Better Quoting (lets sell it for more than we paid for it)
We sold it for less than it cost us to build it?
While not the most glamorous of topics, having a process that builds a quote (and therefore a selling price) that has a profit margin is important.
How does this possibly happen? The purpose of business is to make a profit?
In my travels as a consultant, I typically see a number of causes for inaccurate quoting and pricing leading to low (or negative) margins at sale.
Typical causes are:
- The price used for the materials in the quote is out of date, inaccurate or non-existent (it might be a new part, the estimator is using historical prices, a standard cost or the price may be highly variable)
- Pricing, quoting and then the subsequent build is done in disparate and disconnected spreadsheets/systems and/or on the back of beer coasters
- They are selling ‘non-standard’ ‘make-to-order’ goods leading to a philosophy that ‘everything is different’ leading to different sales people quoting exactly the same item at different prices to different customers
So we have clearly identified some problems, what are some potential solutions?
Use price lists
Ring your suppliers up; ask for a contracted price (with an expiry date). If the item is a high value, build a structured request for quote process (RFQ) that allows your procurement staff formally record agreed prices. Make sure this process is completed before purchasing / quoting.
Use standard builds (including subassemblies, if required)
You are in the custom “make-to-order” business so it is different each time? You may however find that if you drill down some of your items may have identical sub-assemblies. Having a standard assembly or sub-assembly (therefore a standard price) enables you to look at delivering a price book that your sales/estimating staff could drag and drop a quote from, with the confidence that the costs are correct and up to date.
Report on the difference between the quoted, planned and actual costs for the materials you have purchased
Being able to tell at a glance via a dashboard or similar the difference between the cost that was quoted vs. the cost that we planned to build it vs. the actual cost clearly identifies problem areas to focus your efforts on.
Have at your fingertips recent purchasing history for the items you are purchasing
Being able to find quickly and easily the details on the following pieces of purchasing information for your items will lead to more informed purchasing.
- Have I purchased it recently?
- Do I have any in stock?
- Do I have any on order?
- Do I have any supplier price lists for this item?
Have the details from your quote in the same system that purchasing, scheduling and planning your production is in
No more multiple spreadsheets/applications. Just the one system. This will lead to a better consistency throughout the quote to cash business process.
Okay, so what is next?
Implement an ERP solution that allows you to achieve the above and you are well on your way to increasing your profit through better quoting and procurement
©Duncan J. Kennedy 2009
Please note that this posting is my own and doesn’t necessarily represent the position, strategy or opinion of Epicor Software Corporation.