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Driving Manufacturing Growth with CPQ

The Eight Critical Components of CPQ Solutions that Enable Business

Innovation and Competitive Advantage

Not only is complex manufacturing a pioneer adopter of Configure Price Quote

(CPQ) technologies, but manufacturing overall continues to lead other sectors
in utilizing CPQ solutions in selling and fulfillment processes. This software
plays a central role in helping manufacturers innovate and grow their
businesses, and the importance of CPQ is rising.

Introduction

Nowadays many assumptions on costs, sourcing and logistics are under assault by dramatic changes in the
world economy. Wages are rising in key export-oriented economies, while taut supply chains are under duress
by rising energy costs, more dynamic markets and increasingly stringent requirements on delivery.

Customers and partners need to be engaged more effectively to cultivate demand and expand opportunities
for growth. At the same time manufacturers will have to become more adept at penetrating existing markets
while entering or creating new ones.

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Such growth initiatives require decisive differentiation in target markets,by improving processes for managing
product portfolios, sales cycles, multiple sales channel (including e-commerce) and recurring business.

Additional capabilities, such as automation to facilitate By 2015, the comprehensive,

promotions and rebates, workflows, analytics, contract integrated automation of CPQ
processes will help companies
management and renewals. are also essential in increasing grow by 10%.
process efficiencies and overall business agility
- Gartner Research
Gartner, a leading IT research firm, reported that by 2015, the comprehensive, integrated automation of
CPQ processes will help companies grow by 10%. 1

This paper examines the key challenges confronting manufacturers today, as well as CPQs impact in
addressing those challenges. It reviews leading capabilities of modern CPQ solutions that support corporate
growth strategies and highlight next steps for pursuing CPQ initiatives in manufacturing.

The Changing World of Manufacturing

Quite simply, conventional manufacturing strategies that benefited from an increasingly open global economy
are being upended by new developments. For over two decades, the attention of manufacturers has been
riveted by gains in transplanting production capacity to emerging economies. As a consequence, much
attention was directed at extracting ever greater efficiencies from supply chains stretching around the world.

Now a combination of rising costs and increasing market complexity are forcing a reassessment of practices.
Five major developments are proving especially disruptive: Globalization, intensifying competition, volatility in
costs, commoditization and rising sophistication in markets.

Globalization: The world economy is far more integrated today than two decades ago,
permitting new manufacturers, innovation and products to appear on markets with sudden
speed from unexpected quarters. Moreover, a disproportionate share of growth opportunities
currently originate from developing markets with unique regional buying processes and
standards.

Competition: Many sectors are characterized by overcapacity, an excess number of potential

suppliers and an unrelenting struggle for contracts and projects. Enterprises often have to
fight hard to retain longstanding clients as new market entrants appear (from abroad, moving
upmarket, or as part of diversification strategies). Meanwhile, distributors, dealers and
partners are increasingly willing to sell competing products.

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Commoditization: Product differentiation, intellectual property advantages and margins are

increasingly vulnerable to the rapid emergence of alternatives, copycat manufacturing and
dumping. More and more, pricing dominates purchasing decisions at the expense of
functional consideration, salient benefits or brand loyalty, particularly in industries marked by
excess capacity, fierce competition and grey markets.

Costs: Rising price volatility and rising costs around the world are requiring serious
reassessments of sourcing strategies. More specifically, wages are rising in countries like
China that have played major roles as export platforms for a range of finished goods,
subassemblies, components and parts. This trend has been exacerbated by increases in
energy prices and other costs (materials, land, etc.).

Market Sophistication: Markets have greater access to information and are pressing for
more control over supplier relationships and special treatment through mass customization
and innovation. Procurement departments are always refining practices for issuing bids,
negotiating contracts and managing vendors to raise buying power. Stringent demands to
configure products to unique specifications within shorter lead times are increasing.

The CPQ Impact on Manufacturing

Integrated CPQ suites based on the latest technologies (e.g., Cloud, modeling tools, workflow and analytics)
present invaluable tools for executing business strategies around process rationalization, product
differentiation and multichannel selling.

