EMS WHITEPAPER A case study detailing how one EMS provider increased revenue & profit through enterprise

strategic sourcing and quote management

Business Growth through Enterprise Strategic Sourcing and Quotation Management

INTRODUCTION
This white paper provides a detailed analysis of the results that EMS companies can achieve through the implementation of an enterprise strategic sourcing and quotation management application. A thorough examination of quantitative, empirical data, both before and after implementation of QuoteWin at one Top 100 EMS company, is provided in order to assess its effectiveness in creating competitive advantage in the quotation process (ex: win-loss ratio of projects quoted, times required to quote, accuracy of quotations, volume of quotations processed, etc.). The case study, prepared in collaboration with one global EMS company, provides an in-depth insight into how e-commerce tools can be employed to enhance competitiveness in the EMS industry. Due to the competitive nature of the EMS industry, the identity of the EMS provider has been concealed. For the purpose of this paper, the company being studied has been given the fictitious name of GrowthTech. Personal interviews with other supply chain and business development professionals at other EMS companies were used to establish a benchmark for comparison with GrowthTechs performance. Identities of interviewees have also been protected.

OVERVIEW
A broad survey of the EMS industry was conducted prior to the beginning of the detailed analysis of GrowthTech. The purpose of this overview was to gain a general understanding of how various companies in the industry are managing strategic sourcing and quotation management. The results of the industry survey were surprising in several ways. It is astounding to see how many EMS companies are still using basic, non-integrated, relatively manual tools such as Excel spreadsheets to manage their quotation process. Surprisingly, even some of the biggest EMS providers still use Excel spreadsheets for quotation tasks such as transmitting bills of material (BOMs) and sending RFQs one by one via email to component suppliers. According to one Asia-based senior quote specialist, who receives RFQs regularly from two of the largest EMS companies in the world (top 10 largest), all RFQs and quotations are transmitted in Excel format. However, several other Top 10 EMS companies opted for an off-the-shelf software package, QuoteWin. Before starting the industry survey, the assumption was that the biggest players would have been more likely to have developed their own e-quotation systems, either from scratch or as a highly customized module with an ERP system. With the vast corporate IT resources at their disposal, such an initiative would certainly be possible, especially if it were perceived that significant competitive advantage could be developed through innovative custom development. However, the total cost and the risks involved in developing completely custom software in-house, as well as issues of long-term supportability and upgradability, are not to be underestimated and are likely the factors that swayed these major players away from custom development. According to Pedro Murillo, Technical Director of PolyDyne Software Inc., in Austin, Texas, Flextronics has been using QuoteWin for over twelve years. One Flextronics quotation manager in Singapore interviewed for this study stated about QuoteWin, We couldnt live without it. Among the off-the-shelf quotation software packages available, one clearly dominates: QuoteWin from PolyDyne Software Inc. Many of the early competitors to QuoteWin are now defunct and no longer supported. While some other off-the-shelf quotation software packages are available, they only offer hosted services for smaller manufacturing companies that are not powerful enough to handle the complexities of EMS product costing and analysis as well as supply chain management.

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CASE STUDY OF GROWTHTECHS USE OF QUOTEWIN

