Stop Leaving Money on the Table: Why Your Current Quoting Process Isn’t Working

Key Takeaways:

• Within manufacturing, depending on the quoting process used, the scales can tip your profit margin in either direction
• AI-powered like aPriori can mitigate errors due to manual calculation, identify cost outliers that cut into profits, increase cost target accuracy, and streamline workflows

The Full Article:

When a manufacturing company gets a quote wrong, it can significantly impact its margins. Underquoting can lead to lower profits or even losses. Conversely, overquoting could result in losing business to competitors.

Bain & Company reveals that Original Equipment Manufacturers (OEMs) had an average profit margin of 7.8% in the first quarter of 2024, down slightly from the 8.5% average in 2023. Meanwhile, suppliers stayed flat at an average profit margin of 5.6%. Despite average OEM profitability remaining high in the first quarter, margins did dip for approximately two-thirds of OEMs. This drop indicates less customer demand and increased pressure on prices. It is a trend that will likely continue into 2025 as potential tariffs, global conflicts, and other issues persist.

How can manufacturers and suppliers ensure that their quotes are accurate and fair while still making a profit? The answer lies in the method or solution used to create that quote. One that provides faster, more accurate turnaround on RFQ quotes will increase win rates and lead to greater profitability.

The Challenges and Impact of An Inaccurate Quoting Process

Along with limited staffing to create a massive number of quotes, quoting teams face other challenges as well. They include:

1. Manual and time-consuming processes and antiquated quoting tools: Too many manufacturers still rely on manual methods like Excel spreadsheets, which leads to a mountain of data that can be hard to decipher. A Manufacturing Leadership Council (MLC) study reveals that 70% of manufacturers still collect data manually. An MLC whitepaper finds that, despite the availability of analytics tools, most manufacturers still rely on spreadsheets for manufacturing data analysis.
2. Less experienced quoting professionals and inconsistent quoting: As experienced quoting professionals leave the workforce, newer hires do not have the necessary understanding of manufacturing processes. For instance, a newer quoting professional might not factor in a critical finishing operation on a part in their numbers, if they lack a deep understanding of what is required for a component or product. Often, when more skilled professionals exit the workforce, their industry experience, institutional knowledge, and personal rules of thumb when quoting go with them. What’s more, a spreadsheet cannot tell the whole manufacturability and cost story, overlooking hidden issues. To compound the problem, five different estimators could be quoting the same product but are achieving five disparate results, creating even greater quoting uncertainty and variability. All play a major role in missed business opportunities and profits.
3. Inability to get supplier prices quickly: Many manufacturers may work with other suppliers to fulfill their customers’ requests, relying on quotes from their suppliers. However, to be the first to quote, they don’t have the luxury to wait for those quotes. Instead, they rely on previous quotes, past experience, and other less-than-accurate methods to arrive at a number. This adds to a level of variability and risk maintaining a margin when submitting their quote to the client.

These issues can result in an inaccurate quotation process and hamstring manufacturers – both from a financial and operational perspective. Here are some specific ways incorrect quotes can affect your margins:

1. Reduced Profitability: If the quote is too low, the actual production costs may exceed the quoted price, leading to reduced or negative profit margins.
2. Customer Trust: Consistently inaccurate quotes can erode customer trust and lead to lost business.
3. Operational Inefficiencies: Incorrect quotes can cause disruptions in the supply chain and production schedules, leading to inefficiencies and increased costs.
4. Lost Business—Suppliers who can’t respond to an RFQ fast enough will see revenue decline over time as business is lost to suppliers who have automated their quoting system.

The Benefits of Quoting Process Automation

aPriori’s digital thread streamlines and optimizes the quoting process for Requests for Quotations (RFQs) by leveraging manufacturing simulation software. Consider the digital thread’s key benefits:

1. Faster Quoting and Increased Win Rates: The digital thread allows for the rapid generation of quotes by automating many of the manual steps involved in the quoting process. This significantly reduces the time required to respond to RFQs. For example, aPriori digital factories leverage the geometric cost drivers and the necessary information for product manufacturing (e.g., manufacturing processes) embedded in the 3D CAD model to drive a comprehensive manufacturing simulation. With this mission-critical capability, suppliers can simulate the production of client designs, speeding up quoting while generating deep insight into product manufacturability and cost structure. Quoting software leads to more competitive pricing, faster RFQ turnaround, and first-to-bid positioning. All provide a competitive advantage and greater opportunities to increase profit margins.                                                                                                                                         
   Discover how Flex boosted its RFQ win rate with aPriori’s digital quoting process.
2. Increased Accuracy: Using simulated manufacturing data, aPriori can provide highly accurate and detailed quotes. This helps identify hidden cost drivers and manufacturability issues, ensuring that the quotes are realistic, transparent, and competitive. Moreover, a solution like aPriori improves this accuracy in cost estimation and quoting early in product development, ensuring that manufacturers don’t underquote or overquote.
3. Greater Transparency: The digital thread facilitates better sharing and collaboration on design data between manufacturers and customers. This transparency helps in building more strategic and collaborative relationships, as customers’ needs can be better met and they can see how design choices impact final product costs.
4. Improved Responsiveness: By quickly generating accurate manufacturing quotes, manufacturers can respond faster to new business opportunities, increasing win rates. This is most critical in an environment of constant disruptions, including inflation, the supply chain, and geopolitical issues.
5. Improved Competitiveness: The platform enables suppliers to compare their manufacturing facilities to competitors that are more local to their customers or with similar manufacturing capabilities. This ensures that they are pricing their capabilities competitively. If they find they are not competitive with the customer’s local suppliers, they can identify why and justify potential solutions that make them more competitive. A digital solution like aPriori’s Regional Data Libraries can accelerate this process, providing a detailed breakdown of total manufacturing costs, including raw material costs, regional labor rates, and manufacturing overhead. Additionally, aPriori can simulate 440+ manufacturing process models, providing even greater precision and speed when quoting competitively. Manufacturers can use this information to benchmark production cost estimates, quickly selecting the best region to source components and manufacture products at the right price.

Too many manufacturers still rely on manual quoting methods, which leave them prone to human error and inaccuracies that can negatively impact their profit margins. Moreover, these cumbersome methods slow RFQ response times, reducing win opportunities.

By leveraging these tools, manufacturers can get more accurate quotes, compensate for more experienced quoting professional shortfalls, increase RFQ wins (and more profitable ones), protect their margins, and enhance overall profitability.