With Quote-to-Cash processes, CPQ applications automate key customer touch points and selling activities,
eliminate many manual steps, and help integrate front office and fulfillment functions. Moreover, essential
information on activities and processes can be compiled to deliver superior insight into progress with plans,
tactics and forecasts. Manufacturers can then rapidly correct strategies as markets conditions change.

Hence, the business impact of CPQ software is considerable, in helping management drive growth with five
major corporate objectives: Product differentiation, multichannel selling, process efficiencies, demand
management and account growth.

Product Differentiation: Of critical importance is to ensure that product offerings stand out and resonate
with target markets and buying centers, to reduce fiction in sales cycles and downward pricing pressures. The
management of product portfolios and associated marketing strategies needs to be carefully reassessed and
refined as preferences of buyers change.

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Mass customization, value-based selling and packaging of services represent leading approaches for growing
sales in manufacturing. CPQ solutions provide the flexibility needed to offer a wider range of choices to
buyers, while also ensuring compliance with corporate policies and compatibility between different products
and components. Also, with greater variation they can improve alignment with customers preferences as well
as open up new markets based on product changes.

Similarly, value-selling can be effectively implemented. The value propositions or key benefits of products,
specific configurations and options can be easily documented and articulated through CPQ systems, to help
manufacturers justify pricing to clients. Both cross-selling and upselling recommendations can be
automatically generated for suitable situations, while revisions to deals can be quickly made as sales are
negotiated.

Moreover, modern CPQ software tools help manufacturers Advances in CPQ over the past
effectively bundle services with tangible products. Manufacturers five years have opened up vast
can move beyond a product-centric focus to selling solutions that
opportunities for manufacturers
to raise productivity, business
win consistent, lucrative business. Traditionally, manufacturers agility, sales effectiveness and,
once focused on physical specifications, but now services like field ultimately, profitable revenue
growth.
service agreements, warranties and entitlements can be
effortlessly included with the appropriate products.

Multichannel Selling: Comprehensive market coverage is essential, requiring well-executed strategies for
supporting direct sales teams, partners (like dealers and distributors) and online sales. With CPQ solutions,
manufacturers can adeptly deploy and manage all the product catalogs, rules, policies and content needed for
different sales channels. Suitable product lines, terms and pricing can be automatically adjusted for particular
sets of users, to reduce channel conflict and chances of cannibalization of business.

E-commerce is growing rapidly in manufacturing, in business-to-business (B2B) as well as in business-to-

consumer industries (B2C), because it reduces selling costs, extends corporate visibility and brand recognition
to the Internet, and opens up markets with tech-savvy clients. Intuitive buying experiences, guided buying,
easy navigation of product catalogues and smooth checkout processes are critical for self-service by end-
customers. Promotions and sales of services are also important for lifting revenues per order and per
customer.

Process Efficiencies: Process integrity and efficiencies are top of mind for manufacturing firms, but
attention is largely directed at back office departments, with production, logistics and supply chains. CPQ
systems can reduce or eliminate many manual steps from selling and customer management activities,
including data entry, drafting proposals and creating quotes and working with contracts.

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CPQ systems have long helped internal sales teams develop proposals and quotes, and even to explore
product solutions in person with clients. However, moderns systems now allow sales teams to automatically
convert approved quotes into orders and contracts. When integrated with other sales automation tools, CPQ
frees up time so sales reps can focus on engaging clients and prospects.

Through workflows and analytics, processes can be consolidated and measured effectively. Manufacturers can
then continuously analyze and refine customer engagement and sales models. Greater governance is also
possible without becoming heavy handed, employing alerts on noncompliant configurations, discounts or
pricing as well as automated approval processes and deal desk reviews.

Successful process automation, integrated with robust configuration functionality and product catalogs,
increases sales productivity and responsiveness, while substantially decreasing the number of errors that
create friction in sales cycles. In fact, error rates can be lowered by more than 60% in many cases.

Demand Management: A big issue with sales in manufacturing is ensuring that all elements of a deal,
configuration or purchase order can be produced and/or assembled and delivered within prescribed times and
commitments. In short, manufacturers and their dealers and partners must be able to confirm that what has
been sold can be built and delivered, on time.