GrowthTech hired a new Director of Business Development (DBD), at the corporate level to drive business growth for the company. The DBD is responsible for sales, customer service, marketing, business development, acquisition, etc. Integral and fundamental to these activities is the quotation process. The new DBD was directed first and foremost to focus on fixing the quotation process, as the company had lost eight out of ten of the previous major must-win projects it had quoted, due to a mixture of quotation errors in the costed bill of material (CBOM), too much safety buffering in labour calculations, late quotes or even failure to get a quote out at all, and general lack of cost competitiveness. GrowthTech at the time was a tier-two EMS provider, an order of magnitude smaller than giants such as Solectron, Flextronics, and Foxconn (respectively numbers 1, 2 and 3 at that time). With three facilities in Asia and one in Mexico, and capabilities ranging from printed circuit board assembly (PCBA) to plastic injection moulding, metal stamping and box-build assembly, GrowthTech nonetheless had the global reach and vertical integration to raise its competitiveness and accelerate its growth rate. However, quotation success, or rather the lack of it, was a serious obstacle to further business growth. At that time, GrowthTech was using laborious, manual systems, based on Excel spreadsheets and individual emails to each supplier for quotes on every individual component in the BOM, all of which then had to be expedited, received, checked and then manually re-entered into the spreadsheets. This system created multiple handling of each individual piece of data, with transcription errors and other typos hard to avoid or catch. To summarize, the status quo at that point in time, GrowthTech was facing the following issues related to quotation: Far too slow quote turnaround time, usually beyond the time allowed by customers Limited quotation capacity a barrier to growth Error prone data administration costly errors, both under-quotes and over-quotes Poor maintenance of quoted pricing history at component level, only captured for projects awarded Incomplete cost data for new product introduction (NPI) Poor win-rate (winning <20% of projects quoted) Loss of credibility/reputation in the marketplace, both suppliers and customers. The bottom-line result of the above issues was a flat-to-negative growth rate for the company due to the failure to acquire new customers, and lack luster operational performance also on the running business. Together with GrowthTechs Director of Corporate Procurement (DCP), the new DBD initiated a study of quotation system packages on the market, as well as the option of customizing the existing quotation module in GrowthTechs ERP system or even developing their own solution. These latter two options were quickly discarded, however, since in either case, the amount of programming and customization was beyond what GrowthTech could tackle, and GrowthTech understood that, as the coders and other IT staff eventually turn over, future ability to upgrade or even maintain such custom software would be a nightmare.

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But adoption of an off-the-shelf system also presented significant challenges for GrowthTech, including: The legacy quotation process would have to be re-engineered to take full advantage of the new software. GrowthTech had disparate legacy ERP systems located in different countries. Different GrowthTech individual business units (IBUs) had different part numbering schemes. IT hardware architecture would have to be upgraded and modified across the enterprise, and higher bandwidth Internet lines established in order to support all IBUs from a central server located at the headquarters. GrowthTech evaluated four off-the-shelf packages and obtained quotes from three companies. QuoteWin was favored due to its apparent performance benefits as well as the team behind it, who were the most professional and proactive in presenting their system. QuoteWin costs were well into six figures USD which was well beyond what had been budgeted. GrowthTechs board questioned why the company should invest in such an expensive system rather than simply hiring more staff and continuing with the manual system of Excel and email. GrowthTechs DBD and DCP by this time were convinced, the necessity of the system both to achieve the competitive cost and speed advantages to achieve new business growth and also for improved operational efficiency overall. The company was too big to continue to be run on Excel spreadsheets. GrowthTechs DCP performed a detailed analysis of the cost saving that could be expected through use of QuoteWin (see Appendix A). Nearly $200,000 per year cost savings could be gained through increased efficiency in the quotation process by using QuoteWin. Although the study assumes forty quotes per month as the basis, the expectation (since validated) was that this quotation throughput could be doubled with QuoteWin. While this increased operational efficiency was (very conservatively) estimated to save $200,000 per year the real return on the investment in QuoteWin was not only operational cost savings in handling of quotes, but rather in terms of the expected improvement in the win-rate for the company. QuoteWin was expected to enhance GrowthTechs competitive advantage in terms of speed, cost, and accuracy of quotes and win new customers for the company as a result. The key benefits of QuoteWin that were seen to offer substantial improvements over the status quo manual system using Excel included: Highly specialized application developed around needs of the high-tech electronics/EMS industry and had already benefited from over fifteen years of iterative improvements due to PolyDynes close work with its EMS customers. Advantage: totally optimized for EMS providers, easy integration with other supply chain processes. Intelligent BOM entry module that automates the porting of customers BOMs into QuoteWin through field mapping. Advantages: saves 90% of the time and avoids nearly 100% of the errors versus the previous process of manual re-keying and/or copy & pasting of all the part numbers and other BOM information. Eliminates manual (email and fax) RFQ dissemination to suppliers with its robust web portal interface for suppliers. Supplier selection is streamlined based on automated criteria. Advantages: speed, accuracy and much higher response rate from suppliers, and given these efficiencies, GrowthTech could get quote from double or triple the number of supplier than before, generally resulting in lower prices being obtained.

