Companies working with customized products that are engineered-to-order are typically project-oriented – each customer order is seen as a project and the engineering time is seen as a part of the direct cost of the order.
For project-oriented companies to benefit from industrialization and economy of scale, they strive for repetition. Repetition can be reached on different levels for a project-based company: How they organize, how they work, what tools they use, etc. But, to reach the biggest benefits from repetition, project-based companies need to find ways to have repetition in the design of the products. Not until this level of repetition is reached, the downstream benefits in the supply chain, production and assembly, and after-market can be found.In this blog post I will explore four typical approaches to increase repetition in customized products, approaches that tailoring and order engineering companies take to improve quality, lead-time, and efficiency:
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- Product standardization
- Copying historic deliveries
- Incomplete platforms
- Platforms
The first two approaches can be categorized as reducing engineer-to-order efforts by standardization, the two last approaches can be categorized as shifting from engineer-to-order to configure-to-order.
Approach 1: Product Standardization
The first, and perhaps most frequently failed approach is product standardization. It seems like a simple fix if you’re hurting from frequent and complex customization work – standardize the product and life will be easier! If it was only that simple…
Product Standardization means defining an assortment of fixed products, each with a pre-defined specification and bill of material. However, for most tailoring and order engineering companies, product standardization is not a feasible solution:
- Customers are used to get solutions matching their needs and most of them will not be satisfied with a catalogue of pre-defined products to select from. In the end, customers that have a real need for customization will find another solution, or supplier and sales will drop.
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The catalogue will grow exponentially over time to satisfy the differing customer needs. It will become difficult to manage the state of all products and cost for product management and maintenance will sky-rocket. As the catalogue grows, the sought-after industrial benefits and economies of scale diminish, with every added variant, the average volume per variant decreases.
Further, price will become the only competitive weapon if you don’t succeed in making your standard products commonly accepted in the market. Therefore, it can typically only succeed in the low-end market where price is everything.
Finally, there is a high risk of ending up with a mix of standard and tailored deliveries, eroding the efficiency of standard product deliveries and at the same time eroding the competence and flexibility to tailor deliveries. Very few companies, if any, have made a successful move from tailoring and order engineering to a catalogue of standardized products.
Approach 2: Copying Historic Deliveries
Copying of previous orders is probably the most widely used method to try to reduce order engineering. At first, it seems like a promising approach. By copying a similar order from the past and adjusting as little as possible we can have a customized products with minimized work!
Let’s have a closer look at this seemingly promising approach. There are two major challenges to be discussed!
The first challenge is finding closely matching deliveries from the past. Unless we have some type of system for finding these, there is a risk of dependency on key personnel that knows historic orders by heart. In a larger business it is impossible for a person to know all the orders that have been produced before.
Another challenge is the product lifecycle management perspective. If you are copying old designs, how can you secure that you are using the current best practices? Old designs can have quality issues that have been fixed later, they can lack cost reduction actions, and they can be adapted to a historical supply chain that is no longer there. And if a part has been improved recently, how do you find it when copying a much older delivery? When copying you will be operating with at least two major drawbacks from the PLM perspective:
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Risk of copying and using old, obsolete parts that have been changed but not properly discontinued in the systems.
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Not being able to find the new improved parts, meaning that another new part is introduced with limited time and resources in the delivery project. It creates a flood of new low-quality, high-cost parts.
Copying previous orders should only be done when a customer explicitly requests a copy of a previous delivery, so there is a perfect match and a customer that is happy with the “old imperfections” in that delivery. However, any critical updates, for example for safety reasons, must of course still be applied.
Approach 3: Incomplete Platforms to Increase Configure-to-Order
To stabilize the core of the product and protect it from tailoring and order engineering, creating one or several partial platforms covering only the core product is a good first step. The platform is like a template or model from which unique product combinations can be created for each order. Essentially, the core of the product should be handled through a configure-to-order (CtO) process, while the customized parts are handled with an engineer-to-order (EtO process).
A modular product platform consists of generic building blocks, modules. Each module can have one or several module variants that are the actual parts or sub-assemblies that can be combined to meet different customer requests. Between the modules there are interfaces that allow the needed combinatorics between module variants. For Incomplete platforms, special attention should be put into the interfaces between the modular platform core product and the “peripherals” that are still open for tailoring and order engineering. You do want to make sure that tailoring stops at a pre-defined interface and doesn’t propagate into the stabilized modular platform, don't you?
When defining your Modular Platform, you should also pay special attention at covering all the requirements of your target market. As much as is economically motivated of the external reasons to tailor should be handled. The cost to develop one or several needed Module Variants should be lower than probability x cost of having to tailor and order engineer. But don’t make the mistake of evaluating “special requirements” one-by-one. You need to be able to meet the entire market. Imagine you have 20 areas of “special requirements”, they are all independent and each only happens in 5% of the cases. You might think that it is fine to leave all those special requirements outside the Modular Platform. But the mathematical probability of having an order without “special requirements” is only (95%) ^20 = 36%.
Approach 4: Complete Platforms to Completely Shift from EtO to CtO
Complete Platforms are essentially same thing as Incomplete Platforms, with the only difference that the scope of the Platform is expanded to cover either all parts of a typical delivery or even all parts of a maximum delivery. The effect is that all orders will be handled as configure-to-order rather than engineer-to-order.
This approach will have maximized repetition. But, if it is not possible to foresee all needed customization there’s a risk of the product standardization down-sides – the solutions we have pre-designed are not what the customer actually requires.
Conclusions: Different Approaches to Reduce Order Engineering
As discussed in this blog post there are two main paths a company can take to reduce order engineering: Standardization and Configuration. To understand what path will bring the most value, you must understand the real needs for customization and how you can create repetition in your product without sacrificing customer value. If you would like to understand more about how to do that, feel free to download our 5-step guide to Modular Function Deployment, or reach out to me!
AUTHOR
Alex Ginsburg
Principal, Manager & Partner
+46 8 456 35 00
alex.ginsburg@modularmanagement.com
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