
and volumes. The company's enterprise resource planning system (ERP) may
not be adequate to supply this information.
Therefore, a software-pricing
engine, with pre-established parameters or logic rules, provides the
intelligence to supply the right price to the unique configuration.
Quotation/Proposal Preparation " recommending a unique product configuration
and pricing, providing ancillary documents, identifying any logistical
considerations, and committing a valid promised ship date that the customer
can trust.
For the more complex products in the CTO/ETO categories, ancillary
documents must often be generated for the proposal submitted to the customer
for approval; for example, specifications or performance graphics. In some
circumstances, this step might also include identifying financing
alternatives.
Contract/Order Capture " booking and completing legal documents
for the mutually agreed upon product configuration, pricing, delivery dates,
and terms.
This step can be accomplished automatically from stored
quotation information, eliminating any inefficient semi-automated methods,
and the associated costs.
Bills of Material and Routing Generation "
automatically generating the unique BOMs and routings required of
demand-driven, To-Order products; and as necessary, generating parameterized
drawings and other documents to start the customer order in manufacturing.
This is the endpoint of an effective and efficient LTO process " commonly
known as "on the fly" building of unique BOMs, and related documentation, to
meet the customer's specific configuration requirements. Significantly, a
strong configurator capability avoids trying to create a database of BOMs for
every possible combination of options and variations, in advance of customer
ordering activity.
Clearly, every step in a superior LTO process has solid
potential for providing benefits to the company and its customers.
Benefits of Optimizing the LTO Process
Optimizing the LTO process has two
important dimensions: Achieving major benefits " revenue enhancement and cost
reduction " and integrating it with other company IT systems to further boost
its effectiveness and efficiency.
There is ample evidence of these potential
and intertwined benefits " both from individual company experience and from
research surveys. A few of the most achievable benefits are:
- Revenue
enhancement
- Improved market share
- Increased revenue through up-and-cross
selling of add-on products, identified during the Customer Needs Assessment
step
- Decreased Days Sales Outstanding (DSO)
- Decreased response time to
customer inquiries and quotation requests
- Reduced cash collection cycle
due to elimination of invoicing errors
- Cost reduction
- Eliminated
order errors
- Reduced effort to maintain the product database and
configuration rules
- Reduced cost of rework, scrap, and warranty expense
- Reduced reliance on internal resources, such as product knowledgeable
personnel causing bottlenecks
- Eliminated out-of-date product information
throughout the company and the sales channels
AMR Research, the Gartner
Group, and other research firms have validated the results of improved LTO
processes. The consensus of these industry analysts indicates significant
results are achievable; for instance:
- Increased total sales from 1% to 2%
- Decreased quote times from 30 days to 45 minutes, with lower engineering
costs
- Reduced expenses between 50% and 70%, when order error rate was more
than 25%
The magnitude of these benefits, of course, is dependent on how extensive
the problems were before upgrading the LTO process and how completely a
company takes advantage of advanced IT capabilities. This means Integrating
with other systems, e.g., enterprise resource planning (ERP) and
supply chain
management (SCM), to leverage information, such as dates, costs, pricing and
status, directly from them.
Return on Investment Analysis
As AMR clearly
articulated in a recent report, "Companies are achieving ROI with
configuration when these strategies are made core to all customer fulfillment
initiatives."
While it is routine in many organizations to require a thorough
return-on- Investment (ROI) analysis before committing to an implementation
effort requiring substantial resources, it is an important step to ensure
achieving LTO benefits.
Some project teams might argue that intangible
benefits, for example, customer loyalty, offer sufficient justification to
upgrade the current LTO process. Quite the contrary: intangible benefits lack
the accountability found in quantified ROI analyses used to justify an
aggressive implementation effort. There are more than enough direct benefits,
including those listed above, to justify the investment and the effort
required for success with upgrading LTO.
Furthermore, benefits are only
one side of the ROI equation. A complete ROI analysis also identifies the
implementation costs to determine the payoff point and establish the Total
Cost of Ownership " desirably low. Some cost elements to consider: software,
training, developing interfaces to other systems, and project management, to
name a few. The point is: Achieving benefits requires investments; the return
is well worth the effort.
The Competitive Advantage: LTO Process with Lean
Manufacturing
As Gartner recently emphasized, "... it is no longer sufficient
to optimize segments on the value chain;, the entirety of a value-creating
activity must be supported in a coherent way.,"
The LTO process supports
the first two phases of Mass Customization: designing and selling; producing
and delivering are the final two phases. The Mass Customization environment
is highly variable. Therefore, to produce and deliver a uniquely configured
product of the highest quality, to meet aggressive customer schedules, and at
a cost that ensures a profit, requires the greatest possible degree of
agility " the ability to respond quickly to changes in product configurations
and volumes, short lead times, and manufacturing processes.
Consequently,
there is a wide spread interest in Lean Manufacturing " an approach stressing
the relentless pursuit to identify and to eliminate all forms of waste
(non-value activities) in time, use of resources, mistakes and costs, both in
the company and its suppliers. Eliminating all forms of waste leads to a more
agile organization.
The attainable goals of an improved LTO process and Lean
Manufacturing are completely compatible, complementary, and, indeed, the two
are necessary to gain the greatest benefits for the company, its customers,
its suppliers, and its sales partners.
Conclusion
A superior LTO
process " facilitated with robust IT capabilities " is an essential business
process for complex product companies striving to build and maintain market
share in today's "I want it my way and I want it now" environment of Mass
Customization.
The Author
Richard W. Bourke is a principal consultant with
extensive experience in systems planning and implementation. For other
publications, visit www.bourkeconsulting.com.
About ACCESS COMMERCE
Access Commerce is a leading provider of
Multichannel Commerce Solutions.
Access Commerce helps manufacturing,
distribution, retail and service companies sell products and services through
any sales channels. The Cameleon Commerce Suite simplifies key steps in the
Lead-to-Order to-After-Sales process by optimizing core business functions:
e-commerce, electronic catalog and guided selling, product and service
configuration, advanced pricing, quote and proposal generation, order
management and BOM/routing generation. Employees, channel partners and
customers use Cameleon to eliminate errors and non-value added activities,
decrease cycle times and improve customer satisfaction, resulting in
increased revenue and a reduction in sales and operational costs. Access
Commerce customers include AREVA, Eaton, Invacare, Leroy Merlin, Manitou,
Mitsubishi Caterpillar Forklift Europe (MCFE), Perkins Engines, Saint-Gobain,
Schneider Electric, ThyssenKrupp, and X-Rite.
Access Commerce is
headquartered in Toulouse, France and Chicago, Illinois and has offices
located in North America, France and Germany. Cameleon is a trademark of
Access Commerce SA and may be registered in certain jurisdictions. All other
product and company names mentioned are the property of their respective
owners.
For further information, email to info@access-commerce.com
or
contact us at:
North American Headquarters
5215 Old Orchard Road
Suite
270 - Skokie, IL 60077
Chicago
+1 (847) -583-8450
European Headquarters
Rue Galilée - BP 87270
31672 Labège Cedex
France
+33 5 61 39 78 78
www.access commerce.com