What Is CPQ for Manufacturing?

Manufacturers looking to customize products for their clients may need to reconsider how they develop quotes and proposals. With boundless component combinations and dynamic pricing joining forces to drive manufacturing financial strategies, companies need to move beyond time-consuming manual processes when designing and estimating their bids.

Enter configure, price, quote for manufacturing (CPQM) software that empowers manufacturers to advance toward delivering highly configurable products faster and more efficiently. CPQM guides sales teams and customers through product configuration, automatically calculates pricing based on many internal and external factors, and even generates quotes that include technical documentation vital for ordering and production. This article explores what CPQM is, how it works, and why manufacturers see this technology as a linchpin for innovation.

What Is CPQ for Manufacturing (CPQM)?

CPQM is a sales automation tool for manufacturers that can help speed up the sales cycle and strengthen the quality and accuracy of quotes. Manufacturers find CPQM software extremely valuable because it enables their sales teams to package highly customized component and product combinations for customers without having to manually navigate technical sales catalogs. CPQM platforms are programmed to include all possible technical configurations and to tap into information about supply chain availability and dynamic pricing.

Armed with CPQM tools, salespeople can use a simple interface to quickly configure a bid setup—perhaps even identifying additional add-on options or alternatives for upsells—and then have the system do the heavy lifting to generate timely pricing and quotes. By automating the process, CPQM software ensures that quoted product configurations are always up to spec with engineering and regulatory standards and that quotes are consistently accurate and in line with policies on discounting.

Key Takeaways

• CPQ tools guide configuration of customized products and automatically generate pricing and completed quotes based on business rules and customer information.
• CPQM software layers in specialized manufacturing considerations during product configurations—including important validation of engineering standards—and generates manufacturing documentation, such as bills of materials.
• CPQM software accelerates the quote cycle for manufacturers and allows them to offer highly customized products more efficiently.

CPQ for Manufacturing Explained

Customization stands as one of the most common forces behind smart factories today—those highly digitized production facilities that integrate technology, people, and big data into a single ecosystem to create an automated, self-adapting manufacturing system. Within these factories, manufacturers seek to produce greatly customized and even personalized products for their customers to solidify relationships and create new sales opportunities.

However, customization can prove to be a double-edged sword: Offering seemingly endless configuration options may be a dream come true to customers, but it can be nightmarish for salespeople. Without some form of automation and smart search functionality, sales teams may struggle to comb through endless complex product catalogs, build out technically viable configurations, accurately price all the components, and compile thorough quotes that include all the manufacturing documentation and data necessary to send the job to production. Performing that level of customization manually for every customer order will quickly create an untenable backlog in the quote-to-order process. This is why CPQM software is such a crucial element in supporting customization in manufacturing firms.

The CPQ Process: How Does It Work?

The CPQ process is an automated three-step method for generating professional quotes. The first step is configuration, where customers or sales reps select product options based on requirements, availability of materials, and predefined rules set in the CPQ’s product catalog. For example, if a sandwich shop were using CPQ software, the rules would state that the end product needs to include a type of bread and at least one filling to be considered a viable product.

Next comes the pricing stage, where the CPQ tool uses data about material costs, pricing structures, and discount rules to price the configuration designed in step one. Third is the quoting stage, in which the CPQ system creates a professionally formatted quote that can be sent directly to the customer or folded into a more comprehensive proposal by the sales team.

CPQ processes are used in a range of B2C and B2B sales channels across a number of industries. CPQM is highly specialized, compared to some broader CPQ use cases, in that it must meet the technical needs of the manufacturing sales cycle. During configuration, for instance, CQPM software will incorporate engineering rules and manufacturing constraints to provide guardrails for selecting viable components and technical options. Additionally, during the quoting process, CPQM solutions generate manufacturing-specific documentation that customers and production teams will need to quote an order and execute on it. This includes bills of materials and production data.

What Is Guided Selling?

Guided selling is a technology-powered methodology that evaluates customer data and preferences to help buyers configure customizations without falling prey to analysis paralysis. Guided selling uses data from customer profiles, quizzes, technical requirements, and past purchases to proactively suggest configuration options.

