P.J. Jakovljevic - November 28, 2008
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It is not breaking news or an earth-shattering revelation that the days of mass production of commodity products (called "widgets") are numbered for manufacturers and distributors that want to compete on value, and thus strive for higher profit margins. Certainly, the demand for some catalog-based items that are mass produced (in high-quantity production characterized by specialized equipment and labor) in a make-to-stock (MTS) fashion will never die out completely. However, those manufacturers will be forced to compete on price and on their supply chain effectiveness (particularly on delivery processes), with increasingly thinning margins. And this is where we will begin our discussion on quote-to-order systems (Q2O). But first, we need to understand the effects of global competition and consumer demand, and the affect they have the production cycle.
In an MTS production environment, products can be and usually are finished before a customer order is received (which implies some, if not extensive, forecasting). Customer orders are typically filled from existing stock, and production orders are used to replenish that stock. Increasingly, this strategy is likely to lead to lost sales (or at least lower-value sales) because of unavailable competitive product features and the inability to sell add-ons.
Thus, mass production of identical products, which has been the business model of most industries for decades, is no longer viable for the majority of firms. As customers continue to demand quick delivery of lower-priced and higher-quality products (as order qualifiers), they also increasingly require customized products to match their unique needs (which become order winners). Increasing global competition means more choice for consumers and increasing customer demands. Customers are no longer willing to buy standard products from one source if they can have exactly what they want, when they want it, for a fair price and of acceptable quality from another source. Further, while product offerings are growing, product life cycles are shortening—a "double whammy" (two adverse situations).
Hence, the long-standing trend of having to please choosy and savvier customers and of maintaining profit margins via differentiation (that is, a product's value proposition other than its mere low price, since product quality has also long become a given) has been moving toward mass customization. Mass customization is the creation of a high-volume product with great variety so that a customer may specify the exact model he or she wants out of a large volume of possible end items (manufacturing costs remain low because of the large volume).
Indeed, "mass customization" has become the buzzword of the current decade, and to meet this decade's challenges, manufacturers need to make a change in paradigm. When manufacturers adapt their business models to be compatible with mass customization, customers are able to select, order, and receive custom-configured products tailored to their specific needs. This new paradigm combines mass production's economies of scale with custom manufacturing's flexibility (the best of both worlds), which allows customers to select, order, and receive custom-configured products, often from a multitude of product options. For example, a customer ordering a personal computer (PC) may specify processor speed, memory size, hard disk size and speed, multimedia options, removable storage device characteristics, and many other options for PCs that are assembled on the same production line at a low cost. Furthermore, customers may do so through any one of the following channels: the Web, the phone, or a retail store.
The present market demands that most manufacturers and distributors develop a much deeper (and quicker) understanding of what their customers want, as well as produce and deliver products and services in a faster, more cost-effective manner. Many enterprises see mass customization as imperative to meeting profit, cost, and delivery goals while helping to alleviate competitive pressures. Possible benefits and opportunities of mass customization may come from a manufacturing and distribution enterprise's ability to
*
gather product rationalization attempts to better support mass customization strategies;
*
increase product configuration accuracy to ensure manufacturability;
*
bring the engineering department closer to the customer to eliminate non-value added activities;
*
build products on demand to customer requirements; and
*
integrate the front-office or upstream supply chain and back-office or downstream supply chain activities for more rapid order fulfillment.
Mass Customization and the Internet—a Match Made in Cyber Heaven?
The Internet and e-commerce (electronic selling over the Internet) have provided businesses with a virtually unlimited number of opportunities to expand sales and to increase profits. Mass customization has been bolstered by businesses' ability to access new customers and markets; offer new products and services; expand sales channels; and implement new, nontraditional business models through technological advances. Advances in computing and communications technology have enabled businesses to use the Internet as a technology platform to automate and improve business processes in many ways. In the area broadly referred to as e-commerce, the Internet serves as a platform to enable businesses and other organizations to interact with their customers, replacing the traditional (slower and error-prone) forms of communication, such as faxes, phones, and person-to-person meetings.
At the outset, e-commerce transactions were generally simple purchases of commodity products, such as books, airline or concert tickets, compact discs (CDs), stocks, and toys. Most vendors publish information on a web site, making their products available on a 24-hour basis to their prospective customers and indirect channels. This information is typically "static" (showing little change) with periodic updates, and may consist of marketing information, technical product information, and perhaps secured pricing information. This "first generation" (beginning) of the Web approach is also primarily one-way communication, where the supplier publishes information, but interactive sales transactions are largely not supported.
The growth of e-commerce has been well documented, with highly publicized successes and occasional failures (please see Consumers Shop Everywhere: Understanding Multichannel Sales), which includes stories about such companies as Amazon and eBay. However, most of these high-profile e-commerce web sites actually operate in the business-to-consumer (B2C) market, where the products offered are relatively simple (commodities) and of low transaction value. Potent search engines that access product catalogs and links to credit card payment systems are characteristic of these sites, where transactions can be secured and encrypted as necessary. Yet, there are few, if any, interactive options associated with the selection and ordering of these consumer products. In other words, while the cost- and time-effectiveness of Internet-based selling cannot be disputed, its appropriateness for anything beyond selling simple products was dubious at these early stages.
