Recently, an executive asked me “at what revenue level does it make sense for a company offering configurable products and services to be concerned about its business processes being inadequate?”
“Customizers” often hit a plateau wherein it becomes nearly impossible to efficiently and effectively offer configurable products and services. Inefficiencies mount as revenue and product variety increase. The level at which a company performance “hits the wall” can vary greatly starting at $10, $20 or $50 million revenue level or at revenue levels 10 or 20 times these amounts.
If a company knows that revenues and product variety will only increase over time and there are already signs of declining operating margins, the best practice is to proactively address the situation now and not wait until the company “hits a wall” financially. Here are some important signs indicating the need for process improvement:
- Company profits are declining as demand for customized order configurations increases.
- Customers presently cannot see first-hand what order configuration possibilities exist.
- Customers learn after they’ve placed orders that their order cannot be produced.
- Companies end up giving away features and options just to make orders complete.
- Engineering is mission critical to validating order configurations and supporting production.
- When it comes to expert knowledge about what order configurations can be produced and how they can be produced, the company is people-dependent rather than process-dependent.
- There is no central repository of expert knowledge about what configurations can be offered that is shared with those quoting and selling that aligns with the understanding at headquarters.
- There is no business process owner for making decisions about and managing the addition of new features and options into the offerings.
- There is an in-house process bottleneck in terms of validating order configurations.
- Customer deliveries are often late based on customer expectations by days, weeks or months.
- After receipt of an order, there is no “seamlessness” to the process of fulfilling the order–there are many back and forth rework loops rather than steady, forward progress.
Leaders in companies that offer configurable products and services need to understand:
- Customized products or services required for a specific customer order must be configured, priced and quoted with the same efficiency as standard products.
- If too high a percentage of orders become “special” or “non-standard,” this is a clear warning sign of a business process falling short of the actual need.
- The attributes of a customer’s order must be driven by the customer from previously rationalized features and options.
- Orders are only fulfilled in the context of a specific customer order, not for a marketplace or for finished goods inventory.
It is always preferable to initiate process improvements to ameliorate the operational and financial challenges associated with configurability before a leadership team is forced to react to it. I’ve yet to have a client who has done that. Most wait until the pain is excruciating.
I’d love to hear what you think about this.
For over 30 years, Dave Gardner has helped companies discover that the royal road to the ultimate customer relationship is letting customers order à la carte. He assists clients with strategies for “The à la carte customerTM,” and in dramatic improvements in efficiencies and profits. Dave, a management consultant and speaker residing in Silicon Valley, can be reached at +1 888 488-4976 or through his website at http://www.gardnerandassoc.com. You can also follow him on Twitter @Gardner_Dave