Follow the Money . to Mass Customization

By Jim Wilson, program director, Cincom Systems.

A greater than 50 percent increase in demand for customized, complex, manufactured products is predicted over the next two years, according to a survey of U.S. engineers by software developer Cincom Systems.

But only about two-thirds of U.S. build-to-order and engineer-to-order manufacturers actually know how much it costs to produce each of their customized products, say those same engineers. Furthermore, almost three-quarters of those companies DON’T know the cost of engineering change orders - a fact of life in customized manufacturing. Thus, the study’s findings clearly indicate that many manufacturers are likely to incur significant losses in taking orders for customized products - even though for some companies, that’s where the greatest profit lies.

Market leaders in this field - the companies raking in those profits - are easily identified: They’re the ones that have a handle on this data. Furthermore, those companies that have already integrated back-office manufacturing and engineering configuration systems with front-office selling systems are positioned to jump on this predicted expansion and even further cement their places as leaders in this field.

So, the question arises: How can you make sure that you are on the bandwagon moving in the positive direction?

Product Customization - the Road to Growth

Product customization occurs across a wide range of products, even relatively low-cost ones. Almost all of the engineers surveyed said their companies’ ability to customize products that cost even less than $1,000 was “very important.” As might be expected, the more expensive the product, the more important was the ability to customize it. With products costing more than $100,000, the ability to customize was perceived as “critical” by a very large majority.

Furthermore, product customization enables their companies to increase prices at least 10 percent, said almost 60 percent of the engineers.

With all of these realized and potential advantages, customization may be a major savior of American manufacturing. However, finding that so few manufacturers know the true cost of customization leads one to wonder how much longer some of those companies will continue to even survive.

Mass Customization - the Road to Growth at Less Cost

With Mass Customization methods, customized products are created with production costs and prices similar to mass-produced products. So, the cost-reduction objectives of many companies’ managements, which usually mean reducing customization, are met along with customers’ needs for products that meet their individual requirements as well.

In addition, with Mass Customization, engineering finds itself less often in that precarious position between customers’ demands for (and willingness to pay for) customization and manufacturing’s (and management’s) pressures to reduce costs via greater product standardization.

Of course, Mass Customization requires a good deal of strategic planning and thinking, as well as close relationships with customers. To make Mass Customization result in a win-win outcome, customers are involved in product specification, requirements planning, and design and development.

Interestingly, more than 80 percent of the engineers surveyed said they were using customer collaboration in developing customized products, even though only a small minority employs specific Mass Customization strategies. The customer collaboration described by so many may be largely a form of collaborative design, but this trend can provide support for implementing Mass Customization strategies. So, it may be that many companies may already be on the road to Mass Customization. The question is whether they will reach the destination or be held up by roadblocks arising from their own unwillingness to re-chart their courses.

Barriers to Customization (and Overcoming Them)

Somewhat surprisingly, only half of the survey respondents said they use software to develop customized products. At the same time, between 40 percent and 55 percent said they did not have complete information to support service information, catalog information, selling systems, product development, and customer documentation/usage instructions. Furthermore, at a number of companies, this (often incomplete) information was not available until more than a month after a customized product was created or updated. A number of these problems could be solved by implementing readily available software solutions.

These information-flow difficulties are probably some of the greatest barriers to implementing successful customized manufacturing strategies, mass or otherwise. Overall, product complexity itself doesn’t prevent customization, according to the engineers surveyed. Rather, they said, it was customers’ lack of knowledge about options (67 percent) and the field’s similar lack of information (44 percent). In other words, survey respondents implied that most customization problems can be solved, but the people closest to those problems did not have enough information to realize this.

This study indicates that a disconnect exists between the back office and the front office that separates engineering and manufacturing from the selling system. As mentioned earlier, the relatively few companies that have integrated back-office with front-office systems report market leadership. Unfortunately, most companies surveyed do not fall into this category.

The solutions to overcoming these barriers are clear, but are not easy to implement because they require major changes in the often pyramid-shaped, silo-inducing ways current business organizations are structured. To increase competitive advantage, become a market leader, and essentially, survive and thrive as a U.S.-based manufacturer:

• Define strategy - such as Mass Customization - with metrics
• Align back-office and front-office systems
• Determine true costs of completing a customized order
• Capture intellectual capital through knowledge management and succession planning

Dayton Progress Reduces Order-to-Shop Processing Time by 60%

As the worldwide industry leader in the production of catalog and special punches, punch blanks, and other metal stamping tools, Dayton Progress provides premier customer service by maintaining the highest of quality standards. They did this by replacing a 30-year-old software system and streamlining their order-entry process.

Providing innovations and techniques that improve the performance and productivity of stamping operations in customer plants, Dayton Progress Corporation, a global subsidiary of Federal Signal Corp, accepts a high volume of order line items per day from around the world, with most being engineer-to-order. In addition, Dayton Progress maintains renowned quality standards, holds the tightest of tolerances, and offers their customers delivery schedules that are as short as one day.

The Challenge:

• Replace a custom-designed software system that had been in use for over 30 years.
• Implement a system that domain experts, not just IT, could maintain.
• Capture the intellectual capital of Dayton Progress’ product experts.
• Integrate with Dayton Progress’ ERP system, while being able to validate orders, create a variety of custom routings, perform inventory analysis, and simplify time standards.
• Reduce system maintenance and streamline the order-entry process.

Solution:

Implement an interactive selling and product configuration software solution from Cincom that captured the product knowledge formerly held only by their engineering, customer service and other staff.

Key results:

• Payback of less than two years of software and services from Cincom; derived from efficiencies in maintenance, order entry, customer service, and process engineering.
• 50% time reduction in time standards programming.
• Capture of over 30 years of intellectual capital and system data.
• 60% reduction in order-to-shop processing time.
• Reductions in inventory, optimized to customer demand.

Cincom Systems targeted the survey at senior engineering managers at 900 manufacturers of complex industrial, electrical, and transportation equipment and systems between January and February 2007. To receive a copy of the full report, visit www.cincom.com/EngReport.