Since then, the Internet has become a platform for selling an increasingly complex variety of products and services. With the emergence of the Internet platform, companies have more broadly and cost-effectively deployed business applications to customers, partners, and employees, and have deployed the most current applications and information immediately available using a Web browser on even less sophisticated Internet-enabled computing devices, such as cell phones, personal digital assistants (PDAs), or PCs. However, many businesses have encountered obstacles in achieving rapid e-commerce sales growth, realizing only afterward that e-commerce sales are not as simple as merely replicating the traditional mass production business model of "brick-and-mortar" producers and simply putting a static catalog online. To ensure success, businesses must simplify customers' buying experiences, provide increased value, add new products and services, use multiple sales channels more effectively, and, in some cases, implement new business systems and business models.
A number of obstacles must be overcome to achieve consistent e-commerce sales success and to capture the lion's share of prospective market growth. The "holy grail" (main purpose) of e-commerce might become the ability to sell highly complex products (having multiple variations) interactively through the Internet, where information flow needs to be bidirectional, with links to fulfillment systems in the supplier's back-office. Sellers (including their agents, dealers, etc.) and customers alike need to identify and authenticate themselves through log-in procedures, where information is securely transmitted. This secure remote access to proper information is the real requirement for industrial products in the business-to-business (B2B) environment. Whether the products are sold directly or through dealers, resellers, or agents, the many rules associated with specifying and pricing a complex product must be made available through the Internet (please see Differences in Complexity between B2C and B2B E-commerce).
Shortly we will address the question of how this can be done given that conventional catalogs or conventional programming languages cannot easily capture and convey the immense and ever-changing knowledge about complex products and associated processes.
Another emerging trend is the desire to provide customer and user self-service capabilities. To that end, it is important that deployed solutions can address such capabilities without necessitating the purchasing and stitching together of different solutions. Of course, for those manufacturers that also use channel partners, this can be a challenge. A solution needs to prevent disintermediation, making sure the appropriate channel partner is compensated, notified, and so on.
The Numerous Complexity Hurdles
SOURCE:
http://www.technologyevaluation.com/research/articles/the-basics-of-quote-to-order-systems-19427/
Printer Friendly
* E-mail Article
o
To: (e-mail address)
**
From: (e-mail address)
**
Subject:
Message:
*
Contact Us
Newsletter RSS
Rate this article
Average Reader Rating 0.00
Featured Author
It is not breaking news or an earth-shattering revelation that the days of mass production of commodity products (called "widgets") are numbered for manufacturers and distributors that want to compete on value, and thus strive for higher profit margins. Certainly, the demand for some catalog-based items that are mass produced (in high-quantity production characterized by specialized equipment and labor) in a make-to-stock (MTS) fashion will never die out completely. However, those manufacturers will be forced to compete on price and on their supply chain effectiveness (particularly on delivery processes), with increasingly thinning margins. And this is where we will begin our discussion on quote-to-order systems (Q2O). But first, we need to understand the effects of global competition and consumer demand, and the affect they have the production cycle.
In an MTS production environment, products can be and usually are finished before a customer order is received (which implies some, if not extensive, forecasting). Customer orders are typically filled from existing stock, and production orders are used to replenish that stock. Increasingly, this strategy is likely to lead to lost sales (or at least lower-value sales) because of unavailable competitive product features and the inability to sell add-ons.
Thus, mass production of identical products, which has been the business model of most industries for decades, is no longer viable for the majority of firms. As customers continue to demand quick delivery of lower-priced and higher-quality products (as order qualifiers), they also increasingly require customized products to match their unique needs (which become order winners). Increasing global competition means more choice for consumers and increasing customer demands. Customers are no longer willing to buy standard products from one source if they can have exactly what they want, when they want it, for a fair price and of acceptable quality from another source. Further, while product offerings are growing, product life cycles are shortening—a "double whammy" (two adverse situations).
Hence, the long-standing trend of having to please choosy and savvier customers and of maintaining profit margins via differentiation (that is, a product's value proposition other than its mere low price, since product quality has also long become a given) has been moving toward mass customization. Mass customization is the creation of a high-volume product with great variety so that a customer may specify the exact model he or she wants out of a large volume of possible end items (manufacturing costs remain low because of the large volume).
Indeed, "mass customization" has become the buzzword of the current decade, and to meet this decade's challenges, manufacturers need to make a change in paradigm. When manufacturers adapt their business models to be compatible with mass customization, customers are able to select, order, and receive custom-configured products tailored to their specific needs. This new paradigm combines mass production's economies of scale with custom manufacturing's flexibility (the best of both worlds), which allows customers to select, order, and receive custom-configured products, often from a multitude of product options. For example, a customer ordering a personal computer (PC) may specify processor speed, memory size, hard disk size and speed, multimedia options, removable storage device characteristics, and many other options for PCs that are assembled on the same production line at a low cost. Furthermore, customers may do so through any one of the following channels: the Web, the phone, or a retail store.
