2012 Strategies for Enabling Profitable Growth: Increasing Design Wins and Gaining Channel Mindshare
Chanan Greenberg, Senior Director, Business Development, Model N
Marc Gsand, Senior Director, Worldwide Channel Sales, AppliedMicro
Semiconductor and electronic component manufacturers
are bracing themselves for the uncertainties that 2012
holds. Much has been said about the cyclical nature of the
semiconductor business, yet there are significant differences between
recent downturns. The 2001 downturn was driven primarily by
high inventory levels and a sharp drop in demand, which led to a
significant investment in supply chain management processes and
tools. This investment paid off when credit dried up during the 2008
financial crisis, allowing companies to respond quickly and enable
a fast recovery in 2010 and 2011. This time, the driver is different;
sovereign debt in both the U.S. and in Europe is unnerving markets,
but unlike 2008 when the scope of the problem was unknown, the
scope is well-defined and corporate balance sheets are actually doing
well. It is for these reasons that analysts are predicting a soft start to
2012 and a return to moderate growth by the second half of the year.
The open question is what can semiconductor and component
companies do in 2012 to allow them to grow their business profitably
and install an infrastructure that will enable them to gain more
market share in 2013 and 2014?
Re-thinking Demand and Inventory Tracking
The global and multi-channel value chain in which semiconductor
and component manufacturers operate presents significant growth
challenges, especially for emerging companies with new offerings.
To increase design wins, gain mindshare from distributors and
manufacturing reps, and increase the ease of doing business with
these critical partners, manufacturers need to rethink their approach
to demand creation and the infrastructure they use to manage their
business. Many companies have revamped their sales processes and
invested in working closely with their end customers, but some
growth inhibitors still remain.
A 2010 survey of 60 semiconductor and component companies
by AMR Research revealed that the top two issues for these
companies were demand tracking and linking opportunities and
registrations to transactional data. There are significant process and
infrastructure gaps that prevent companies from performing these
tasks well, including managing one-to-many relationships, gaining
global visibility, effectively tracking transfer business, registration
programs and inventory tracking.
Managing One-to-Many Relationships
Most standard enterprise resource planning (ERP) and customer
relationship management (CRM) applications are designed to
manage a one-to-one relationship: a manufacturer selling to a
customer. In an industry where it is common for a distributor to
purchase product and ship inventory to a contract manufacturer
that is building a product for the actual end customer (which has an
agreement with the manufacturer), commodity tools and processes
are not sufficient.
Global Visibility
Demand signals that may be generated by a single end customer for
a specific project may appear as multiple demand signals coming
in from different sales locations and different channels. Many
companies find it difficult to systematically identify and resolve
duplicate opportunities.
Transfer Business
Over the past decade, transfer business has grown fivefold; it is
very common to see business move around the globe, with design
happening in one location, manufacturing in a second location, then
shipping to a third location to a contract manufacturer that in turn
ships to another location. Tracking transfer business and applying
the right external and internal teams is a challenging task for many
companies.
Registration Programs
Registration programs are an important component in the relationship
between manufacturers and their distributors, providing distributors
with protection and incentives to drive demand generation. Yet few
companies can easily manage the entire process, including embedding
programs automatically into their transactional systems, leading to
contention and dissatisfaction from their channel partners.
Inventory Tracking
Tracking inventory levels (especially with channel partners),
shipments, calculated quantities on hand and reported quantities,
and then reconciling that data with point-of-sale (POS) data is an
arduous task that often involves manual error-prone processes.
The common denominator of all the issues previously listed is
infrastructure; in the same AMR survey mentioned earlier, only 30
percent of companies rated their own tools as sufficient in addressing
the challenges listed. For most companies, managing one-to-many
relationships, gaining global visibility, effectively tracking transfer
business, and leveraging transactional tools that tie contracts,
registrations and quoting into a seamless flow are out of reach.
Companies often address these challenges by throwing more people,
processes and manual work at the problem, but this approach does
not scale and cannot produce systematic and repeatable results.
Understanding the Business Impact of Process and Infrastructure Gaps
The challenges listed can have a material and measureable impact on
growth, market share and margins.
Poor global visibility into demand and transfer business
management translate into lower rates on design wins, misalignment of
sales resources and can even result in inaccurate incentive calculations.
Additionally, low channel satisfaction with registration programs and
transactional issues around quoting, debits and processing credit claims
also impact channel mindshare and market share.
The inability to systematically remove duplicate opportunities
across channels and regions can also result in inflated forecasting and
misalignment between capacity, inventory and demand.
Last but not least, poor identification of end customer, cross-channel
and cross-regional bidding wars and the inability to correctly
map orders and shipments back to their original demand source
leads to significant margin erosion. Companies experience as much
as 3 percent to 4 percent in gross margin erosion due to poor price
execution and incorrect win/loss analysis needed to rationalize price
concessions.
Integrated Infrastructure
Numerous companies have embarked on projects to address some
or even all of the issues listed earlier. Most have ended up with a
point solution for one of the problems or a multitude of homegrown
systems and ERP extensions that are not well integrated and do
not solve many of the problems, and a seven-figure price tag with
considerable on-going costs. It is, therefore, important for companies
to first determine and understand their main requirements and
select a solution that is truly designed for this industry. The main
capabilities companies should consider are:
- Customer/end-customer management: the ability to map
an opportunity and registration to the correct end customer
and location regardless of other purchasing entities that may
be involved. This capability needs to permeate the entire
process, from opportunity to quote or contract through to
debit approvals and processing credit claims and calculating
commissions.