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 Stores all quotes including all component costing in a historical database and easily retrieves that history to compare with new quotes obtained. Previously GrowthTech had a hard time retrieving this information. Advantage: useful historical cost data aids price negotiations with suppliers, resulting in prices obtained being >5% lower on average. Enables consolidation and aggregation of component demand across all the business units, factories, and locations in the enterprise. Advantage: this information gives GrowthTech the best possible leverage for periodic negotiations with suppliers to establish volume purchase agreements (VPAs) resulting in significantly lower costs and price protection. Fully automated. Once projects are awarded, the process of porting all the BOM and data from QuoteWin into GrowthTechs ERP is fully automated via simple interfaces. Advantage: speed, accuracy, and completeness of data to support a fast new product introduction (NPI) process. As a result of the above detailed study and ROI analysis, GrowthTechs board approved the purchase of QuoteWin. GrowthTech signed the software license agreement with PolyDyne Software and rolled out the system to all IBUs in less than 90 days. Now that GrowthTech has been running QuoteWin for three years, it is possible to analyze whether the expected cost savings were realized, to assess the overall result of its adoption and answer the core question in this study: did this e-quotation software help achieve competitive advantage in the highly competitive EMS industry in the case of GrowthTech? Appendix B provides a summary of the quantitative improvements seen by GrowthTech due to adoption of QuoteWin and provides a clear answer to this question: yes, without doubt. GrowthTech did achieve competitive advantage through the implementation of QuoteWin as evidenced by the more than doubling of their win-rate and tripling of their quotation output. As is shown in Appendix B, the companys organic growth rate for new business doubled from 10% per year to 20% per, largely due to improved execution in its quotation process. The detailed quantitative benefits that made this improved competitiveness possible are shown in Appendix B. The bottom line impact of QuoteWins implementation at GrowthTech, based on actual empirical results, was an average annual increase in net profit before taxes of $840,000, which represents a return on investment of 1120%. Finally, QuoteWin yielded soft or qualitative benefits as well. QuoteWin fits Hau L. Lees ideal supply chain model as described in his definitive article, Triple A Supply Chain because it is optimized for Agility, Adaptability and Alignment. QuoteWin delivers these key objectives by generating analysis that allows the firm to understand and react quickly to the changing environment and also to enhance supply chain connectivity and measurement of performance.

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CONCLUSION
Competitive pressure on the EMS industry and their OEM customers has increased due to globalization and other macroeconomic factors, leading EMS providers to search for ways to either develop or adapt IT solutions to achieve competitive advantage and win new business. Speed, accuracy, and low cost are the critical success factors in quoting manufacturing services for new projects, making quotation one of the key processes in supply chain management of an EMS company. A surprising number of mid-tier and even tier-one EMS companies are still relying on outdated manual tools for quotation, such as Excel spreadsheets and faxed RFQs, rather than integrated strategic sourcing and quotation management such as QuoteWin. Clearly, adoption of QuoteWin has been a success for GrowthTech, yielding the expected benefits of increased win-rate, shortened lead-times for quotation, and higher accuracy than before using Excel, email and fax. These critical success factors have yielded a definitive competitive edge for GrowthTech, enabling new business growth of net 25% per year since the QuoteWin implementation. Further positive side effects in customer service level and credibility have accrued to GrowthTech as a result of turning around accurate and competitive quotes in a professional format to customers. Last but certainly not least, QuoteWin made possible cost reductions on the order of approximately 5% on average in quoted bills of material, some of which GrowthTech could retain thus improving its profitability. Recommendations on which approach an EMS provider should adopt depends on factors such as size, industries served, product mix, and the global scope of their business. Small EMS companies may only be able to afford Excel, email and fax. Mid-tier EMS companies should adopt a packaged strategic sourcing and quotation management system such as QuoteWin. QuoteWin has been adopted by a large proportion of the EMS industry and continues to grow in use. It is also well accepted and understood by suppliers, which is essential, since they must be relied upon to use the freeware SupplyWin web portal. The evolution of IT in EMS supply chain systems does not stop here. PolyDyne is continuing to work with its customers to enhance QuoteWin and increase its value to EMS providers. Overall, the progress achieved by such IT innovations in EMS supply chain systems both results from and drives further the economics of globalization, making the borderless world first posited by Kenichi Ohmae in 1999 and more recently by Thomas Friedman (2005) in The World is Flat an unavoidable reality. EMS providers who embrace this reality and use globalization to their advantage, via IT solutions such as QuoteWin, will be the winners in this increasingly competitive marketplace. The others will be history.

