Where Did My Business Case Go?
Discrete manufacturers lose track of margin performance because they cost and price each business opportunity in Excel. The ones who move costing and quoting into a relational database have a penchant for making more money. Here's why...
For manufacturers in any OEM supply chain, a business case is each and every quote that goes out the door. Where does each quote typically land after its sent to the customer? Into a file folder, piled atop the other Excel quote files. It's like a trash heap of files, or a data graveyard. The typical SharePoint folder loaded with Excel quotes is where valuable next generation bill-of-materials information goes away to die for a while. For most manufacturers the length of time from quoting an original opportunity, through award of business, to the production launch can be months, and often times, years. Because the quote, essentially the original business case, was captured in Excel and filed into the SharePoint graveyard, where everybody loses track of margin.
Margin tends to erode for discrete manufacturers opportunity by opportunity over time. Customer pricing pressures, fluctuations in material and component cost, and manufacturing inputs, such as labor rates, change over time. But because quoted and awarded business B-O-Ms reside in Excel files, nobody can account for all of the contributors to margin erosion.
In a Center for Automotive Research study, "45% percent of the respondents had less than 75% confidence that revenue and margin goals would be met over the next two years, and 20% had less than 50% confidence." --CAR Research Study, "Automotive Suppliers and the Revenue Acquisition Process: What's Working, and What's Not?"
Today's costing/quoting revolution is simply costing future business opportunities in a relational database tool instead of Excel files. This captures the future bill-of-materials and decided business case, so that you are able to reference today's margin against what the business case was months or years prior. Additional process benefits include faster turn-around time to the customer, high reuse of your best cost models and increased quote accuracy. Further when all your quoted and awarded bill-of-material data is in a database it can be coupled with the forecast, creating an enterprise financial and operational budgeting tool for the intermediate to long-term.
Transparency manufacturers gain by costing/quoting in a relational database includes:
- Measuring business case attainment of each quoted product/part over lifecycle
- Seeing causes for +/- changes to margin
- Forecasting margins by products, customers, plants
- Forecasting utilization of capacity on any asset, or overall plant
- Forecasting enterprise-wide volume and spend for critical materials and components
Bill-of-materials quoted in a relational database tool interact every day with updates to your master cost tables. Whenever your costs change due to material/component negotiations, shortages, labor negotiations, accelerating inflation, all your awarded and quoted status business is updated, much as your current production business would be in your ERP.
Don't let your competition start quoting in better tools before you. They will start seeing the lifecycle margin of each of their opportunities before you do. Competitors leap ahead with an ability to understand where margin is under pressure and create strategies to attack cost. Bottom line is discrete manufacturers who move costing and quoting into a relational database environment have a penchant for making more money.
--John Brennan, EVP & Chief Strategy Officer, Saphran, Inc.
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