engineering 2008

S U R V E Y R E S U L T S

Mass Customization

and Build-to-Order

Manufacturing

BEST

Practices

E N G I N E E R I N G2008

An Engineering Perspective

Survey Results

Table of Contents

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Survey Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Market Demand for Customized Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Manufacturing Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Product Complexity and Product Rationalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Cost Challenges and Pricing Benefits of Customization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Process Challenges of Customization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Research Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Research Sponsors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Cincom Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Design News Magazine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Manufacturing Business Technology Magazine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

For More Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Executive Broadcast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Cincom Systems, Inc. 55 Merchant Street, Cincinnati, OH 45246 Tel. 513-612-2300 www.cincom.com/q2o

Mass Customization

and Build-to-Order

Manufacturing

BEST Practices

www.cincom.com/q2o

Executive SummaryKeeping up with the unique and growing requirements of customers, broadening product offerings, and competitive pressures to reduce time and cost for the delivery of customized products is a growingchallenge for manufacturers. An enterprise’ ability to succeed will depend on how effective Engineeringis at balancing short-term revenue objectives with strategic organizational and market-driven factorsrequired to remain competitive.

Key Findings1. Product customization strategies are predominantly relied on by manufacturers to both increase

production efficiencies at the low end of their product lines and drive up premium pricing at the high end. 73% of total respondents see product customization as critical for products over $100,000; 25% also see them as critical for products under $1,000.

2. Engineering is precariously positioned between customer-driven sales initiatives (more customization) and manufacturing-driven lean initiatives (less customization). Less than 50% of the survey respondentsindicated senior management support for customization as a market strategy.

3. When manufacturers initiate build-to-order strategies, the influences on engineering are immediate and significant. This is especially true in the area of customer collaboration, with 83% of the respondents stating that when developing customized products, this is the most common approach they use.

4. Build-to-order strategies are driving higher levels of integration than ever before both between front- office selling and back-office or CAD, ERP, SCM, and costing systems. This survey also confirms that integration with front-office systems lags significantly behind back-office systems such as ERP and CAD.

5. There is a significant knowledge gap between what engineering needs to contribute to a mass customization strategy and what existing systems are delivering. While only 50% of respondents use any type of software for managing the product customization processes, 56% do not have service information, 55% do not have catalog and selling information, and 50% do not have productdevelopment information critical to support product customization.

6. 58% of respondents believe that their execution of a product customization strategy can increase the prices they charge for products by 10% or more. Ironically only 67% of companies knew the cost to produce customized products, and only 27% had figured out the cost of engineering change orders. The disconnect between pricing assumptions surrounding product customization and traceablecosts becomes a barrier to sustaining momentum with mass-customization strategies into the future.

7. The knowledge required to effectively sell customized products is not being effectively transferred to the field and customer. 67% of the respondents identified this as the biggest barrier to improvement.

8. One of the greatest risks to mass customization is the intensive amount of intellectual capital that engineers have, yet it is not captured anywhere (64%). Additionally, 35% of respondents report that there is no method in place for sharing knowledge throughout the company.

1 On-Demand Webcast Available www.cincom.com/webcast_series

www.cincom.com/webcast_series

Recommendations1. Define strategy with metrics

Defining and executing an effective build-to-order strategy starts by aligning the many departments directly and indirectly affected by this strategy. Define a comprehensive strategy such as Mass Customization with metrics that align customization and lean objectives across the organization.

2. Align systemsDevelop knowledge-management strategies that align selling, service, pricing, and production data so that accuracy and timeliness of response to quotes and completed products are consistent. Strive to deliver the Perfect Order as a result of synchronizing these systems.

3. Determine true costsComplete pricing and cost studies to see the true cost of completing a customized order. Track, on average, how many times an order is changed with the ECN process, and then define goals for increasing the performance of these key metrics.

4. Capture intellectual capitalInitiate and aggressively pursue a knowledge transfer program before key engineering and design talent either retires or leaves for another company. Make Succession Planning a priority, and considerthe adoption of technologies that facilitate the capture and transfer of knowledge throughout the organization.

2On-Demand Webcast Available www.cincom.com/webcast_series


Survey Analysis

Market Demand for Customized Products Survey respondents indicate a mix of make-to-stock (MTS) and build-to-order (BTO) business with revenue being distributed across the spectrum of demand. However, virtually all survey respondents(92%) indicated that the ability to customize products to specific customer requirements was important.