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APPENDIX A
QuoteWin Cost-Benefit Analysis at GrowthTech Prepared by Director of Corporate Procurement, GrowthTech, and submitted to the COO CORPORATE PROCUREMENT EFFICIENCY IMPROVEMENTS & SAVINGS WITH QUOTEWIN Quotes per month (average) Minutes spent entering customers BOM Minutes spent aggregating component demand Minutes spent assigning commodity codes Minutes spent preparing & sending bid sheets Minutes spent chasing suppliers for bids, making sure received bids are correct/complete Minutes spent entering pricing back into Excel Cross referencing and part number corrections: Minutes spent identifying unquoted parts Minutes spent calculating excess material costs Minutes to identify lowest price / shortest lead-time Minutes taken to roll up final costed BOM Total minutes per quote (average) Total minutes per month Total hours per month Total cost per month (total hrs x $40*/hr): Total Monthly Efficiency Savings Total Annual Efficiency Savings * Note that $40/hr is not a fully burdened labor cost. The actual cost is much higher. Status Quo Manual Excel/Email 40 120 30 30 120 60 120 60 30 15 30 60 675 27,000 450 $18,000 As Proposed with QuoteWin 40-80 15 0 5 5 30 0 15 2 2 1 5 80 3,200 53 $2,133 15,867 $190,400

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APPENDIX B
Empirical Results of QuoteWin at GrowthTech Before: average for 18 month period prior to QuoteWin implementation After: average for most recent 18 month period after QuoteWin implementation EMPERICAL RESULTS OF QUOTEWIN AT GROWTHTECH Quotes per Month Quotation Team Headcount Quote Turn-Around Time (weeks) Average BOM cost reduction Error Rate (% of quotes with major errors) Win Rate (% of quotes won) New Business Revenue Growth (% per year, organic) Net Profit Impact (USD/yr) ROI of QuoteWin Before 25 12 6 N/A 25% 20% 10% N/A After 75 10 2 5% 5% 50% 20% 0.84 1,120%

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ABOUT POLYDYNE
PolyDyne develops and markets business applications that are used for the product costing and quoting processes. Through an intense dedication to addressing specific supply chain needs of the high tech, defense, aerospace and communications industries, PolyDyne Software has built an impeccable reputation for innovation and excellence. Weve been responsible for many of the advancements in product costing and strategic sourcing that have become industry best practices. Since 1993, PolyDyne has focused its efforts on solving the most complex product costing challenges faced by the worlds leading companies in these industries. Our organization is comprised of hard working professionals with extensive backgrounds in software, procurement and manufacturing. As evidenced by our longstanding customer relationships, our team holds a strong commitment to providing the highest level of satisfaction possible to each of our customers. PolyDyne provides more than just software products and services. We provide the expertise and know-how necessary to make our customers successful. For more information, visit us online at www.polydyne.com.

PolyDyne Software Inc. 9390 Research Boulevard, Suite 400 Austin, TX 78759 512.343.9100 www.polydyne.com

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