CPQ solutions provide the record of configuration, in centralizing quote and order details from selling channels
in one logical place. Operations around validating orders, generating bills of materials and cross-checking
inventories and manufacturing become significantly streamlined, which is critical in a world where many
aspects of the value chain are increasingly outsourced.

Hence, superior coordination is realized in managing production

CPQ solutions provide
invaluable information and tools capacity, consumption of materials, inventories and logistics,
to both improve predictability of enabling manufacturers to better align operations with incoming
revenues and repeatability in
demand and to grow more efficiently.
tactics and penetration of
accounts.
Details on inventories, capacity and manufacturing forecasts can
be exposed to sales channels to deliver greater clarity on available-to-promise details. Sales teams, partners
and e-commerce sites can then provide more precise lead times to customers, which improve customer
satisfaction and can be important for competitive bids.

Account Growth: Recurring business represents a major share of manufacturing revenues, whether from
direct sales or from partners. Revenues from truly net new customers often represent less than half of the
total business of many manufacturers, particularly in B2B industries. Moreover, the cost and effort to grow an
existing relationship, where trust, reputation and a track record is established, is much less than winning a
new customer.

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CPQ solutions provide invaluable information and tools to both improve predictability of revenues and
repeatability in tactics and penetration of accounts. Innovative CPQ software draws upon purchasing histories
of customers, records of installed assets, and commitments codified within contracts and agreements, to
streamline reordering activities, support subscriptions, and hone renewal processes and account growth
strategies.

Various capabilities come into play, including pricing management for subscriptions, recommendation engines,
analytics, workflows and contract and renewals management. The impact on growing sales from existing
clients is significant, particularly with asset-based ordering (using prior purchases and installed assets as
references for new transactions) and generating effective cross-selling and upselling recommendations.

And account growth should attainable via multiple channels such as dealer networks, distributors and e-
commerce sites as well as through different business practices, like leasing and product sales.

Eight Key CPQ Capabilities for Industrial Manufacturing

Manufacturers need to carefully understand the fullest extent that CPQ solutions
can contribute to the execution of growth strategies. Fundamentally, a robust CPQ
solution will a) improve how data, rules and content is managed; b) automate
tasks and processes; c) improve transparency into operations. There are eight
categories of functionality that should be given priority when pursuing a CPQ
initiative for manufacturing:

1. Modeling and Configuration Management A central console is required to define and manage
relationships, rules and constraints that drive unique combinations of parts, components,
subassemblies and products. The administrative environments should make it easy to define, test and
update configuration models and deploy them into production environments. Rules should be
traceable, with reuse supported, to reduce instances of rules proliferation. A spectrum of
manufacturing styles should be supported, from Assemble-to-Order (ATO), to build-to-order (BTO), to
Configure-to-Order (CTO), on to Engineer-to-Order (ETO). And services should also be
accommodated: matrices of intangible offerings and bundles as opposed to rigorous product
hierarchies and stock keeping units (SKUs).

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2. Product Catalog Product data must be precisely defined and managed, and supported by relevant
technical and sales documents. Catalog functionality should help ease efforts for setting up and
maintaining complex product hierarchies, to improve navigation for both administrators and users
alike. Similarly, search features should be available to find specific SKUs and components, especially
since various types of equipment can comprise an extraordinary number of parts (like vehicles). In
addition, visualization is important, in presenting two-dimensional and three-dimensional images,
schematics and blue prints, and even videos on how products work (marketing collateral and
tutorials).

3. Pricing Management A strong pricing strategy underpins goals for balancing profit and growth in
manufacturing. Pricing tools improve the rigor and efficiency of responsibilities around competencies
like price setting, price administration and price execution and communication, for different divisions,
channels and regions of an enterprise. Notably, pricing structures, conditions, policies, promotions and
discounts should be easy to define, maintain and update, for multiple price lists, price books and
marketing campaigns. Moreover, all work is auditable and enables pricing teams and deal desks to
analyze the effectiveness of pricing strategies, methodologies and actions.