Increasing DemandMarket demand for customized products is increasing and expected to continue to grow. 63% of respondents have seen an increase in demand in the last five years, and 26% anticipate that the growthrate will be between 25% and 50% in the next two years.

The following objectives are driving customization efforts in ranked order of importance:

• Meet specific customer requirements

• Demonstrate product leadership

• Improve positioning against lower-cost competitors

• Improve internal efficiencies

• Enhance margins or price premium

• Reduce time-to-market for new products

• Broaden product offerings to increase sales in current market

• Reduce time-in-quote to delivery process

• Penetrate new markets

Market DriversAccording to respondents, the increase in demand for customized products is being driven primarily bythe following factors:

Competition - Increased competition requiring increased differentiation (better, cheaper, and faster).

Offshore Competition - The building of simple/high-volume products has moved offshore leaving thevery high-mix, high-complexity market in the U.S.

Solutions vs. Products - Customers are expecting complete, tailored solutions – outsourcing engineering to suppliers to deliver products that “drop in” to their projects.



Manufacturing Profile Product ProfileThe number of customization options on most commonly sold, customized products ranged from lessthan 9 (24%) to more than 1,000 (6%) with the majority reporting 10-49 (50%). The average number ofquestions required to properly configure an order was 24.

The price of customized products is spread across a wide spectrum ranging from less than $100 to morethan $100,000. It was interesting to note that the need for customization is not limited to expensiveproducts as the following chart indicates.

In your company, how important is the ability to customize products to specific customer requirements?

Thinking about the most commonly sold customized product, please estimate the average sales price.

Total <$100 $100-$1,000 $1,001-$10,000 $10,001-$100,000 >$100,000

Not at all important 0% 0% 0% 0% 0% 0%

Somewhat important 8% 8% 6% 7% 17% 0%

Important 19% 17% 25% 33% 6% 18%

Very Important 31% 50% 44% 20% 28% 9%

Critical 42% 25% 25% 40% 50% 73%



Organization ProfileEngineering is precariously positioned between customer-driven sales initiatives (more customization)and manufacturing-driven cost initiatives (less customization). Surprisingly, respondents indicated thatless than 50% of senior managers have shown support for customization as a market strategy. Severalrespondents actually indicated that senior management was trying to move away from a customizationstrategy in order to better support lean initiatives. This indicates that management is having a difficulttime aligning “lean” objectives with market-driven “customization” objectives. It may also indicate thatperformance measurements may not be adequately aligned to support customization objectives.

There is considerable room for improvement in the sale and delivery of customized products – particularlyin the areas of speed and cost. Approximately one-half of respondents rated their ability to create anddeliver customized orders as average or lower. Manufacturing capability to customize products rankedhighest with 75% of the respondents indicating very competitive. Speed of bringing new products tomarket was ranked lowest with 66% average or below.

Rating compared to other companies in your industry

Above Average

• Manufacturing capability to customize products

• Quality of customized orders (built right the first time)

• Ability to market/sell customized products

Average or Below

• Speed of delivery of customized orders

• Speed of quoting customized orders

• Cost of customized orders

• Speed with which you bring new products to the market



Product Complexity and ProductRationalization

How Companies Manage Complexity

Which strategy does your company employ?

While 90% of the respondents indicate that they have adopted a build-to-order (BTO) strategy, only 14%have adopted Mass Customization – a business strategy designed to create customized products withproduction cost and price similar to mass-produced products. Flexible Manufacturing (53%) and JIT(43%) are the leading strategies being adopted to address customization. This indicates that strategy isevolving from the shop floor and slowly moving into the Engineering and Sales areas. This is ironic giventhat BTO is a “customer driven” strategy.

6

0 20 40 60 80 100

92%

53%

43%

43%

36%

Build-to-order

Flexible manufacturing

Make-to-stock

JIT

Niche-market manufacturing

Mass customization

Other

14%

4%

On-Demand Webcast Available www.cincom.com/webcast_series


7

When developing customized products, which of the following do you use?

While a variety of techniques are being applied to manage the development of complex products, customer collaboration is used by most of the respondents (83%), followed closely by PartStandardization (74%) and Drawing Control Processes (72%). It is interesting to see CustomerCollaboration and Part Standardization at the top of the list since these two activities are often at oddswith one another. This is likely a strong indication that customer collaboration is trending toward collaborative design.

