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Selling Mass Customization—

Implications for “Engineer-to-Order” Manufacturers, Their Dealers and Customers

by

David J. Gardner

It would make a lot of sense for “engineer-to-order” manufacturers to consider Mass Customization. Why?

Efficiency, productivity, profits.

The challenge “engineer-to-order” manufacturers face is reducing the level of Engineering content per order configuration.

A high level of Engineering content can bring with it a good number of potential and very detrimental problems:

• Late Customer deliveries—a lack of smooth order flow through the factory often

caused by the discovery of missing parts at critical points during build process

 

• Frequent margin disappointments due to understating costs as a result of

־ missing items in bills of material

־ inability to accurately predict labor costs

 

• Engineering effort incurred to support order demand is

־ non-recoverable expense, and,

־ cannot be leveraged into future orders

 

• Engineering resources are stretched too thin to support development of new

products as well as new features and options that have broader market

applicability

Under the Mass Customization paradigm, the product options are pre-engineered and modularized so the Dealers can recompose them into highly-customized order configurations. Mass Customization allows for the Engineering work to be done in advance of the order taking and provides the Dealer with a significant range of options from which to configure a Customer’s order.

Mass Customization does not, however, give the Dealer and the Customer the ultimate flexibility to “go to the drawing board” to figure out how to configure the Customer’s order.

While the manufacturer should not constrain the configurability of its offerings to the point of market irrelevance, Dealers may be fearful that this could occur. A Dealer might express the concern as follows:

We have concerns that the mass customization approach will limit potential sales to our market. The majority of the products we sell are highly customized. We feel this will negatively impact the possibility of selling products in our market

While Mass Customization does indeed place boundaries around the range of features and options a manufacturer wants the Dealers to sell (boundaries that may not have existed previously or were poorly defined), the boundaries must be appropriate for the marketplace.

The simple truth is that a manufacturer may not be able to efficiently design and produce a product configured exactly as the customer wants. But, the manufacturer should have alternatives capable of satisfying the Customer’s needs.

In some industries, the Customer is unwilling to compensate the manufacturer for the time and trouble to create such highly-engineered products—too many manufacturers are willing to accommodate a very high level of customization without requiring additional compensation. As a result, the Engineering expense incurred isn’t seen as a “value-add” in the Customer’s mind as the Customers can get what exactly what they want from another manufacturer without incurring any additional expense.

How does a manufacturer transform expense into investment? By leveraging ideas that have broader market application and value into easily repeatable product offerings. Manufacturers must look for ways to chase markets, not individual orders. By chasing markets, the Engineering expense can truly become “investment” (rather than a sunk cost with no residual value)—an investment can be leveraged into future orders.

“Market” may have multiple interpretations ranging from geographic or niche market applications. Each market opportunity may have its own unique configuration needs that manufacturers can ill afford to overlook, unless (of course) the opportunity is so small that it is of little potential value.

“One-of-a-kind” isn’t necessarily a good thing for manufacturers of complex products—unless, of course, there is adequate profit. “One-of-a-kind” brings with it challenges in Engineering (how to integrate the feature into the product), Manufacturing (how to build the feature), and Customer Support and the Dealer (how to support the feature if something goes wrong).

A manufacturer’s offerings must be for product capabilities that go beyond individual order configurations. This is particularly true as the level of expense and product complexity increases.

There will continually be the need to increase the range of offerings. Each need brings with it the need to consume Engineering resources. Each new feature or option has a certain “cost” associated with creating it.

• A request for a simple feature might represent a “low return/low cost and

effort” project that a manufacturer would likely accommodate. This might be

a “cost of doing business.”

 

• An enhancement might range from a “medium” to “high” cost and effort.

The expected return would dictate whether or not the project is worthwhile.

 

• A brand new or next-generation product may have a high cost and effort

associated with it. This is of course where the greatest risk is in terms of

determining the expected return for such a level of investment.

A Dealer often pressures the manufacturer to consider the total value of the product that might be lost if the feature or option request is denied. They might even make an appeal based on the lifetime value of the Customer or future order potential beyond the current order.

• The Dealer’s view of the world is often predicated more on their desire to take an order

than the how prudent the request may be for the manufacturer. But, there are additional

critical facts that are often overlooked.

 

• A Dealer or Customer looks at his/her request in a vacuum—they don’t see all

the other requests in the backlog and, frankly, they really don’t care.

It is never a single feature or order that consumes all the resources—it is the sum of all the requests that stretches the manufacturer’s resources and capabilities to the breaking point.

If you were a manufacturer, would you incur significant expense in your business if you had no way to recover it? Not if you wanted your business to remain viable.

Yet, this is what is expected for many manufacturers of “engineer-to-order” products.

The manufacturers in some industries have unwittingly educated the marketplace to expect such a high level of customization without the need for compensation. It is the accommodating nature of the manufacturers that hurts them—the Customers don’t see the value as they can “get it for free.” Can you blame the Customers or Dealers for asking?

As the complexity of individual order configurations grows, the demand for Engineering content escalates. While many Engineering resources are consumed supporting order demand, this situation can prevent the manufacturer from creating new products or features that add value to its portfolio and the portfolio of its Dealers.

At the end of the day, the manufacturer has produced a lot of low margin, often late, individual order configurations that satisfied the Customers but created little residual market value for the manufacturer, its Dealers and its marketplace. Whoops! Manufacturers must balance the needs for custom configurations along with need to increase the value of the product portfolio.

Mass Customization can facilitate both needs. But, there must be some give and take by all parties.

A manufacturer must ensure the Sales and Product Management resources are in place to find ways to get to a “yes” that satisfies the Dealer and Customer needs. The manufacturer needs to be able to offer acceptable alternatives to the Customer.

There may be instances, however, where the manufacturer simply can’t accommodate a request. If the manufacturer loses a low margin or negative margin order, this can be a good thing.

In most industries, that a manufacturer can produce exactly what the Customer wants commands premium pricing. In some industries, it does not. This contradiction begs for a change the way some industries conduct business. Mass Customization may be that change.

Is Mass Customization a 180 degree turn or a mid-course correction in terms of offering highly-customized products? For some, it may appear to be a 180 degree turn. For others, it will feel more like a mid-course correction. For some, Mass Customization will appear to be a threat to their businesses. Others may think this new approach is the key to keeping them in business.

A business that cannot make money is in a precarious state. Manufacturers cannot continue to try to be all things to all people if the financial health of the company is continually compromised. If the manufacturer cannot execute its commitments to its Customers, Customers will seek alternative manufacturers who can.

One of the big challenges in implementing mass customization is helping the Dealers and Customers see that they can get a wide array of configurations--that there is something in it for everyone.

Manufacturers must be willing to support the needs and concerns of the Dealers and Customers through the transition to Mass Customization so they will understand how both can continue to be successful with the manufacturer’s products.

Mass Customization is a significant paradigm shift that, properly implemented, creates a“win-win” for all. Dealers or the Customers can’t win in the long run if the manufacturer continually loses.

______________________

If your company offers configurable products, you may be looking for ways to: 

• Respond to more bids in a shorter lead time
• Properly set your customer's expectations about what you can offer
• Increase your order "win" rate
• Get buildable orders into the order backlog more quickly
• Ensure you understand your order configuration profit potential before you accept an order
• Dramatically reduce the Engineering content per order configuration
• Free up Engineering resources to work on new products and enhancements to existing products rather than being limited to supporting order demand
• Reduce Engineering errors that affect downstream efforts
• Smooth the production flow and eliminate production delays due to missing parts
• Get more capacity out of the same physical assets

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