Specifically in manufacturing scenarios, guided selling tools will ask customers direct questions or prompt sales reps to run customers through options and requirements to narrow down their configuration choices. CPQM software helps this guided selling process by providing a structured framework that layers product knowledge, engineering rules, and manufacturing constraints into the discovery process. The software dynamically updates available choices as the guided selling process zeroes in on the best configurations for the job.

Challenges of Configurable Products

Configurable products are a key building block for delivering personalized solutions to discerning customers. The more options a manufacturer can offer customers, the more responsive it can be in meeting specific needs and requirements. This capability drives revenue, but it also presents significant challenges to traditional sales processes—especially manual ones. To successfully and profitably execute production on configurable products, manufacturing sales teams need to consider the following pitfalls endemic to manually setting configurations and pricing.

• Requires extensive product knowledge: Highly customized manufacturing processes must be governed by complex engineering rules and constraints. Additionally, sales teams need to know about the availability of raw materials and supply chain issues that could potentially impact the viability, scheduling, and pricing of any given configuration.
• Involves time-intensive quote preparation: Even the most knowledgeable sales professionals need to do extensive work to compile all the configuration and job pricing details into a presentable quote that includes bills of materials and other specifications necessary for production. This time-intensive process can significantly prolong sales cycles.
• May introduce pricing and discounting errors: More product configuration options means more components, increasing the chances that pricing errors and other problems will creep into a quote. In addition to errors attributable to manual calculations or a lack of visibility into supply costs, sales teams could also make mistakes in how they determine discounts available to the customer. This kind of overdiscounting can be extremely difficult to regulate.

CPQ for Manufacturing Software Benefits

CPQM tools can help manufacturing companies navigate the challenges inherent in offering highly configurable products. Here are some of the major benefits afforded by adoption of CPQM software.

• Automated pricing: Quickly calculates pricing based on product configurations, volumes requested, eligible discounts, and current promotions. These calculations can dynamically adjust to real-time data about material costs and on-the-fly updates to pricing rules.
• Fewer quote and order errors: Validates configurations and pricing against predefined engineering and finance rules, which cuts down on nonviable or money-losing configurations. Additionally, the automated generation of manufacturing documentation reduces the number of potential problems in an order that could result in production errors.
• Improved accuracy: Generates quotes that contain consistent and precise information about the technical specifications of a configuration, as well as the correct pricing, discounts, and surcharges associated with that setup.
• Increased visibility: Establishes a clear line of visibility into the pricing strategies and sales processes that apply to every single quote by integrating with customer relationship management (CRM) and enterprise resource planning (ERP) systems to create an end-to-end view of customer behaviors, product, performance, and more. This makes it easier for sales teams to identify top-selling product configurations and optimize sales strategies, and for finance and business leaders to accurately forecast sales and revenue. Furthermore, increased visibility helps compliance teams accomplish swift and successful audits.
• Improved inventory management: Incorporates inventory management data from ERP systems to help sales teams guide customers toward configurations that align with current inventory availability. The close alignment between CPQM and ERP offers two-way insights that can help anticipate inventory demand and promote configuration choices that avoid existing supply chain issues.
• Increased revenue: Shortened sales cycles and improved quote accuracy mean sales teams can close consistently profitable deals quickly. Additionally, CPQM software makes it possible to change pricing rules dynamically so that they align with market conditions, ensuring that sales teams can quickly adjust to external conditions.

Features and Use Cases of CPQ for Manufacturing Software

CPQM software offers a suite of powerful features designed to optimize the sales process for customizable products. From product configurators that enable precise customization to dynamic pricing algorithms that ensure competitive yet profitable quotes, CPQM solutions are transforming how manufacturers engage with customers and manage their sales operations. Here are some of the most common features of CPQM software, along with associated use cases.

Product Configurators

Product configurators automate the process of designing customized manufactured products. They offer an interactive interface through which sales teams, and sometimes customers, can select available options and features to create a fully configured product. Configurators validate the product setup according to predefined logic rules, ensuring that the final product uses available components that are compatible, technically sound, and feasible, given the manufacturer’s production capabilities. Product configurators usually integrate with ERP and CRM systems to guarantee seamless order management and production planning.