4. Quoting and Ordering Quoting tools should help bring sales cycles to closure with greater speed
and qualitative impact on sales experiences. Support for different sales documents is important, like
assembling and revising proposals, to improve responsiveness. Guided selling and recommendations
help highlight products for cross-selling and upselling opportunities. For partners and e-commerce,
self-service in creating quotes and orders, as well as shopping cart functionality is important. CPQ
tools should be able to automatically convert quotes and proposals into orders and contracts to
eliminate duplicate entry. With online sales, smooth check out processes are a must. All submitted
information should be automatically validated for compatibility and leveraged for generating bills of
materials and routings for ERP systems.

5. Workflow Workflow tools ensure that critical steps in processes are precisely defined, automated
and executed. As businesses change, system flexibility allows users to rapidly change workflows
comprising of multiple rules, conditions and paths. Productivity rises from better direction on
performing tasks, context given to users, increased supervision. And, effective workflow tools decrease
manual actions and prevent undesirable unwanted actions. Automated approval processes eliminate
bottlenecks and increase control over quotes, proposals, bids and contracts going out to clients.
Similarly, deal management features walk users through steps for assembling quotes and proposals,
including giving guidance on options, substitutions of alternatives, and pricing and discounting.
Similarly, partners and end-customers can be guided through purchases on self-service portals.

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6. Contract Management Most manufacturers have dealerships, distributors and multi-year

agreements with strategic accounts. Bids and projects may have complex terms and conditions. As a
result, contract management is critical for the CPQ process in properly capturing and managing the
terms and conditions and clauses that define relationships. With contracts, broad and deep
functionality is required for creating, managing, updating and analyzing multiple types of contract.
Authoring tools and clause libraries make sure that the most current and iron-clad legal language is in
place to protect commercial interests. Moreover, third-party contracts often have to be managed.
Automated contract request functionality, approvals and redlining and tracked changes functionality
help eliminate bottle necks and deal slippage, while e-signature technologies help expedite contract
signings.

7. Renewals Manufacturing is trying to deepen relationships that yield recurring business, to improve
predictability, repeatability and expansion of sales. Renewals functionality is critical to success,
especially with programs for leasing options, after-sales services and parts. Alerts and notifications
help sales and partners be more proactive with accounts on expirations. Asset-based sales and re-
ordering provide visibility into installed products (location, SKUs, expiration dates, etc.), service and
upgrade options. Recommendation features support upselling, replacements and cross-selling based
on policies on swaps, pricing updates, end-of-life schedules, co-terminations and contract pricing.
Automatic renewals and self-service help lower selling costs and secure revenue uplifts.

8. Analytics Analysis of CPQ processes improves understanding of incoming business, like actual
demand for specific products, realized prices and discounting activities. The progress of quotes,
proposals, contracts and orders can be closely monitored with reports and dashboards. Manufacturers
can monitor key trends like sales cycle times, conversion rates, and win rates, average value of deals
or orders. Drill-down features allow revenue teams to examine more closely into any issue, by region,
company, product or any other dimensions. Meanwhile, alerts and notifications give early warning on
revenues and profits at risk. Manufacturing operations also gain superior visibility into the products
and materials needed to fulfill impending business. Renewal rates and uplifts in revenues with
accounts can also all be reported on and tracked.

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Seven Action Items for the Next 12 Months

CPQ solutions represent powerful tools for manufacturing establishments that can
facilitate substantial changes in selling and marketing practices across multiple
channels. Successful CPQ initiatives exert a substantial positive impact on sales
effectiveness and sales productivity, but they also require planning. Below are
seven suggestions for approaching a meaningful CPQ initiative.

1. Take stock of what tools are being used today. Spreadsheets are often used for quoting and price
management. Similarly, Microsoft Word is commonly used for contract management. Moreover, there
may be many custom tools in place.

2. Reassess current sales strategies and prioritize areas for CPQ investments. For instance, bid
management processes can be important for directly selling complex equipment, to improve response
times and eliminate error rates. Similarly, sales to distributors and dealers will raise the importance of
guided buying and self-service.

