Finding new business is essential, but it is equally critical to respond effectively to the business that finds you.  For many distributors, such business arrives in the form of a request for quotation. This case study shows how one distributor increased sales, improved customer service and reduced costs by significantly enhancing its quotation process management.

For many distributors, such business arrives in the form of a request for quotation. This case study shows how one distributor increased sales, improved customer service and reduced costs by significantly enhancing its quotation process management.

The Situation

Purchased Parts Group, Inc. (PPGI) is a distributor of industrial fasteners to automotive and other OEM manufacturers. A large portion of its new business generation comes from responding to requests for quotation (RFQs). These RFQs could be as simple as a price quote for a fixed quantity of a single standard part. However, they are often quite complex, with hundreds of line items, custom parts with detailed specifications and engineering drawings, multiple delivery dates and variable quantities.

The RFQ process is resource intensive. It involves obtaining the initial requirements from the customer, sourcing the parts from PPGI’s suppliers (which involves the identification of qualified vendors and the management PPGI’s own RFQ process), and collecting all the information into a final bid package.

In addition to the new business, many of PPGI’s existing customer contracts call for annual cost reductions, which PPGI can only achieve through cost reductions from its suppliers. This “re-sourcing” process is very similar to the RFQ process in terms of its workflow and effort required.

The Challenges

PPGI recognized that improvements in its sourcing and RFQ process could potentially offer a lower cost to respond, a higher close rate, improved margins and, most importantly, better service to its customers. In November of 2001, it asked the Indian River Consulting Group (IRCG) to analyze the situation and recommend improvements.

In any re-engineering project, the first step is to separate fact from myth. IRCG visited each of PPGI’s locations and walked through the steps with the people who actually do them day-in and day-out. The following general observations were made:

• Quoting and sourcing were a craft, not a process, at PPGI. There was no standard, repeatable, measurable procedure that could be managed or improved. Everyone did it his own way and the quality of the results was totally dependent on the skills of the individuals involved. Fortunately, PPGI had a small cadre of extremely experienced and capable bidders who produced outstanding results from the tools they had. Obviously, however, the loss or defection of a single member of this team would have been devastating.

• Quotes came from every direction. Within PPGI there were a number of different people producing quotations for customers. In addition to the designated bidders, others who routinely received and responded to RFQs included outside salesmen, customer service representatives and purchasing agents. While this strong customer service attitude was commendable, it ultimately reduced the service level that PPGI as a whole was providing to its customers. Salesmen were sometimes unaware of significant quotes in process when calling on their accounts. Quotes often took longer than necessary because similar past quotes could not be located and the wrong people were often working on a task (e.g., salesmen negotiating with suppliers). In addition, it was highly likely that some of PPGI’s customers were consciously price shopping within PPGI, asking two or three different PPGI associates for a quote and then selecting the best price.

• There was no summary reporting or ability to proactively manage the business pipeline. At any point in time PPGI had no way of knowing the total value of opportunities in play or the rate at which they were being closed. Upper management could not make sound decisions about deploying limited resources because they didn’t know the types of quotes that PPGI was most likely to win. They couldn’t identify “looky loo” customers who always asked for quotes but never gave their business to PPGI.

• PPGI had islands of information. Because PPGI’s business system had limited capabilities in this area, quotation and sourcing was primarily paper-based. Quotes were recorded on handwritten notes or in different individual spreadsheets. Key information, such as customer requirements and supplier conditions, was maintained in paper folders. This meant that it was hard to quickly find information or know who was working on what. More significantly, it greatly increased the opportunity for errors. Critically, when there was a mismatch between what the supplier offered and what the customer required, PPGI was caught in the middle and often forced to pay to correct the variance.

The Solution

The first step in designing a solution was to identify and prioritize the characteristics of an “ideal” quotation process. Prioritization was critical, because it forced the team to think very clearly about its requirements and confront the trade-offs inherent in any standardized process. The team agreed on the following basic principles:

1. It was imperative to have a centralized, easily accessible view of all quotation activity occurring in the company. Without this, PPGI could not provide timely support to its sales force nor could it make systematic improvements in the process.

2. The quotation process must remain very simple and flexible. A complicated process would be difficult to learn and would hinder adoption. PPGI also didn’t want to dilute the effectiveness of the quotation staff by making them follow mindless procedures or spend hours typing into a computer.

3. Keep it cheap. Regardless of the payback potential, PPGI simply didn’t have the financial freedom to spend hundreds of thousands of dollars for process re-engineering or automation.

With these principles in mind, the team proceeded to create a clear flow chart of the ideal process. Although it may look very basic, such a flow chart is extremely important. By getting the process down on paper, it proved that everyone had a shared vision of the process and that all the major exception conditions were covered. The team found that the best way to organize the documents was to create an overall process flow chart that fit on a single page. It then created more detailed flows for each major process. In some cases, a third level of detail was required. This methodology allowed anyone to quickly see the whole picture and then drill down into specific areas of interest.

In addition to showing how the work was to occur, the process flow showed who was responsible for each key task and, critically, the “deliverable” or output from it. The team wanted no confusion as to whether a task was truly done or not. The team studiously avoided the temptation of omitting these “owners” and “deliverables,” or being ambiguous about them.