Use Cases

Product configurators are highly versatile and address a range of manufacturing use cases. For example, a medical device manufacturer could use a product configurator to generate specs for prosthetic limbs based on input from medical professionals about patients’ body measurements and activity levels, as well as the environments in which the limbs will be used. Similarly, a furniture manufacturer may use a configurator to allow customers to design their own sofas or end tables by selecting fabric types and colors, wood finishes, molding styles, and so on, along with dimensional requirements. The configurator could then create renderings of the customized furniture, along with production specifications.

Dynamic Pricing

Dynamic pricing uses advanced algorithms and artificial intelligence to automatically calculate the optimal price of a given configuration based on real-time market conditions, production costs, and volumes being considered. Dynamic pricing usually leans on data from ERP and CRM systems to identify existing inventory levels, competitor prices, supply chain and labor costs, promotional offers, and available discounts. This enables the manufacturer to establish a competitive price that quickly maximizes profitability in line with a full slate of business variables.

Use Cases

Dynamic pricing helps all kinds of manufacturers remain responsive to fast-moving supply chain and competitive factors, as well as operational considerations. An aerospace manufacturer, for instance, could dynamically adjust prices downward for certain configurations that depend on underutilized production lines, while maintaining higher margins for more popular lines. Meanwhile, a chemicals manufacturer might use dynamic pricing to assemble quotes on the fly for custom formulations based on real-time commodity prices and energy costs.

Quote Generation

Quote generation features compile all product configuration and pricing information generated in the first stages of CPQ and combine that with customer information and terms and conditions to create a customized and complete quote. This functionality helps sales teams quickly put together quotes with just a few clicks, rather than having to labor over wording and formatting. Quote generation functions often offer flexibility in design, allowing salespeople to tailor the wording or layout of a quote, if needed, while maintaining brand standards. Most importantly for manufacturers, the quotes generated will include the technical details and rendering information necessary to facilitate production.

Use Cases

CPQM software could help a business, such as an industrial pump manufacturer, automatically create technical quotes for engineers and procurement teams that include detailed CAD drawings, a spare parts list, material specifications, and even maintenance schedules and manuals for a customized pump configuration. In another scenario, a custom robotics manufacturer could use the quote generation capability to rapidly create a quote for a particular configuration, complete with highly specific technical integration information and diagrams for how components will be combined.

BoM Generation

Bill of materials (BoM) generation is one of the main differentiators between CPQM and broader CPQ software solutions. This feature dynamically compiles lists of components, materials, and subassemblies used to manufacture a customized product, incorporating the specific configuration choices made during the quoting process. This generates accurate and up-to-date information for both sales and production teams so that everyone is operating from the same page with regard to operations and cost.

Use Cases

The BoM generation capability could help a custom machinery manufacturer quickly generate a bill of materials for a customized equipment assembly configuration that includes a thorough list of the motors, sensors, and electronic componentry used in the design. The BoM, in turn, gets amended each time the sales rep adjusts the configuration. In the same manner, an HVAC manufacturer that creates custom-designed systems for buildings can be sure of having an accurate list of ducts, compressors, and thermostats in advance of every project they initiate.

Guided Selling Tools

Guided selling tools in CPQM software can amplify the performance of sales teams using these platforms by creating intuitive questionnaires and decision trees that walk customers through configuration choices. Guided selling selection tools can be opened up to receive direct input from customers or used as a sales-facing tool to help representatives quickly narrow selection options, based on customer needs and preferences.

Use Cases

Guided selling tools streamline the sales process by anticipating and addressing customer requirements up front. For instance, an agriculture equipment manufacturer could use guided selling techniques to prompt sales reps or customers to input information about crop types, field sizes, soil conditions, and existing equipment. The system can then rapidly generate a tailored set of configuration options for further customization. Or a manufacturer of custom product packaging could employ a guided selling solution where users input important details, such as product dimensions, fragility, shipping methods, and branding requirements. The system can then recommend optimal combinations of materials, box designs, and cushioning options.

Select KPIs for CPQ for Manufacturing

Measuring key performance indicators (KPIs) that assess the quote-to-order process both before and after implementing CPQM software can help manufacturers monitor the return on investment (ROI) and operational impact the software is having on the business. This not only helps companies validate the effectiveness of their CPQM software, it also identifies areas where they might want to adjust their business logic and usage strategies to get the most out of their sales automation tools.

