Getting a Grip on Configurators - Comparing Configurators: Part II:

This two-part article provides the first requirements checklist for configurator-based MRP II software and can be used as a guide in deciding which capabilities to consider when investigating this comparatively new software category. While not every manufacturer needs every capability, they should be aware that a wide range of functionality does exist. The article also details differences between the two major categories of configurators -- add-on and integrated -- and how they affect major functions of the company.

Part I defined the different types of configurator systems and compared engineering and production control functions. In Part II, we focus on configurator functions in sales & marketing and financial areas, and provide a brief business analysis for selecting a configurator.

In today's customer-driven marketplace, to-order manufacturing -- whether assemble, make, configure or engineer-to-order -- now stands beside the traditional categories of repetitive, process and discrete as a fourth, distinct manufacturing environment. Witness the move of some once-standard industries -- such as doors, windows, furniture and recreational vehicles -- toward to-order manufacturing to meet the consumer's growing need for individualized products at mass-produced prices.

In response to this change, many manufacturing software vendors have introduced software packages aimed at to-order manufacturing. An essential element in these packages is a configurator -- a computer program that defines characteristics of a product and uses this definition to determine if, when and how to produce it. To know which configurator is right for your company, you need to examine the range of configurator functions, identify which are essential to your business, and then narrow your search to software packages that meet those criteria.

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Pricing

A careful check of pricing capabilities is essential to determining the best configurator for your company. Pricing of configured products is complex because it results from a base price plus differing surcharges for each option selected by the customer. Adding to the complexity, the base price and surcharges may vary by customer type or by quantity ordered, and there may be special promotional pricing for certain configurations.

Incorrect pricing calculations can lead to lower margins, complaints from customers, and added paperwork for credits and adjustments. Many to-order manufacturers only discover the true extent of the problem after installing a new computer system. A lighting fixture supplier, for example, found the volume of credit memos decreased significantly after installing a configurator because customer orders were now automatically priced correctly during order entry.

EDI Transactions

As electronic communications become increasingly important throughout industry, more and more to-order manufacturers need to incorporate EDI into their order processing system. But they face the challenge of ensuring that all validation capabilities that exist for on-line transactions occur for EDI transactions. Their task is more complicated, because their orders are longer and more complex than corresponding make-to-stock orders and must follow additional ANSI EDI standards.

Add-on configurators cannot process EDI transactions because they require interactive entry. Integrated configurators, however, can efficiently process EDI orders. For a Midwestern home furnishings supplier, electronic communication is a business necessity, so an integrated configurator was their only choice. Today, their distributors transmit over 750 custom orders per day via EDI, and each is automatically configured as if it were manually entered.

Quote Conversion

Many manufacturers generate quotations before an actual order is placed. For them, the ability to automatically convert quotations into orders is an important function of a configurator, since reentering the quotation is both time consuming and error prone. For to-order products in particular, an error in reentering a configuration can lead to production an unsalable item.

Holds & Warnings

Holds and warnings -- such as a credit hold for a particular customer or a warning of an unbuildable configuration or a pricing variance -- can be integral to maintaining customer service and ensuring profitability. Without credit holds, a company might continue to build and ship material to a customer with a poor payment history. Because issuing these holds requires the use of information from elsewhere in the corporate database, having this capability requires an integrated configurator to access and process the required data.

Customer Specific Ordering

Often the most profitable sales come from existing customers, so making it faster or easier for them to place orders is a sound business practice. But ordering a configured product can become irritating if it requires the customer to answer a litany of questions when they could simply want to say "Make me one just like the last one I ordered" or "Make it like last time except in white."

A number of ordering shortcuts are available with an integrated configurator that are not possible with an add-on module. The integrated configurator can store each customer's preferred configuration for a given product. When the customer reorders, the order taker can quickly access the previous configuration without requiring the customer to answer the same questions again -- or he can start with the previous configuration and make only the necessary changes for the new order. In both cases, the configurator uses existing customer preferences to make reorders simpler, faster and less error prone.

Promise Logic

There may be no manufacturer on earth who does not struggle with order promising. In lieu of an accurate promise mechanism, many to-order manufacturers create promise dates using a rule of thumb such as "three days after the order."

Since the add-on configurator has no knowledge of plant capacity or inventory status, it offers little help in determining promise dates. Integrated configurators, on the other hand, bring the entire production and inventory control system into the order entry process. Decisions can be based on the capacity at the specific work centers that a particular configuration may require. Alternately, the availability of material can be assessed and the customer advised that the selected raw material is out of stock, but an alternate material is readily available.

A West Coast window manufacturer uses an integrated configurator to check capacity at key work centers during order entry. Although he begins with a rule of thumb scheduling rule, he revises the estimate based on the capacity of the work centers the particular product would cross. For one home furnishings manufacturer, however, the limitation is raw material. The customer's choice of steel color is the primary determinant of when an order can be delivered. The integrated configurator automatically checks steel availability during order entry and allows the order taker to advise the customer of any delay.