More than 50% of the companies are using Voice of Customer and Modular Design. The relative low useof Product Line Rationalization (39%), Duplicate Part Elimination (33%), and Minimum Process StepsAnalysis (19%) may imply that engineers are more focused on the urgent activities of reacting to specificcustomer demands vs. the proactive assessment and optimization of product lines.

0 20 40 60 80 100

83%

74%

72%

65%

62%

58%

58%

50%

39%

33%

Customer collaboration

Part standardization

Drawing control processes

Prototyping

Documentation control processes

Voice of the customer research

Modular design

Component part consolidation

Design for assembly/manufacturing analysis

Software

Product-line rationalization

Duplicate part elimination

Part tolerance optimization analysis

Minimum process steps analysis

Bundling

Other

53%

53%

22%

19%

12%

6%



Accuracy and Timeliness of Data

Companies that do not have complete information to specify and support:

It is interesting to note that only 50% of the respondents use software to develop customized products.This is particularly noteworthy in light of the fact that companies do not have complete information tospecify and support the delivery of customized products! Additionally, the more removed theprocess/system is from manufacturing, the more incomplete the information.

Timeliness of updates to product information is also an issue for most companies. The survey highlightsthat catalog information and data required by sales systems lags behind other systems and processes.This is a key area to be addressed by Engineering and Product Management since inaccurate productinformation within sales often leads to invalid specifications, inaccurate pricing, and customer dissatisfaction.

How quickly is the product information that the company uses to specify and support customized products available after the product has been updated/created?

< 1 day < 1 week 1-4 weeks > 1 month

Product development information 19% 30% 30% 20%

Manufacturing instructions 12% 31% 35% 22%

Customer documentation/usage instructions 6% 19% 40% 35%

Catalog information and selling systems 5% 18% 27% 50%

Service information 9% 13% 41% 37%

8

0 10 20 30 40 50 60

56%

55%

50%

41%

36%

Service information

Catalog information and selling systems

Product development

Customer documentation/usage instructions

Manufacturing instructions



Automated Product Configuration CAD is the primary tool used to support the customization process (92%). The implication is that the customization process is primarily drawing-driven based on tribal knowledge with heavy engineeringinvolvement in the specification process. Beyond the CAD system, most manufacturers are using ad hoctechnologies such as spreadsheets (51%) or manual processes supported by documentation (41%) tosupport the customization process. Few companies utilize automated configuration systems. Of thosewho do, 30% use homegrown systems and only 24% use third-party packages.

What technology are companies using to support the customization process?

There is very little integration of tools within the customization process, and the level of integrationdecreases significantly as you move from manufacturing (ERP at 30%) through engineering (CAD at 24%)into the sales channel (Selling Systems at 14%). The lack of integration implies that there is a significantamount of manual intervention within the customization process requiring time and resources, and leaving opportunity for errors.

9

0 20 40 60 80 100

92%

58%

51%

41%

30%

30%

24%

23%

14%

CAD system is used.

Configuration system is integratedwith manufacturing systems.

Ad hoc technologies are used (spreadsheets, electronic documents).

Configuration information is entirely in document form.

A company-built configuration system is used.

Configuration system is integrated with ERP systems.

Configuration system is integrated with CAD systems.

A third-party configuration system is used.

Configuration system is integrated with selling systems.



The systems supporting the customization process and the level of integration had a direct correlation tothe competitive ratings of survey respondents. The following table identifies the systems that were morewidely adopted by those claiming competitive advantage:

Competitive Advantage Supporting Systems

1. Manufacturing capability • No strong correlation

2. Ability to market/sell • Configuration integrated with selling system• Configuration integrated with CAD• Company-built configuration system is used

3. Speed of quoting • Configuration integrated with CAD• Configuration integrated with selling system

4. Speed of delivery • Configuration integrated with manufacturing systems• Configuration integrated with ERP• Configuration integrated with selling system

5. Quality of orders • CAD system is used• Configuration integrated with CAD• Company-built configuration system is used

6. Cost of orders • Configuration integrated with manufacturing systems• Configuration integrated with ERP

7. Speed of new product introduction • Configuration integrated with manufacturing systems

Overall, companies that integrated configuration systems with back-office manufacturing, engineeringsystems, and front-office selling systems reported market leadership.



