There are often significant breakdowns in the configure-price-quote (CPQ) processes to support configurable products.
The biggest breakdown for manufacturers is the practice of creating a unique bill of material for each order configuration. Here’s a way to look at this.
Let’s say we head to McDonald’s for lunch. I want we will call Order Configuration #1:
- A Big Mac with light sauce and no pickles
- A small french fry
- A medium unsweetened iced tea
My associate wants what we will call Order Configuration #2:
- 2 double cheeseburgers
- A large french fry
- A medium chocolate shake—no whipped cream
Let’s look at what McDonald’s does here. They don’t create a bill of material for my order, my friend’s order, or the combination of the 2 (assuming I’m paying for both meals).
They produce the order in minutes and don’t need extraordinary effort to do this. The “need” to create up to 3 bills of materials to produce the customer order adds no real value—it would just get in the way and delay the production of my order. What might the 3 bills of material be:
- Order Configuration #1
- Order Configuration #2
- Order Configuration #3 (the combination of Order Configurations #1 and #2)
Now if another customer were to walk in the door and they want Order Configuration #1 but they want the Big Mac to be exactly as it comes: with pickles and the normal amount of sauce. The “but” is the operative expression: “but” means we need to create Order Configuration #4.
When a customer comes in and wants to place an order, the customer service rep needs to:
- have a way to match the customer request with any existing, previously defined Order Configurations, or,
- create a new Order Configuration without regard for the fact there may already be an existing Order Configuration.
This whole notion of creating all these bills of materials for each unique order configuration sounds silly yet this is what many manufacturers do. I’m getting tired just thinking about it.
McDonald’s is in the business of producing orders (based on an order number), not producing orders based on bills of material. Here’s another way to think about it from my book Mass Customization: An Enterprise-Wide Business Strategy:
If a manufacturing company is organized to easily accommodate highly-customized order configurations across the entire enterprise, great efficiencies can be realized. What does “efficiency” mean?
A company needs to be able to seamlessly drive the business from “quote-to-cash” without incurring multiple rework steps, what I refer to as “start/stop, start/stop.” There has to be a steady flow of progress from the time a quote is generated until the time the cash is collected rather than experiencing a series of rework loops.
If your business offers configurable products, you need to get out of the business of creating bills of materials for each order configuration and develop the means to simply produce configured orders just as McDonald’s does.
Thought for the week:
“There is nothing so useless as doing efficiently that which should not be done at all.” – Peter Drucker