Customer Order Status

Having access to the current status of an order is essential to customer service. When a customer calls to inquire about an existing order, he wants to know exactly where it is and when it will be completed. Unfortunately, the add-on configurator's one way flow of information leads to an inability to check the status of an order in process. Integrated configurators, on the other hand, can link work orders and sales orders, allowing on-line status check.

This link to manufacturing is particularly important when a customer wants to make a change to an existing order. For many manufacturers, if that order has been released to manufacturing, no change is allowed. While an integrated system can provide on-line access to the manufacturing process, an add-on configurator, with no link to the production process, cannot identify released orders.

Order Maintenance

The problem of one-way information flow crops up again in order maintenance. Add-on configurators cannot track an order after it passes to the base system. When changes or updates occurs, there is no efficient way to change the "real" order, which resides elsewhere, except to send a manual notice to the main system.

Sales Analysis

Since configurators can capture information on products, options and costs, very precise sales and margin analysis is possible. However, to perform such analysis requires storing the information in a configuration code or equivalent and having access to database information on commissions, discounts, shipping dates, etc. This type of in-depth analysis would not be possible with an add-on configurator, but an integrated configurator could access all necessary information, only needing some sort of query program to perform the analysis.

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Often overlooked in the configurator selection process are benefits in the finance and accounting areas. However, there are configurator functions that can benefit the business side of a manufacturing operation.

Cost Tracking

Both add-on and integrated configurators usually create cost estimates, but only integrated configuration control systems can compare the estimated cost to the actual cost incurred. This is because only integrated systems contain the cost records as well as the estimate. With an add-on configurator, you will not be able to perform cost tracking without using a separate cost comparison system.

Inventory Tracking & Valuation

Just as only integrated systems can provide on-line cost tracking, only integrated systems can do physical inventory, inventory accounting, and the other functions associated with material management. In a configuration environment, this allows tracking of inventory of configured items, real time visibility of shortages of component items, and tracking of items pegged to orders.

Budgeting

Special problems arise when trying to budget in a to-order environment. For example, accountants must try to estimate margins on products they have never built before and may never build again. Since integrated configurators have access to the entire database, including cost information, they can be used to formulate budgets with a high degree of accuracy. One home furnishings company uses a configurator to perform what-if scenarios to calculate costs and forecast margins on a range of anticipated configurations.

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Existing Software

If you have an existing software system, and are reasonably content with it, then the add-on alternative may seem attractive. People may recall how difficult the installation of the current software system was, and that may be enough to convince them that, despite its shortcomings, they want to preserve it. In this case, an add-on looks like a convenient way to add configurator functionality while extending the life of the current system.

But remember, installing an add-on configurator does nothing to remedy shortcomings in the existing system. While it may be adequate for your business as it exists today, it may not be able to handle new products. Since such new products are an inevitable fact of life, this may be a deterrent to future growth. If the underlaying system was designed for a discrete or repetitive factory making stock products, with none of the intricacies of to-order production, you may eventually spend considerable time and money in modification to add the features already included in an integrated package.

Cost Justification

The decision to invest in a configurator-based system will require an expenditure that must be justified. One argument favoring add-on configurators is that despite the additional benefits of the integrated approach, the cost of purchasing an entirely new system is just too high. Therefore, the add-on approach, which carries a lower initial price tag, seems to be the more prudent choice.

As with many financial arguments, the best approach is to do a comprehensive cost benefit analysis. The analysis should itemize the advantages and disadvantages and assign a value them. What is it worth to handle build aheads? What is it worth to generate drawings? How much will it cost to do the integration yourself? What is the cost of the duplicated data and maintenance of the add-on approach?

You may find that the add-on approach provides sufficient benefits at a reasonable costs -- or that the integrated configurator's improved benefits far outweigh the higher cost.

Corporate Culture Shock

Maintaining the existing corporate culture may seem to be another reason to favor the add-on approach. An add-on configurator would leave most current procedures in place with little or no change. A fully integrated system, however, could dramatically alter your business and require changes in personnel, policies, and procedures. This is a powerful argument, but one that cuts both ways. If the objective of installing a configurator is to revamp and improve the way products are produced, then perhaps the corporate culture needs to change. An add-on configurator, without corresponding changes in customer service, production planning and accounting, may not achieve the desired goal.

Risk of Failure

Of course, the probability of achieving the projected result -- and return on investment -- needs to be examined. The add-on and integrated configurators, however, address risk differently. The add- on assumes that smaller changes are more likely to be successful than larger changes. While the level of benefits derived from an add-on system may be lower, so is the chance of failure. The integrated approach assumes that lasting benefits will only occur with a system designed to provide full configurator functions from the outset, and that this higher reward is worth higher risk.

Because every company has different products, personnel, facilities and equipment, the checklists presented in Part I and II of this article should be tailored to each company's specific requirements. But use of this checklist in the selection of a configurator system should result in an effective evaluation of existing software products -- and a better understanding of the benefits of each system.