Cost Challenges and Pricing Benefits of Customization

CostCompanies that produce customized products do not have sufficient cost information. Survey respondents indicate that they have great difficulty in understanding the cost impact of customization.This is a clear opportunity for improvement. Manufacturers that cannot determine the cost of customized products take a huge risk in taking orders that may not be profitable. More importantly, without understanding the cost of selling, it is difficult to make strategic decisions regarding product mix and target customer segments.

As the following chart indicates, the area of greatest challenge is the cost impact of engineering changeorders. Only 27% of the respondents indicated that they have sufficient cost information for engineeringchanges. This is likely due to poorly integrated systems (see Automated Product Configuration) and thetime pressures associated with responding to customer and sales demands.

Companies with Sufficient Cost Information

PricingMore than 50% of respondents believe that they have the ability to charge a 10% or higher premium forcustomized products. Alternatively, it could be implied that the ability to customize is essential in orderto charge a premium.

Price Premium for Customized Products

11

0 10 20 30 40 50 60 70 80

61%

42%

34%

27%

Manufacturing costs

Cost of sales

All other product-related costs

Cost of engineering change orders

0 10 20 30 40 50

13%

30%

48%

10%

0%

No advantage

< 10%

10-25%

25-50%

> 50%



Process Challenges of Customization

How Engineers Spend Their TimeMore than 50% of the respondents indicated that a majority of engineering time is spent on drawing creation (32%), BOM creation (14%), and change orders (13%). These are activities that respondents indicated require eight hours or more per week.

Most Time Spent

It is difficult to determine exactly how much time is spent supporting the sales process. For example, 30% of the respondents indicate that engineers spends eight hours or more per week on the followingdirect sales support activities:

• Product selection and configuration (10%)• Quote/order review and approvals (9%)• Cost estimates (4%)• Pricing orders (4%)• General sales consultation (2%)

While this appears to be a significant amount of time spent on sales support, one could argue thatbecause Engineering is uniquely positioned to optimize the fit between a customer’s needs and manufacturing, this is time very well spent. Unfortunately, much of the time spent is low-value activity(e.g., quote/order review).

The survey indicates that Engineering management has mixed perceptions on how sales and serviceactivities affect new product development. Of the surveyed respondents, 48% indicated that sales and service activities delay while 31% indicated that it actually improves new product development. We interpret this response to mean that Engineering management would like to reduce the amount oflow-value tactical support activity but increase engineering influence on sales processes and solutionsthat are proposed to customers.

12

0 5 10 15 20 25 30 35

32%

14%

13%

10%

9%

5%

4%

2%

Drawing creation

BOM creation

Change orders

Product selection and configuration

Quote/Order review or approvals

Manufacturing changes in line

Cost estimates

Pricing orders

Post order revisions

General sales consultation

Post-sales support of installation

4%

4%

3%



Barriers to ImprovementMost engineers believe that product complexity is not the primary barrier to customization. They citelack of knowledge of options by the customer (67%) and field (44%) as the primary barrier to customization efforts.

Barriers to Customization

The implication is that the knowledge required to effectively sell customized products is not being effectively transferred to the field and customer. This is not surprising given the lack of strategic invest-ment in front-office processes and systems. According to this survey, the primary barrier to customizationis the effective transfer of Knowledge from the back-office to the front-office. There are huge opportuni-ties for improvement in sales and operational effectiveness to be gained by addressing this issue. Of thesurveyed respondents, 43% indicated that inadequate systems are also a barrier to customization.

13

67%

44%

43%

37%

34%

19%

3%

Customer/buyer lacks knowledge of options

Lack of understanding of options in field

Inadequate systems

Inadequate documentation

Configuration errors

Products are too complex for the field to sell

Other, please specify



0 10 20 30 40 50 60 70 80

64%

35%

26%

14%

11%

Intellectual capital of products is primarilyin the heads of a few experts

No method of transferring knowledgethroughout the organization

Engineering team with customizationexpertise is nearing retirement

High level of turnover among product experts

Other, please specify

Intellectual CapitalThe knowledge transfer problem is further exacerbated by the lack of an overall strategy for capturingand managing Intellectual Capital (IC). In the words of one respondent:

“ … there is an impending disaster that no one seems occupied with while they are doing their job during the day.”

Risks to Product Customization

Survey respondents see this as a very strategic issue. 64% indicate that IC related to products is primarily in the heads of a few experts. 26% see the loss of ICthrough retirement or turnover as a key risk to their BTO strategy. Even more concerning is the fact that35% of the respondents indicated that they have no method of transferring knowledge throughout theorganization. Complex manufacturers must begin to develop effective Succession Planning strategiesand consider the adoption of technologies that enable them to effectively capture and transfer knowledgethroughout the organization.



