Engineering VPs: It’s costly to engineer-to-order

I had an interesting discussion with a VP of Engineering a couple of weeks ago.  He was lamenting the fact that:

1. He has at least 3 engineers tied up full time working on order configuration issues–he believes he also has other people in his department who were probably drug into order issues from time to time
2. His department is dying under the weight of all the bills of materials he has to continually create and maintain
3. He was wondering out loud if their shiny new ERP system would offer any relief

Point #1:  Assuming he’s paying about $100K per year per engineer, it’s not unreasonable for the burdened cost per engineer to be $133K each.  Three engineers is costing him about $400K per year and all they are doing is chasing orders out the door.   Assuming the company does nothing about this problem (the status quo prevails) as the complexity of the company’s offerings increase, so does the burden and the cost of supporting this effort.   The VP of Engineering and his company will  incur well over $1 million, and perhaps as much as $2 million, in expense over the next 3 years without a corresponding value add.

Point #2:  The burden only gets worse year after year.  After all, Gardner’s Law suggests that you always need “n +1 bills of material” where “n” is a very large number and you always need at least one additional bill of material to satisfy whatever a customer needs.  Customers always “want it just like this except ____” and it’s the “except ____” that means you’ll need one more bill of material.

Point #3:  ERP is designed for maximizing the efficiency of mass produced products.  The fundamental premise is that if Engineering provides a bill of material, Manufacturing can produce something.  Bottom line:  A new ERP system doesn’t resolve the fundamental issue facing the VP of Engineering or the company.

Game Changer:

This company needs to embrace and implement mass customization across the enterprise.  The VP of Engineering needs to modularize his product lines, provide guidance about allowable order configurations (in conjunction with the Product Management function), provide this information to Sales and the Dealer channels and allow what eventually becomes the ERP Sales Order to become the “bill of material” that drives Manufacturing.

If your company produces configured orders and you’re relying on Engineering to provide a unique bill of material for each order configuration, Engineering suffers a burden for which there is a ton of work that brings very little value add.  There is an easier way.  My firm can show you how.

David J. Gardner  Mass Customization Expert

http://www.mass-customization-expert.com