What are some of the operational challenges with highly configurable products?
Here are some observations I’ve made about the operational challenges with highly configurable products that companies often experience:
Engineering is overwhelmed by supporting individual order demand.
Manufacturing lacks the ability to produce personalized orders efficiently:
Reliance on “tribal knowledge.”
Lack of assembly procedure documentation.
Items are missing in the bill of materials discovered during the manufacturing process.
The product (bill of material) structure needs to be simplified and flattened:
The product structure must be “add-only.” All too often, the product structure is defined at too high a level.
That parts and sub-assemblies are often actually deleted in customer configurations only to add others. This overstates order costing and adversely impacts inventory control.
The product structure all too often is incorrect in terms of supporting the customer’s actual order configuration requirements.
The customer order configuration process is “people-dependent” rather than “process-dependent,” exposing the company to significant risk. Too much tribal knowledge is required to configure and produce customer orders. Too much hand-holding is needed to get orders processed through the organization and out to the customer.
Orders that are not fully configured are prematurely loaded to the backlog, causing numerous difficulties related to booking and de-booking orders. Premature backlogging compounds production control’s challenge of understanding what is viable in the backlog.
Customers purchase systems yet receive key components of the ultimate system, causing receiving difficulties and challenges reconciling invoices so payments can be made. This is often due to components being shipped from different physical locations and arriving at different points in time.
Too much critical business information is driven and supported outside the typical ERP system. Using Word and Excel documents for quotations, forecasting, invoicing, finished goods inventory transactions, packing lists, backlog management, and price lists forces complexity, human involvement, and human error. There is no systematic, holistic approach in place to manage all of this interrelated data.
When people experience problems, they work just enough to put out the fire or simply move around the problem, rather than initiate corrective action to prevent reoccurrence. This is particularly troublesome when new employees take over someone’s existing responsibilities or when someone leaves the company.
Employee frustration and burnout are high; possibly resulting in a high employee turnover rate, employee disengagement, and word of mouth damage, which could threaten company growth.
Customer frustration and dissatisfaction grows. The customer may begin looking at and shopping your competitors.
The sales team is so busy chasing details associated with getting orders booked and the backlog of orders produced, that prospective customers must wait and wait for someone to attend to their needs; business is lost to your competition.
Problem-Solving vs. Proactive Innovation
In essence, most organizations are reactive, choosing to wait for problems to occur so they can be corrected. Dr. Alan Weiss offers the following insights and diagrams from his book, The Great Big Book of Process Visuals:
There is an over-emphasis on problem-solving, usually at the expense of innovation. If people are continually trying to fix things, then they are seldom trying to improve things. And most organizations reward the former and penalize the latter (since it’s somewhat risky). I use this graphic to demonstrate the difference between the two pursuits.
The first diagram below represents “problem-solving” or “firefighting,” while the second considers the impact of “innovation” in resolving an issue.
Standard Performance + KPI Trigger + Decline + Fix = Restored to Standard Performance with Losses
According to Dr. Alan Weiss, companies seldom ever approach a 50/50 ratio between problem-solving and innovation. The average is more of a 95/5 ratio in favor of problem-solving. If a company only concerns itself with fixing problems, the company doesn’t get any better. Innovation is required to improve performance, profits, and market share.
The Culture of Problem Solving vs Proactive Innovation Culture – a Cautionary Tale
Many years ago, the chief operating officer (COO) of a company wanted to contract my mass customization consulting services for assistance resolving challenges with product configurability that he alleged was “killing my company.”
After investing a modest amount of time with his team, I concluded they weren’t serious about resolving their issues and declined the opportunity to assist them. It was only after the third call from the COO that I (reluctantly) offered to do a small project. I should have followed my instincts.
The people in the company loved fighting fires. As I anticipated, I could not get people’s attention to work on a solution. The COO repeatedly canceled meetings to discuss the situation as “something came up.”
The company ended up losing its biggest customer. The customer who represented more than 80% of the company’s revenue. Their company-wide culture of putting out fires, instead of focusing on what the market required, failed to come to grips with its biggest challenge: product configurability.
While this may be an extreme example, it is more representative of the norm than one might think. It’s one thing to say you want to make changes, but as we know, it’s strategicactions that make successes happen.