Improving Fundamental Processes for Profitability: Accelerate conversion cycles and re-channel revenue toward corporate goals

If only getting “back to basics” was. . . well, basic. The fact is that each business basic consists of a complex web of people, process and information interactions, and changing these systems, confirmed habits and entrenched processes is a task that’s anything but basic.

Profitability issues are not new. What is new are the efforts underway in many businesses to turn difficult business processes that represent cash and resource sinkholes into competitive advantages. No matter the enterprise or industry, customers are attacking—and changing—root causes of difficult business problems. And in doing so, Selectica helps enable executives to invest in projects that accelerate cash conversion, reduce costs and significantly improve profitability.

Compressing the Cash Conversion Cycle

Converting goods and services into cash is a fundamental business concept. Invest cash in a business to build a product or service, sell the product, invoice the customer and collect the money with a profit.

In downturns the cycle slows, which results in fewer cycles and resources.

Therefore, companies must find ways to:

• Develop new products, services, or expand sales resources
• Reduce the Cost of Goods Sold (COGS)
• Sell more products and services and protect existing margins
• Reduce the number of Days Sales Outstanding (DSO)

In theory, this sounds basic. In reality however, executives must also support partners, distributors and employees; maintain sell-through in multiple channels with multiple requirements; accurately predict market direction; and maintain a competitive advantage. And to balance all of these imperatives, managers have to deal with processes that run on a frightening array of tools and infrastructure.

Now the enormous challenge of compressing the cash conversion cycle becomes apparent. A typical Fortune 500 company has thousands of product and services variations moving through diverse channels. Each product or service originates in engineering, manufacturing, marketing or underwriting and eventually must be processed through this complexity before it can be converted to revenue. Every process delay, error, broken process, added cost and productivity obstacle significantly affects the cash conversion cycle—slowing it, stopping it, or worse, siphoning off cash that could have been revenue into customer concessions and write-offs. In a large enterprise, these issues result in cash leaking like the proverbial sieve.

Getting to the Root of the Issues

Depending on the stage of the cash conversion cycle, different issues can block progress.

New Product and Services Introductions

Market dynamics drive product and financial changes, demanding that the organization be flexible enough to translate opportunities into deliverables. Yet, the multiple technologies intended to improve a company’s competitive advantage are difficult to synchronize. Separate engineering (PDM), manufacturing (ERP), marketing (spreadsheets, pricing applications) and finance (general ledger, accounting, analysis applications) systems with multiple data feeds can deliver a wealth of data—none of it easily integrated for sales purposes. Frequently, data changing in one system affects data in others, yet the changes are not reflected in dependent transactions. This requires longer lead times for new products, leads to pricing errors, and can affect sales training and sales tool quality.

Reducing Cost of Goods Sold (COGS)

Complex product, service and pricing interactions among disparate legacy systems, coupled with inefficient sales processes, increase the COGS.

Complexity also leads to configuration, pricing and order errors. For example, it’s common to see a product offering that includes a configuration tool for components within the solution, but can’t avoid conflicts or compatibility issues with components from other divisions.

Another problem occurs when the information that a customer receives in a proposal is different than the information format required by manufacturing to fulfill that order. Similarly, engineering specifications are different. At each stage, there is a significant difference in the level of detail, terminology and format. This not only delays revenue, it creates costly re-work, customer concessions, and damaged customer satisfaction. Selectica’s experience shows that in large enterprises with complex offerings, order error rates typically range between 24% and 40%—with commensurate rework, extra personnel and concession costs. And when the enterprise sells through multiple distribution channels, the problems geometrically increase.

Selling More and Protecting Margins

When sales teams must spend a significant amount of time fixing order errors, providing customer support and protecting customer relationships from deterioration, they can’t be out generating new business.

When they are in front of a customer, the systems in place often do not enable them to quickly and accurately configure, price and present solutions in a single quote. They must learn and use multiple tools to produce one result and often miss incremental opportunities for cross-selling, up-selling and renewing support services commitments.

Large enterprise resource planning (ERP) systems are frequently not helpful here because they aren’t able to consolidate and synchronize the back-end system data that leads to errors in the first place. Even a small improvement in cross-selling and up-selling performance can significantly increase revenue for large corporations with extensive product lines.

With insufficient—or incomplete—data, managers must make educated estimates about pricing and apply these estimates across channels and customers. As a result, it becomes difficult to monitor profitability by customer or maximize profitability on each sale—and almost impossible to react quickly to protect profitability when competitors attack market share.

