How not to flag in the face of China

If you can keep your customers when all about you are losing theirs and blaming it on China, it's probably because you're more agile than your rivals. If, on the other hand, you think mass customisation, agility, call it what you will, doesn't apply to you, perhaps you should reconsider. The term 'mass customisation' suggests high-volume products tweaked for each buyer. But that's just one end of a set of make-, configure, or quote-to-order (MTO/CTO/QTO) strategies that are proving effective both in reducing costs and in increasing margins by harnessing all that's good about low cost mass production but tweaked for high variety and even low volume production. And the tricks of the trade are essentially data and IP re-use, integration and agile and lean strategies founded on making only to demand. In the 1970s you could buy five styles of running shoe: by 2000, according to Nottingham University researchers, you could buy 285. The choice of contact lens types had risen from one to 36. How you deal with the complexity that comes from this variety depends partly on your sector, but Charlie Carson, European business development manager for CTO ERP systems supplier Cincom, points to a move to modularise. That way, says Carson, you can engineer more finished products than you started with yet using, buying, storing and managing fewer components and fewer suppliers. "And if you are good at it the next generation of products is an improvement on the last, but with the same components that you are supplying today." But it's not just about rationalisation in design, build or supply chain: another secret here is to recognise commonality not just across products and components, but in service delivery. Steve Tattum of software developer Sage UK says: "It's not just the product itself but the way it's marketed, the service you supply with it and the whole experience of owning and using it." To succeed there requires that manufacturers not only invest in their product management, scheduling and shopfloor data collection (SFDC) systems for production, but also lift their IT ambitions towards sales and marketing. "If the website a customer has to use sits for four or five seconds every time you press a key, you aren't going to be very pleased and you'll probably go somewhere else," observes Tattum. And there's another twist to worry about. Where some companies struggle, says Louis Columbus, a former researcher with analyst ARC but now also at Cincom, is in integrating the sales configuration tasks in different sales channels: web sales, call centres and individual sales in shops or to OEMs. But it's happening. "Chief financial officers are now the ones who are driving quote-to-order strategies because it gives them better control over costs," says Columbus. That's on top of the customer service advantages. Automation or armies Non-automated companies need armies of staff to sift through, check against spec, then process proposals while others complete schematics. Still more are needed to process the orders as they come off a sales website, if one has been implemented. Says ARC analyst Simon Bragg: "Most of the places where you can cut order-to-delivery lead times are in the admin departments." In fact, automation reduces the cost to complete an order by 95%, according to Columbus, while also reducing order cycle times by two thirds. Indeed, order automation scores well in a number of financial measures in terms of achieving higher numbers of quotes, more accurate quotes and higher margins. Columbus notes that some manufacturers are using their legacy ERP systems to do it, but he worries about the approach. "The question is, can you get the level of integration, and reach these financial measures with the minimum amount of spending at the beginning?" What manufacturers must strive for, not just within their own operations but along the whole route from suppliers to customers, is a single version of the truth – one description of what the customer wants and what is needed to supply it. Columbus calls this "absolutely critical" to optimising resources for customer orders. But he adds: "You can't buy your way into best practice [with IT]: you have to understand the strengths and weaknesses of your own organisation." In other words, you need to reconsider your business processes and appropriate IT to improve and automate. Integration is key. Customers expect a website to remember them and track their orders through a factory or parcels network. Good customers also expect a discount, and the sales manager wants a system that won't reveal customer A's discount to customer B. But discount structures are complicated: Columbus says IT supplier Ingram Micro, which has to manage 1,100 price tables "has 45–50 people sitting in a department keeping those price tables going." To do better implies access to, for example, customer data in a customer relationship management (CRM), sales order processing, or customer order management system. But returning to the web example, many customers also expect to be able to configure their products online, so rules-based product configurators become essential. These are essentially programmable databases that either the customer or sales staff can use to assemble products, or specifications for products, from a catalogue of standard modules and options, potentially also allowing quotable special adaptations. Unlike catalogues, configurators can spot and flag or disallow invalid choices, and provide pricing – and even delivery dates. At the production management end they can create BoMs (bills of materials) and routings automatically, even for