- Transfer business: systematic tools to manage transfer business
around the globe, ensuring the correct resources both internally
and externally are aligned, and mapping this information to
sales reports and incentive management tools.
- Registrations: global visibility into registrations to avoid
duplications, and the ability to tie registrations to price
conversion rules to assure automatic and correct price resolution
for channel partners.
- Quoting: Automated pricing capabilities that allow people to
focus only on high-value special price requests as well as enable
self-service on quotes are key to improving channel ease of
doing business.
- Deal analysis: the ability to analyze past deals and accurately
understand win/loss data to enable fast and data-driven
decisions on price concessions.
- POS and inventory tracking: the ability to collect and cleanse
POS and inventory data and automatically reconcile it with
shipments, debits and credit claims.
- Calibrating demand signals and aligning with inventory levels:
the ability to adjust demand signals after reconciling data from
distributors, manufacturing reps and direct sales and then
track how this adjusted demand is trending against cleansed
inventory data.
The key to success is integration. With customer and end-customer
information flowing through the entire process, orders
and shipments need to be used to track win/loss and consumption
against quotes, contracts and POS data. The power of an integrated
solution is that it truly enables a company to gain full visibility into
its business and have the tools to make timely, data-driven decisions.
Integration is the key differentiator from running multiple point
solutions that still require manual work and more people to connect
the dots.
Understanding the Benefits
Leading companies including STMicroelectronics, NXP, National
Semiconductor, ON Semiconductor, Micron, Linear Technology,
Atmel, Marvell and Microchip have made the investment to install a
single integrated platform that can address all these requirements. The
benefits were easily measured: significant reduction in the number of
homegrown systems and fewer points of integration to their ERP
backend. These savings alone would justify their investments, but
more impressive is the public data they have shared, including:
- Increasing the number of opportunities managed.
- Increasing the number of design wins.
- Reducing price erosion by 2 percent to 3 percent.
- Reducing quote cycle times by 50 percent.
- Reducing special price requests by 38 percent.
- Improving quote-to-order conversions by more than 10 percent.
- Eliminating overpayment of channel incentives.
Case Study: AppliedMicro Installing the Infrastructure for Profitable Growth
AppliedMicro (APM) is a $250 million dollar global semiconductor
supplier supporting products ranging from consumer-grade
processing to high-end data centers and telecom carrier networks.
Their products are highly complex and require early access to system
architects and design engineers. APM is often at the core of the
system; customers count on APM to supply products for long periods
of time. This dynamic requires that APM tracks programs from early
discovery to end-of-life and all phases in between, including
registrations, quotes, debits, samples and revenue data. As APM
grew, connecting the various phases became increasingly complex.
Excluding ERP, APM had four different tools supporting this flow,
including spreadsheets, e-mail, a homegrown opportunity database
and a custom module built to live inside ERP. None of them were
automated or connected and accessible to external channel partners.
This created a lot of manual activities that were prone to profit leaks.
As APM looked for solutions, the complexity and cost of the
solutions were overwhelming. APM also found that the ongoing
IT infrastructure fees would seriously add to this investment. APM
found an out-of-the-box revenue management system that focused
primarily on its high-tech business environment; had scalable costs,
allowing APM to grow into the tool at its own pace; and could go
live in less than six months.
With a short implementation timeline, APM leveraged business
and IT experts from the revenue management system provider
along with internal APM resources. In addition to the core team,
APM selected key business users to be part of the project definition
and testing process so they had early buy-in on functionality, and
then used these members to provide training to other teams as
APM went live. As with any implementation, clean data and
diligent scope management are critical to success. Today, APM uses
the revenue management system provider as its account master,
opportunity tracking database, registration database, quoting engine
and debit interface, as well as for sample entry and approval. APM
also uses territory mapping to drive commission payments and an
opportunity management tool to drive design win incentive plans.
APM is one year into the tool and has more than 3,000 customers,
3,000 opportunities and 2,000 quotes in the system. The revenue
management system is now a vital data tool for APM's executive sales
management review meetings and annual planning sessions. APM is
currently planning to analyze the full impact that the system has had
on the business.
About the Authors
Over the past six years, Chanan Greenberg has engaged with more than 50
semiconductor companies in the U.S., Europe, Japan and Korea to assist in their
price and margin improvement initiatives. He has authored several white papers
on global price management and revenue management. Before joining Model
N, as founder and CEO of Privia Inc, Chanan worked for six years with the
top 20 government contractors including Boeing and Lockheed to improve their
business development and government bidding processes. And prior to that as
CEO of Click Online, Chanan spent seven years working with high-tech original
equipment manufacturers (OEMs) primarily focused on consumer products.
Chanan Greenberg can be reached at cgreenberg@modeln.com.
Marc Gsand is a 20-year veteran in the high-tech industry, holding various
high-level sales and marketing positions during his career. Currently with
AppliedMicro, a fabless semiconductor manufacturer, Marc is responsible for
sales operations and channel partner programs on a worldwide basis. Prior to
AppliedMicro, Marc spent 12 years at Memec and Avnet holding various sales
and marketing positions, including vice president of marketing for Avnet's $4
billion semiconductor business unit. Marc is a graduate of Villanova University
where he holds a BSBA degree in finance.
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