3. Explore approaches for documenting rules and workflows used in selling processes for
configuring products and generating quotes, proposals and contracts. Successful approaches to
consolidating and refining rules and workflows will help CPQ projects tremendously.

4. Identify the best delivery model to ensure rapid time-to-value and project success for a CPQ
initiative. Considering the majority of new sales applications are based on Cloud technology
(infrastructure managed outside the four walls of a company), decision makers should look at the
platform that delivers the right global coverage, scalability, performance, availability and security.

5. Usability to drive solution adoption is essential in CPQ initiatives. Consistency in look and feel
between CPQ software and primary salesforce automation tools is critical. Intuitive user interface
designs that are easy to learn by a range of salespeople and partners will go a long ways, as well as
seamless embedding of CPQ functions in existing web stores, partner and dealer sites and sales
portals.

6. Look at CPQ providers with a comprehensive set of criteria, spanning reviews of functionality
and technology and due diligence on services, vision and viability. Focus on providers with the vision of
enabling rapid innovation, usability and industrial strength applications to support business needs.
Ensure that functionality reviews cover modeling and configuration management, quoting and ordering

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features, pricing management, product catalog functionality, workflows, contract management

renewals and analytics.

7. Aim to realize value within 12 months, by pursuing automation and innovation of practices in a
least one high priority division and selling process. CPQ technologies have been deemed
transformational by Gartner2 so gaining experiences with this class of software sooner than later will
yield dividends for a manufacturing concern. To facilitate rapid deployments, explore Cloud based
solutions as well as CPQ offerings that integrate with spreadsheets and word processing programs (let
users to continue to live in their applications of choice while integrating data and rules in the
background).

Conclusion

A primary objective of modern manufacturing is to drive profitable growth in the face of strong competition
and commoditization in an integrated, global economy. Manufacturers will have to acquire competitive
advantages in marketing product innovation to customers and prospects, in effectively selling through
multiple channels and by employing different customer engagement models and tactics.

Configure, Price, Quote (CPQ) solutions can make an enormous contribution to the transformation of front
office processes and operations of manufacturers. Configuration technologies help firms articulate the value
propositions and benefits of product lines of any scope and sophistication. Combined with pricing
management, much greater visibility and control is possible over discounting and pricing realized in different
kinds of transactions. Moreover, new practices, like mass customization and value-based selling become
practical due to the underlying product catalog, modeling business rules and constraints technologies.

With the addition of quoting tools, workflows and tight integration with contract management and renewals
functionality, among other capabilities, end-to-end process automation is possible that yields considerable
productivity gains for sales people as well as for partners and end-customers in self-service web sites. And all
actions and trends become measurable with analytics.

Account growth strategies can then by sharpened by actual purchasing patterns of clients and installed
assets. Moreover, data can be integrated with bills of materials and routings for logistics and production
facilities, to give manufacturers the edge with lead times and responsiveness to customers.

Hence, CPQ applications present solutions to many key pain points and sources of errors and inefficiencies
found in the sales and marketing practices of manufacturers. Rapid, effective adoption of modern CPQ
applications will give any manufacturer an advantage over competitor, and key tools needed to help the
organization grow revenues profitably.

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About Apttus
Apttus, the category-defining Quote-to-Cash software company, drives the vital business process between the
buyers interest in a purchase and the realization of revenue. Apttus is delivered on the Salesforce1 Platform,
the worlds most trusted and comprehensive cloud delivery infrastructure. Applications include Configure-
Price-Quote (CPQ), Renewals, Contract Management and Revenue Management. Additionally, Apttus patent
pending X-Author technology enables Microsoft Office to be a user-interface with full interaction and control
between SalesforceTM and Microsoft Office. Apttus is based in San Mateo, California, with additional offices in
London, UK, Bozeman, Montana and Ahmedabad, India. For more information visit: www.apttus.com

Notes:

1. Gartner, Criteria for the 2014 Magic Quadrant for Configure, Price and Quote Application Suites 31
March 2014, by Praveen Sengar
2. Gartner, Hype Cycle for CRM Sales, 2013 14 August 2013, by Rob P. DeSisto and Praveen Sengar.

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