Understanding Configure Price Quote (CPQ) in Digital Transformation

Written By: Eric Kimberling
Date: June 15, 2024

For companies that manufacture complex and customizable products, the process of configuring, pricing, and quoting (CPQ) can be daunting. The intricacies involved in assembling these products to meet specific customer requirements necessitate a robust CPQ capability. This blog delves into what CPQ is, why it's crucial for certain businesses, the challenges in traditional ERP systems, and how to effectively implement CPQ in your digital transformation strategy.

What is CPQ?

CPQ stands for Configure Price Quote, a process that encompasses:

  1. Configure: Customizing a product based on the unique specifications and requirements of the customer. This involves selecting various options and components that make up the final product. For example, in the case of machinery, this could involve choosing specific motors, gears, and control systems.
  2. Price: Calculating the cost of the configured product. This step takes into account all the selected options and components, ensuring that the pricing is accurate and reflects the complexity and customization of the product.
  3. Quote: Generating a formal proposal that can be presented to the customer. This proposal details the configuration and the associated costs, providing the customer with a clear understanding of what they are purchasing.

What is the Need?

For businesses involved in manufacturing complex products, the CPQ process is essential. These businesses often deal with products that require numerous components and subassemblies, each with its own set of specifications and options. Sales teams must be able to configure these products accurately to meet customer needs. However, salespeople typically are not engineers or manufacturing experts, making this process challenging.

Without a proper CPQ system, sales teams can struggle to accurately and efficiently provide quotes. This can lead to delays, errors, and customer dissatisfaction. Additionally, the manual processes often used to handle CPQ can be inefficient and prone to mistakes, further complicating the sales process.

Challenges in Traditional ERP Systems

Most ERP (Enterprise Resource Planning) systems are designed to handle straightforward order fulfillment processes, from taking an order to invoicing the customer. However, they often fall short when it comes to handling the complexities of CPQ for configurable products.

Sales teams need tools that allow them to input customer specifications and receive guidance on available options based on predefined business rules and parameters. Without such tools, the CPQ process can become a manual, error-prone, and time-consuming task involving back-and-forth communications and trial and error.

Traditional ERP systems often assume that the person entering the order knows how the product should be configured, priced, and quoted. This is not always the case, especially for complex products that require detailed knowledge of manufacturing and engineering principles. As a result, there is a significant gap in many ERP systems that prevents them from effectively supporting CPQ processes.

Technologies Supporting CPQ

To effectively manage CPQ, organizations can look for ERP systems that offer robust CPQ capabilities or consider integrating third-party CPQ solutions. When evaluating ERP systems, it is essential to ensure they can handle complex manufacturing requirements and support the CPQ process.

Some ERP providers offer CPQ modules as add-ons to their core systems, while others might require third-party integrations. These solutions should be able to:

  • Integrate seamlessly: Ensure that the CPQ solution can work smoothly with your existing ERP system, allowing for a unified workflow.
  • Utilize business rules and logic: The CPQ system should guide the configuration process based on predefined rules and parameters, ensuring that only viable configurations are quoted.
  • Provide accurate pricing: The system should be able to calculate prices accurately, considering all selected options and components.
  • Automate workflows: Reduce the need for manual intervention by automating the configuration, pricing, and quoting processes.
  • Improve accuracy and efficiency: By leveraging advanced algorithms and data, the CPQ system should enhance the accuracy and speed of the quoting process.

Implementing

To successfully implement a CPQ solution, businesses should start by documenting their business rules and parameters for product configurations. This documentation will serve as a foundation for selecting and implementing the appropriate CPQ tools.

Here are some steps to consider when implementing CPQ:

  1. Define business rules and parameters: Clearly document the rules and logic that govern how products can be configured. This includes constraints, dependencies, and options for each component or subassembly.
  2. Evaluate ERP systems with CPQ capabilities: When selecting an ERP system, ensure that it has robust CPQ capabilities or can integrate seamlessly with third-party CPQ solutions. Focus on systems that support complex manufacturing processes and have a proven track record in your industry.
  3. Consider third-party CPQ solutions: If your chosen ERP system does not have adequate CPQ capabilities, look for third-party solutions that can integrate with your ERP. Many specialized CPQ providers offer advanced features and functionality that can enhance your overall sales process.
  4. Integrate CPQ with existing systems: Ensure that the CPQ solution integrates seamlessly with your existing ERP, CRM (Customer Relationship Management), and PLM (Product Lifecycle Management) systems. This integration will provide a unified view of customer orders and streamline the overall sales process.
  5. Train your sales team: Provide comprehensive training to your sales team on how to use the CPQ system effectively. Ensure they understand how to input customer specifications, navigate the configuration options, and generate accurate quotes.
  6. Monitor and optimize: Continuously monitor the performance of your CPQ system and gather feedback from your sales team and customers. Use this feedback to make necessary adjustments and improvements, ensuring that the system evolves to meet changing business needs.

Conclusion

CPQ is a vital component for businesses that produce configurable products. By implementing robust CPQ capabilities, these businesses can streamline their sales processes, reduce errors, and improve customer satisfaction. When embarking on a digital transformation journey, it is crucial to evaluate and address CPQ needs to ensure that the selected systems and processes support the complexity of the products being manufactured.

For more insights on digital transformation and best practices for ERP implementation, I encourage you to read our annual digital transformation report. You can access it via the links provided.

By understanding and addressing CPQ needs, businesses can better position themselves to compete in the marketplace, offering customized solutions that meet their customers' specific needs efficiently and accurately. Whether through integrated ERP systems or third-party solutions, a robust CPQ process is essential for modern manufacturers looking to thrive in a competitive environment.


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Kimberling Eric Blue Backgroundv2
Eric Kimberling

Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.

Author:
Eric Kimberling
Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.
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