Research MethodologyBetween the months of January and February 2007, Cincom and Design News solicited the perspectiveof senior engineering managers regarding build-to-order strategies employed within manufacturers ofcustomized products.

Responding engineering executives completed a survey that included questions designed to determinethe following:

• Trends in market demand for customized products• Profiles of the products being customized• Tools and strategies supporting customization initiatives• System and data quality• Organizational and process effectiveness• Risks and barriers to customization

The survey was aimed at determining engineering best practices for the creation and sale of build-to-order products and to provide a framework by which readers could assess their own productcustomization practices.

Sample DemographicsIndustries – The survey targeted a segment of 900 manufacturers of complex industrial, electrical, andtransportation equipment and systems (SIC Code 34xx – 39xx).

Respondents – Senior engineering executives, mostly at the vice president level. 72 respondents completed the survey through a mix of mail and online responses. All respondents received a copy of the final report in appreciation for their participation.

Geography – All respondents were within North America.

Company size – All companies were pre-screened so that the sample only included those with greaterthan $40M annual revenue.

Next StepCincom will conduct a survey among senior sales executives at similarly profiled companies. The purpose of this study is to understand the perspective of sales regarding key aspects of build-to-order.



Research Sponsors

Cincom Systems, Inc.Cincom and its partners deliver and support innovative software and services to simplify complex business processes. Cincom Quote-to-Order Solutions simplify complex selling by delivering critical product, pricing, and process knowledge to the point of sale. For nearly 40 years, Cincom has empoweredthousands of clients worldwide to transform their businesses and outperform the competition by providing ways to increase revenue, control cost, minimize risk, and achieve rapid ROI.

Cincom serves clients on six continents including American Power Conversion, Air Products, BMW,Boeing, Cooper Power, Ericsson, Rolls-Royce, Rockwell Automation, Siemens, and Trane. For more information about Cincom's products and services, contact Cincom at 1-800-2CINCOM (USA only), sendan e-mail to [email protected], or visit the company's website at www.cincom.com.

Design News MagazineDesign News is the leading technical resource for design engineers who create everything from planes,trains, and automobiles to cellular phones, medical devices, and just about every other product on theplanet. Its readers are a diverse group with core engineering concentrations ranging from mechanicaland electrical/electronic to manufacturing and electromechanical engineering. Design News provideshighly useful, practical editorial content both in print and online at www.designnews.com.

Manufacturing Business Technology MagazineManufacturing Business Technology is a business management publication that explains how informationtechnology can improve productivity in both the business and production processes of manufacturing. In particular, Manufacturing Business Technology covers the business- and production-managementapplications that have changed how work gets done in manufacturing and the supply chain. To helpreaders evaluate, buy, and implement these technologies, Manufacturing Business Technology exploresthe management concepts, business processes, technology infrastructure, and product technologies relevant to their use. Visit Manufacturing Business Technology online at www.MBTmag.com.



www.cincom.com

mailto:[email protected]

www.designnews.com

www.MBTmag.com

For More Information

Executive BroadcastDemand for customized products and orders increased again this year. Time spent on new productdevelopment and engineering innovation is one of the areas that is taking the hit.

How are build-to-order and engineer-to-order manufacturers coping? How is engineering coping?

Join us for a lively panel discussion as we discuss the findings from the industry’s first report on the stateof mass customization and build-to-order practices from an engineering perspective!

The broadcast will reveal the findings on current practices across the industry and discuss the implications on:

• Business processes• Product rationalization• Price management• System and organization support

WebcastTITLE: Mass Customization and Build-to-Order Practices: Engineering’s Perspective

DATE:Available ON-DEMAND

To listen to "Mass Customization and Build-to-Order Practices: Engineering’s Perspective," please visit www.cincom.com/webcast_series.

MODERATOR: INDUSTRY PANEL:

Kevin Parker Randy Frank Joseph Colannino Jim WilsonEditor Contributing Editor Director, R&D Program DirectorManufacturing Design News John Zink Company CincomBusiness Technology




Cincom and the Quadrant Logo are registered trademarks of CincomSystems, Inc. All other trademarks belong to their respective companies.

© 2007 Cincom Systems, Inc. All rights reserved.

CM061106-2 11/07

engineering 2008

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