existing ERP systems. It's about linking sales configurators with the production system, and in particular scheduling and inventory management for 'available to promise' or 'capable to promise' interaction. And manufacturers may also want to connect incoming sales back to the supply chain management (SCM) systems to make components and raw materials ordering smooth and fast. Then again, payment systems and traceability offer more challenges. There's a lot to consider. Integrating configurators with ERP is less of an issue than it was, though Columbus tells of a well-known maker of computer servers that still processes the BoMs coming off the website by giving them to people to re-key into its ERP system. Daryl Showers of Wallasey, Merseyside, for example, moved towards mass customisation by creating a common shower enclosure chassis that could be customised with different handles, hinges and other components redesigned to fit as many models as possible. It configures using an SAP system implemented by ERP provider Chelford, which also owns SSI. There are other approaches and rationales. Barry Maidment, enclosures marketing manager at the Eastleigh, Hants offshoot of US electronics systems supplier APW, is using a configurator to achieve the cost and delivery benefits of automated order-taking, not least because it improves customer service. But he's also looking for more benefits. APW's enclosure sales team knows its own products but not so much the PCB, backplane, electronic card cage and other offerings. Maidment points out that the product configurator solves that problem by allowing non-specialists to configure a wider range of products, so that each customer can have a single point of contact. Rolls-Royce solution Then again, Rolls-Royce Marine, a £1bn business formed from Vickers' marine business in 1999, used configurators to provide yet another business leap. It has 14 Nordic manufacturing sites, each supplying different equipment for commercial vessels: engines, propulsion systems, winches, thrusters, stabilisers, steering gear and control systems. Carson says Cincom's sales configurators and other tools have helped it create a systems business from what was a set of disparate equipment providers. Rolls-Royce Marine now sells complete systems to shipbuilders rather than individual items of equipment. It's reduced lead times by 30% and sales, project management and engineering costs are down 10%, while sales have increased by 3%. It wasn't straightforward: it took Rolls-Royce Marine two years of planning to write, implement and test the pricing and costing rules. But the message is clear. Meanwhile, Dayton Progress, part of Federal Signal and another Cincom user, makes two to three thousand special and standard punches and other metal fabrication and stamping tools a day at its Dayton, Ohio, site. Dayton's products are made-to-order on three floors crammed with more than 140 machine tools. Standard catalogue items have 50 possible dimensions in 94 standard shapes and over 80 standard alterations. There are almost 18,000 blanks in inventory and over 3,200 standard operations to create about three million possible items. Facing growing competition from China, especially among its European customers, Dayton Progress committed to fulfilling any order from anywhere in the world within 72 hours. The secret again was its configurator, which validates items at order entry, selects the materials, generates routings and transfers the job packet to CNC programmers automatically, saving the firm about $700,000. Time taken to move an order to the shopfloor fell by 60%. But if you want advanced and sophisticated examples, the car industry is still king in mass customisation – and here we find the best examples of rationalisation and supply chain integration. ARC's Bragg says it's the invention born of necessity. The number of combinations "ranges from the Nissan Primera's 820 build specifications to a theoretical 3.9 trillion for the Mercedes Benz E-Class." Managing that through even an integrated supply chain isn't trivial. Car interior and wiring loom suppliers bear much of the burden of this complexity, says Yves Wullaert, European IT director for operations and logistics at Tier One supplier Johnson Controls (JCI). ERP supplier QAD worked with JCI to commercialise its JIT Sequencing (JIT-S) software initially developed by JCI to run satellite plants for General Motors, DaimlerChrysler, Fiat and other European customers. JCI makes complete interiors, including instrument panels and trims, as well as seating. Wullaert says Daimler's main plant in Böblingen, near Stuttgart, Germany, provides 6,000 door panels in different leather or fabric finishes. "It's impossible to carry stock of these 6,000 components," he points out. "So we are making stock at the component level so we can build the 6,000 variants just in time." Until JCI developed JIT-S, the firm had to map each set of customer preferences into its ordering and production systems. JIT-S uses rules engines and mapping tables to automate that, and once the data is entered, another set of rules kicks in to map requirements to the line configuration, capacities and markets of the particular OEM plant JCI is supplying. JCI has built up a library of customisations for GM, Daimler and Fiat, and QAD is now adding to that for Tier One suppliers to these and other OEMs, like VW. JCI and QAD are now collaborating on extending and refining the JIT-S tool for this collaboration with Tier Two suppliers. For now, says Wullaert, if everything works as it should, JCI expects to get 150 inventory turns a year. "You have to have advanced systems to do that."