The clarity of the documents was demonstrated by the passion that they generated in review meetings. After many discussions and several revisions, the process was approved by management and the team obtained a commitment from all owners. Not everyone was happy about every aspect of the proposed process, but they were totally clear about their new roles and responsibilities.

Careful readers will have noticed the potential for conflict between the team’s first guiding principle (a consistent, centralized view of all quotation activity) and its second (keep it simple and flexible). Clearly, some level of automation was required to track quotation data as painlessly as possible. To keep the cost low and ensure that the system could be supported internally, the team elected to create a “Quote Tracker” system using Microsoft Access. IRCG consultants developed the initial version of the system because they had extensive knowledge of best practices and the technical expertise to quickly create a working prototype. However, to foster ownership and reduce costs, it was transitioned to PPGI’s IT staff as the requirements were finalized and they became more comfortable with the software. Access was chosen because it offers an open architecture that can be readily integrated with most databases, is relatively low cost, is easy for both users and programmers to learn, and has a large pool of experienced programmers available. In Access, user screens can be created graphically, using simple drag-and-drop tools. However, the Quote Tracker also employs some Visual Basic language programming.

Basically, the Quote Tracker is a database that relates lines on customer RFQs to lines on supplier bids. It also keeps track of the status of RFQs, what the next action is and who is currently responsible for taking that action.

Based on the flow chart for the process, the team designed the following functions into Quote Tracker:

• Quickly log a new request for quote. The key to meaningful pipeline management is to capture all activity. To encourage data capture, the team limited the RFQ logging process to the entry of a few data fields. By using an internal database of customers and salesmen, the team was able to make the automated creation of a quote even simpler than its paper-based counterpart. This helped to speed adoption and gave the users a positive initial experience with the system.

• Automatically notify support staff. Creation and updates of quotes trigger notifications to those needed to help close the business. This includes product specialists, quotation staff, purchasing personnel and salesmen.

• Pipeline analysis. By tracking the progress of each quote as it moves through each process “gate,” Quote Tracker provides managers with the information they need to prioritize, expedite and follow-up. Aggregate data can be used to calculate close rates, distinguish real customers from those who are just using PPGI as the third bidder, etc.

• Automatically tie supplier RFQs to customer quotes. As suppliers respond with their own quotes, Quote Tracker enables PPGI to quickly identify the best price and automatically assign the supplier’s response to the customer’s quote. This saves significant time and, much more importantly, reduces PPGI’s risk of being “caught in the middle” between a supplier commitment and a customer promise.

• Automatic printing and email. Quotations can be transmitted to customers and RFQs sent to suppliers directly from the Quote Tracker database. This saves considerable time and expense in printing, copying, faxing and filing.

There was no shortage of ideas for enhancing Quote Tracker. Digitizing drawings, call tracking, automated bid package creation and labor utilization rates were all considered. At the end of the day, however, the best is the enemy of the good. Quote Tracker had the critical functions required to meet the project objectives, while remaining relatively inexpensive and simple to learn.

The Results

Prior to the introduction of Quote Tracker, PPGI didn’t really have reliable statistics on quotation performance. Therefore, “before and after” comparisons are difficult. However, in the year since Quote Tracker went live, processing time for incoming RFQs has decreased from an average of 3 days to 2.5 hours! The kill rate for new business has increased substantially because of this improved responsiveness and because PPGI now has the information to identify the most fruitful opportunities. Although it is dealing with a greater volume of quotations, the sourcing organization has shrunk by 25% while service levels have improved.

Many intangible benefits have also been reported, including:

• The automation leaves little room for error, with internal checks and balances to match requested items with quoted items. When discrepancies do occur, the transaction trail makes it far easier to research and resolve them.

• Price and quotation look-ups have become faster and easier. Even field personnel can review a part to determine if it has been quoted previously. Since a single line can require several man-days in total quotation effort, the ability to reuse recent quotes is extremely valuable.

• The entire sourcing team has become more disciplined. Costly and dangerous process shortcuts are harder to take and more visible to management.

• Comparison between suppliers is far easier than before, with all information displayed on a single screen.

• Everyone speaks the same language. Quote information is recorded and maintained in a standard format. Work can be easily reassigned to balance workload and take advantage of individual specialization. Executives, managers, salesmen and the sourcing department all share a common view of quote activity.

Lessons Learned

This project shows that targeted, well-designed process improvements plus some basic automation can greatly improve quotation efficiency and effectiveness. By keeping the project focused on a specific process, we avoided “scope creep,” kept the costs low and met our deadlines. Outside experts were used where their experience was most important (assessing the current process, recommending specific improvements based on best practices, facilitating the new process design and creating the initial automation tools), but the project was quickly transitioned to internal staff to ensure ownership and reduce development costs.

Naturally, with anything new, there is always resistance to change. The implementation team knew the importance of establishing (and meeting!) a firm rollout date. Once the process was introduced as the method for sourcing and quotations, it rapidly became the norm for conducting business.

Steve Deist ( This e-mail address is being protected from spam bots, you need JavaScript enabled to view it ) is responsible for the Operations Practice at Indian River Consulting Group. IRCG is an experienced based firm specializing in Distribution. Started in 1987 by J. Michael Marks, IRCG has specialists who consult with distributors and suppliers to make the changes necessary to maintain competitive advantage. You can contact them by calling 321-956-8617, or visit www.ircg.com for more information.

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