A Bull' s Eye for ON Semiconductor's Pricing Execution
Mishandle pricing execution and any organization will surely have potential revenue generating opportunities fall through the cracks. ON Semiconductor experienced this firsthand when it hit a series bumps on its road to optimizing its global price execution. For example, it inconsistently implemented vital pricing processes--like changing pricing rules not quickly enough to reflect market conditions--and had few metrics to measure price effectiveness in quote-to-sales conversions and margin erosion.
"We had no documented process for any of our quotation processes, so quotes went out from the sales team in a very erratic process, with no accountability and follow-up as to the quote activity," says Tom Hayden, vice president of operations at ON Semiconductor.
Recognizing that their global pricing needed a complete overhaul, and that it would have to include automation to effectively restructure its price execution blueprint, ON embarked on a thorough examination of enterprise software solutions. About 13 months ago the global supplier of power, data management, and standard semiconductor components selected Azerity's ProChannel solution for interactive quote management. "The implementation with ProChannel has given us a very disciplined process for how we process our quotations to our customers, and discipline around consistent pricing methodology," Hayden says. ON worked with Azerity's professional services team and an Azerity consulting partner, going live just over four months after the kick-off meeting.
According to Azerity's CEO Stephen Gold, when the Web-based CRM software provider deploys a price solution its approach comprises three phases. The first step is to have good data, and in turn, devote time to what Gold refers to as normalizing the data: "One of the things we do within the solution is provide the data alias and the data merge capabilities. That's a very important ingredient in effective pricing, because otherwise you start to create these...data anomalies that are impossible to understand and impractical to report upon." The remaining two facets include creating business rules to input into the Azerity solution and executing the implementation.
It took ON Semiconductor's new, more finely tuned pricing execution approach less than a year to get 100 percent ROI. In addition, the company experienced a 10 percent increase in bookings and a 20 percent drop in price erosion. Add to these successes an annualized incremental benefit of $54 million, a 46 percent increase in quote-to-order conversion ratio, and a boost in its gross profit margin by 5 percentage points. "Our distributor partners will tell you that it's enabled them to be able to respond back to their customers more quicker than they were able to in the past," Hayden says. "We improved the speed and accuracy of the pricing process with the tool. We've also got the ability now because all of the quotes are maintained in one system to be able to run analysis on what we win versus what we lose."
Other benefits? ON experienced strong improvement in quote and contract-service levels, got better information for setting strategic price strategies, and had real-time global visibility into quote activity. ON also introduced an opportunity tracking system about six months ago. Hayden says that the system "gives us the ability to record future opportunities and design activity, and track them all the way through the design stage into the approval stage, and then measure revenue based on those activities."
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