Here are some of the most common KPIs that manufacturers should track to compare sales performance pre- and post-deployment of CPQM software.

• Order accuracy rate is calculated by dividing the number of accurately fulfilled orders by the total number of orders received and multiplying by 100.
• Sales cycle length measures how long it takes to convert a new lead into a finalized sale—from initial contact to completed purchase. It’s determined by dividing the total number of days it took to close all deals by the total number of deals closed during a specific period.
• Quote cycle time examines the total amount of time it takes to create an accurate price for the customer. It’s derived by dividing the total time spent creating quotes by the number of quotes generated in a given period.
• Quote conversion rate, also known as win rate, is calculated by dividing the number of quotes that are converted to sales by the total number of quotes and multiplying by 100.
• Average quote value, also known as average deal size, is established by dividing total revenue generated by total number of deals closed during a specific time frame.

How to Select a CPQ for Manufacturing Solution for Your Business

As with any software purchase, decisions about CPQM software should be governed first and foremost by identifying business needs and challenges that will be addressed by the technology. Whether it’s to remedy the fact that an overwhelming complexity of product configuration is killing order accuracy rates, or that slow quote cycle times are getting in the way of successful conversion, the weight of these considerations should set the compass for the selection process. Additionally, asking for estimates concerning total cost of ownership and ROI, as well as seeking customer testimonials, should be table stakes for the selection process. CPQM-specific factors that manufacturers should evaluate include:

• Integration capabilities: Check to ensure that the software can seamlessly integrate with existing ERP, CRM, and other manufacturing platforms.
• Manufacturing-specific features: Evaluate how thorough the software is in providing BoM generation and technical production specs in its generated quotes.
• User-friendliness: Make sure guided selling capabilities are easy for sales teams and customers to navigate.
• Scalability: Pick a solution that can grow with the business and handle increasing product catalog complexity over time.
• Complexity handling: Confirm that the software can accommodate complex pricing rules and product configurations.

Benefits of Unifying CPQ With CRM and ERP

Bringing together the power of CPQ software and the data and visibility of CRM and ERP systems delivers significant benefits to manufacturing companies. Integrating these systems creates a unified ecosystem where data flows seamlessly among sales, production, and financial processes. Manufacturers can generate accurate quotes quickly, leveraging real-time inventory and pricing data from the ERP platform while accessing customer information from the CRM system. This integration accelerates the quote-to-cash cycle, reduces errors in order processing, and improves production scheduling. It also enables sales teams to provide personalized quotes and faster response times, boosting customer satisfaction. To this end, NetSuite CPQ offers out-of-the-box integration with NetSuite ERP and NetSuite CRM, providing connected workflows that automate the transition from sales to delivery, generating BoMs and work orders automatically.

Configuring designs and estimating pricing for custom-manufactured products often require sales teams to choose from among a dizzying collection of components, configurations, and technical specifications. Layering in additional variables, such as complex pricing structures, supply chain availability, and production costs, can further complicate the process of creating an accurate and profitable quote for every custom project. Automated CPQM software can help manufacturers quickly design customized proposals without worrying about pricing errors or engineering incompatibilities. By taking the manual work out of the quote-to-order process, sales teams are able to spend more time listening to customers and finding opportunities to innovate, upsell, and cross-sell, too.

CPQ for Manufacturing FAQs

Who uses CPQ for manufacturing software?

Configure, price, quote (CPQ) for manufacturing software is used by manufacturers that want to speed up the process of creating accurate quotes for highly customized products.

Is CPQ the same thing as Q2C?

Not exactly. The configure, price, quote (CPQ) process makes up the first steps in the broader quote-to-contract (Q2C) process. Q2C extends beyond CPQ to include contract generation and execution, fulfillment, billing, and collection.

What industries can benefit from CPQ?

Configure, price, quote (CPQ) software can benefit a wide range of industries, including manufacturing, high-tech, healthcare, and automotive. Basically, any business offering configurable or customizable products can leverage CPQ tools to streamline their sales processes, improve accuracy, and enhance customer satisfaction.