Reducing Days Sales Outstanding (DSO)

The longer it takes to correctly configure, price, and deliver the customer’s order, the longer it takes to realize the associated revenue. Usually long DSOs aren’t the result of simple collection delays. They are the result of broken processes further back in the cash conversion cycle—an inability to accurately assess risk and having to spend time fixing incorrect orders.

Solutions for Improving Profitability

Selectica develops, markets and implements web-based configuration, pricing and quoting solutions that enable large enterprises to accurately configure and quote complex product, service and financing offerings. These solutions are deployed in many of the world’s largest companies where they significantly reduce costs, enhance revenue and improve profitability. A rundown of the key benefits:

Streamline, Synchronize and Transform Critical Information

Relevant data from engineering, manufacturing, and marketing systems is unified into the Selectica application platform and dynamically updated. Patented modeling technology accurately configures, prices, quotes, or rates offerings. As a result, all channels (self-service, CSR, direct sales, partners, international) have the most current data from all back-end systems (ERP, PDM, analytical, reporting, data repository) in a single web-based interface that is easily used to launch, price, quote and profitably sell all products and services (hardware, software, professional services, financing).

Enterprises leverage their own knowledge repository that captures all the rules and constraints exercised in building, bundling, pricing and selling complex products and services. The right information is always available in the right context to any person in the organization that needs it.

Integrate with Current Systems and Processes.

Companies can retain their existing sales and service processes while converging configuration, pricing and quoting functions in a single application platform, without costly reengineering.

Automate Complex Processes

The processes and calculations required in configuring, pricing, quoting, and comparing alternative products and services are automated and many are automatically validated. Accelerate Product Launches and Time to Market

Standardizing on an enterprise-wide configuration and quoting platform has provided real results including:

• Reduced product introduction times from four to six weeks to one to three days
• Reduced maintenance time (small product, bundling, entitlement) changes to less than two hours
• Enabled ordering and pricing changes to be deployed worldwide within an hour
• Enabled customers to easily select and configure products online
• Enabled 100% on-time launch of new products.

Reducing COGS

Reducing COGS depends on improving many small steps in several key processes, among them order configuration and quoting. Selectica customers have achieved great success in these areas:

• Reduced transaction costs by 75%
• Deployed an online channel for a highly configurable product line and eliminated the manual order review process, freeing staff for more productive tasks
• Reduced quoting time for complex products from one day to five minutes
• Improved quote-to-close ratio from 5:1 to almost 1:1
• Reduced manual configuration costs by 86%
• Increased order-taking speed by 60%
• Reduced pricing configuration time by 95%
• Reduced support calls to call center by 10%.

Expanding Sales Opportunities

Generating new customers is only one way to improve sales. Equally effective (and less costly) ways include cross-selling complementary product lines, combining services contracts with products, upgrading installed base customers and reducing distribution channel costs. Many customers have achieved one—or more—of these results:

• Extended cross-selling capabilities across 10 different product families
• Doubled the average dollar amount per order
• Increased online sales every quarter
• Increased online sales from 1% to 10% and quadrupled revenue from one product line
• Improved business policy enforcement that results in always pricing orders correctly, protecting margins, and ensuring that no deal is sold at a loss
• Improved top-line revenue on $2.5B business unit.

Reducing DSO

Sometimes, accelerating cash conversion and improving profitability depends on things a company doesn’t do, instead of the things it does. Reducing risk exposure, eliminating waste, and not writing off inventory are all examples of this principle. Selectica customers have experienced huge gains in these areas:

• Eliminated non-buildable orders to significantly impact revenues of over $20 billion
• Gained an ability to reject orders from customers who have been placed on credit watch—before costly work is done
• Reduced DSO to 25 days.

Selectica’s customers have changed the way they run their businesses into a more cost-effective, efficient and progressive way of doing business. They have taken their new efficiencies and genuinely turned them into a competitive advantage. In every case, since the effort has gone towards the start of the Cash Conversion Cycle, there isn’t that much work to be done to reap the rewards at the end of the cycle.

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The first step in re-vitalizing business is to be able to more efficiently convert products and services into cash—and then back into expanded offerings and sales opportunities. Selectica enables world-leading companies to successfully improve their fundamentals, accelerate their cash conversion cycles, and re-channel revenue toward corporate goals. For more information about how Selectica can help your organization, visit www.selectica.com and contact a Selectica representative. For more information, please contact:

Kamal Ahluwalia, Vice President, Business Development, 408.545.2469 or Laurie Spoon, Vice President, Corporate Communications and Investor Relations, 408.545.2492