Why Modern RfQ Software is the Tool to Secure your Bottom Line
November 23, 2022
What does modern RfQ software look like? And how can it help you ramp up your EMS business revenue? Read our Founder’s advice to end your 2022 with a bang, despite the challenges of the electronics sector.
Since the start of the Covid pandemic, the electronics industry has been hit hard by disruptions in the supply chain. While the chip crisis is about to get better, the global geopolitical landscape and the threat of the economical recession are adding a great level of uncertainty to the demand side.
No wonder many companies are currently focusing on cutting spending; however, we believe that now, more than ever, is the time to invest in modern Request-for-Quotation (RfQ) software. Read on to understand why.
Modern RfQ software
For any bespoke manufacturer, the RfQ process is one of the most vital business processes. Purchasing, manufacturing and logistics can work like a Swiss clock, but if we can’t win the customer over with a quick, high-quality quotation, we are not making any revenue. Nothing beats a great first impression.
For electronics manufacturing services (EMS), the RfQ process is even more burdensome, since most of the material procurement happens on a project level. With material often contributing to more than 70% of the cost of an electronic assembly, “winging” material procurement in the RfQ stage is the fastest way into non-profitable projects.
Therefore, we believe modern RfQ software should combine:
End-to-end capabilities – covering every step from bill of material (BOM) processing to generating the final quotation in one tool;
Intuitive user experience – enabling everyone in the organisation, expert or novice, to contribute to the process and onboarding new staff in no time;
Procurement engine – connecting to distributors and manufacturers of electronic and mechanical parts with automatic interfaces (APIs) or portals to deliver prices and availabilities;
Design intelligence – creating a digital twin of the to-be-manufactured product that makes it easy to spot any mistakes and risks early on, as well as to propose changes and alternatives;
Manufacturing analysis – uncovering risks embedded in the manufacturing of the circuit board or the assembly;
Collaboration layer – connecting stakeholders in the organisation and serving as an exchange interface with customers and suppliers to increase the speed of interaction and reduce the error probability of manual email processes;
Flexible integrations – the software becomes a “hub” for all data from the inventory (e.g. ERP = Enterprise Resource Planning) to the production (e.g. MES = Manufacturing Execution System), allowing better decision-making when it really matters.
The effects of a modern RfQ process
Working closely with our 60+ EMS clients, we identified five advantages for their organisations since the adoption of a modern RfQ software solution:
1️. Save specialist time
By automating many manual steps of the process and avoiding re-work, the amount of specialist human labour needed can be significantly reduced. This ranges from up to 90% less work required to scrub BOMs or to search for prices across multiple web shops.
2️. Faster turnaround time
By leveraging the procurement engine, some bottleneck processes, such as waiting for manual quotes from suppliers, can be circumvented. Plus, as everyone is collaborating on one single source of truth, internal coordination becomes a breeze. As a result, the RfQ turnaround times are significantly faster than the competition.
3️. Save on material costs
Every manual quote ever received is stored in a central database, next to up-to-date data from various APIs. By aggregating BOMs and optimising price breaks, the system always finds the optimal supplier.
4️. Avoid non-profitable projects
Estimating manufacturing costs correctly is essential for shielding the organisation from costly miscalculations. With accurate cost estimate and transparent cost-plus calculation, non-profitable projects are easily spotted.
5️. Charge extra
As an added bonus, by adopting modern RfQ software, EMS can charge their customers extra for special services, such as BOM risk and compliance analysis, customer portal access or manufacturability checks. Who wouldn’t like that?!
What this means for an EMS business
Increase revenue
Most EMS companies can only answer 60% of the incoming RfQs with the necessary rigour, while the machines are only utilised about 70% of the time, leaving room to increase production without ramping fixed costs.
Specifically, adopting modern RfQ software means that:
Thanks to a reduction in manual work (1️), companies can finally use their resources effectively and answer all RfQs they receive or actively search for new opportunities.
Sharing some of the material cost savings (3️) with the customer can make a quotation even more attractive.
With faster turnaround times (2️), quotations always hit the customer early and, as a result, the hit rate significantly increases.
In addition, extra charges (5️) allow companies to further grow the pie.
Example: increasing the hit rate from 10% to 15% and the quotations from 50 to 70, leads to an increase in orders from 5 to more than 10, easily filling up spare capacity and leaving room for further investment.
Reduce costs
Now let’s see how using modern RfQ software translates to cost reduction:
Material cost savings (3️) are tangible for every single project and can be kept in full to the EMS or partially shared with the customers.
We can further reduce costs by selecting the most profitable projects (if we have reached full utilisation) or at least avoid non-profitable ones (4️).
In addition, we can combat the skilled labour shortage by getting entry-level staff up to speed and equipping them with software superpowers (1).
Example: saving 5% in material costs, which make up 70% of the costs of an electronic product where we only have 5% profit margin, means increasing the profit margin by 66.5%.
Before: €10,000 sales → €9,500 costs → €6,650 material costs → €500 profit.
After: €10,000 sales → €332.5 (5% of 6,650) savings on material costs → €832.5 profit → +66.5%.
Profitability is king
In tough times, all eyes are on profitability. A streamlined RfQ process is THE gate towards a more profitable EMS business.
With average margins of 5-10%, the aforementioned effects can compound to increase an EMS’ bottom line by 100%.
Sounds too good to be true? Book a demo and let us show you the future.