The present market demands that most manufacturers and distributors develop a much deeper (and quicker) understanding of what their customers want, as well as produce and deliver products and services in a faster, more cost-effective manner. Many enterprises see mass customization as imperative to meeting profit, cost, and delivery goals while helping to alleviate competitive pressures. Possible benefits and opportunities of mass customization may come from a manufacturing and distribution enterprise's ability to
*
gather product rationalization attempts to better support mass customization strategies;
*
increase product configuration accuracy to ensure manufacturability;
*
bring the engineering department closer to the customer to eliminate non-value added activities;
*
build products on demand to customer requirements; and
*
integrate the front-office or upstream supply chain and back-office or downstream supply chain activities for more rapid order fulfillment.
Mass Customization and the Internet—a Match Made in Cyber Heaven?
The Internet and e-commerce (electronic selling over the Internet) have provided businesses with a virtually unlimited number of opportunities to expand sales and to increase profits. Mass customization has been bolstered by businesses' ability to access new customers and markets; offer new products and services; expand sales channels; and implement new, nontraditional business models through technological advances. Advances in computing and communications technology have enabled businesses to use the Internet as a technology platform to automate and improve business processes in many ways. In the area broadly referred to as e-commerce, the Internet serves as a platform to enable businesses and other organizations to interact with their customers, replacing the traditional (slower and error-prone) forms of communication, such as faxes, phones, and person-to-person meetings.
At the outset, e-commerce transactions were generally simple purchases of commodity products, such as books, airline or concert tickets, compact discs (CDs), stocks, and toys. Most vendors publish information on a web site, making their products available on a 24-hour basis to their prospective customers and indirect channels. This information is typically "static" (showing little change) with periodic updates, and may consist of marketing information, technical product information, and perhaps secured pricing information. This "first generation" (beginning) of the Web approach is also primarily one-way communication, where the supplier publishes information, but interactive sales transactions are largely not supported.
The growth of e-commerce has been well documented, with highly publicized successes and occasional failures (please see Consumers Shop Everywhere: Understanding Multichannel Sales), which includes stories about such companies as Amazon and eBay. However, most of these high-profile e-commerce web sites actually operate in the business-to-consumer (B2C) market, where the products offered are relatively simple (commodities) and of low transaction value. Potent search engines that access product catalogs and links to credit card payment systems are characteristic of these sites, where transactions can be secured and encrypted as necessary. Yet, there are few, if any, interactive options associated with the selection and ordering of these consumer products. In other words, while the cost- and time-effectiveness of Internet-based selling cannot be disputed, its appropriateness for anything beyond selling simple products was dubious at these early stages.
Since then, the Internet has become a platform for selling an increasingly complex variety of products and services. With the emergence of the Internet platform, companies have more broadly and cost-effectively deployed business applications to customers, partners, and employees, and have deployed the most current applications and information immediately available using a Web browser on even less sophisticated Internet-enabled computing devices, such as cell phones, personal digital assistants (PDAs), or PCs. However, many businesses have encountered obstacles in achieving rapid e-commerce sales growth, realizing only afterward that e-commerce sales are not as simple as merely replicating the traditional mass production business model of "brick-and-mortar" producers and simply putting a static catalog online. To ensure success, businesses must simplify customers' buying experiences, provide increased value, add new products and services, use multiple sales channels more effectively, and, in some cases, implement new business systems and business models.
A number of obstacles must be overcome to achieve consistent e-commerce sales success and to capture the lion's share of prospective market growth. The "holy grail" (main purpose) of e-commerce might become the ability to sell highly complex products (having multiple variations) interactively through the Internet, where information flow needs to be bidirectional, with links to fulfillment systems in the supplier's back-office. Sellers (including their agents, dealers, etc.) and customers alike need to identify and authenticate themselves through log-in procedures, where information is securely transmitted. This secure remote access to proper information is the real requirement for industrial products in the business-to-business (B2B) environment. Whether the products are sold directly or through dealers, resellers, or agents, the many rules associated with specifying and pricing a complex product must be made available through the Internet (please see Differences in Complexity between B2C and B2B E-commerce).
Shortly we will address the question of how this can be done given that conventional catalogs or conventional programming languages cannot easily capture and convey the immense and ever-changing knowledge about complex products and associated processes.
Another emerging trend is the desire to provide customer and user self-service capabilities. To that end, it is important that deployed solutions can address such capabilities without necessitating the purchasing and stitching together of different solutions. Of course, for those manufacturers that also use channel partners, this can be a challenge. A solution needs to prevent disintermediation, making sure the appropriate channel partner is compensated, notified, and so on.
The Numerous Complexity Hurdles
SOURCE:
http://www.technologyevaluation.com/research/articles/the-basics-of-quote-to-order-systems-19427/
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