Configuring success

Configuration products that integrate with ERP, sales, order processing, and inventory control systems are quickly becoming a company's most vital tool to connect front-office sales activities with back-office operations and management systems.
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In this article:
  • Lorin Industries
  • New functions invite new users
  • Software configuration lessons learned
    Out of the 100 workers licensed to use the new enterprise resource planning (ERP) system just installed by aluminum finisher Lorin Industries, only six ply the software's sales-configuration feature. But that configurator--which lets the Muskegon, Mich.-based company take orders for the near-infinite variety of ways it can cut and color sheet aluminum for its customers (other manufacturers who stamp it into finished goods like appliance housings)--carried an awful lot of weight in Lorin's purchase decision.

    "The configuration component is a very, very small component of our ERP purchase," explains Todd Ouellette, director of information at Lorin, a privately owned company with annual revenues of about $70 million. "But it was vital in our eyes."

    Assessing both the benefits of the configuration system and the efforts needed to install it, Jon Hoppe of Perlick muses, "This [sales configurator] is one of those things that you can't live with, and you can't live without."
    Vital is a good way to describe a configurator. It's basically a software engine that a company loads with its product rules and manufacturing procedures, so that the software can automatically set up and verify product specifications when the company takes an order. The system makes sure the combination of options and features chosen with each order is valid--that is, that all the necessary pieces are included and that all those pieces work together the way the buyer expects.

    Lorin's configuration component is integrated into the ERP system that the company purchased in February 1997, mainly for the reason du jour. It faced a minimum $150,000 tab for the Year 2000 fix of the patchwork of business systems it had cobbled together beginning back in 1989, mostly written in-house to run on an IBM AS/400 computer. Rather than repair outdated and inadequate software, Lorin sank $750,000 into a spanking new ERP Plus suite from PowerCerv of Tampa, Fla. The company also seized the opportunity to jump to a client/server configuration, running on Windows NT and built around a Microsoft SQL Server database on a Compaq Proliant 5000 box.

    Overall, the sales configuration feature added less than $15,000 in software and consulting costs, Ouellette figures. That's only about 2% of the total purchase price. But, he points out, "it amounted to about 40% of the evaluation weight" in selecting PowerCerv as the ERP vendor.

    Vital software bridges

    Todd Ouellette's reasoning at Lorin reflects both the power and the allure of configurators, and it places the company among the burgeoning ranks of sales-oriented businesses that see configurators as vital software bridges connecting the front-office sales activities with back-office operations and management systems.

    AT A GLANCE:
    Lorin Industries

    The company: Lorin Industries, based in Muskegon Mich., is a privately owned aluminum finisher with annual revenues of about $70 million.

    The problem: Product line demanded 30,000 to 40,000 separate database files for bills of material and bills of routing (basic manufacturing instructions).

    The Solution: A sales configuration module attached to its ERP system creates bills of material and routing on the fly, when an order is taken.

    The IT infrastructure: ERP Plus from PowerCerv Corp., running in the Windows NT operating system and supported by a Microsoft SQL Server database on a Compaq Proliant 5000 server, feeding about 100 clients.

    What's more, the ability to accurately fit together product components and options is becoming essential for the growing list of companies moving to mass customization. They need to rapidly assemble standardized components in nonstandard, special-order combinations for different customers. Sales configurators enable their users to handle the product complexity but still achieve greater overall efficiency in the sales and order-entry processes.

    "Every order we take is unique, but we don't have to reengineer a product every time an order comes in," observes Steve Contrucci, controller of ASI Technologies, a Milwaukee-based maker of special-purpose industrial doors for warehousing, cold storage, and pharmaceutical clean rooms. "Configurators also help our order-entry people. If they enter an incorrect option, the system corrects them."

    ASI uses a configuration module attached to its Time Critical Manufacturing (TCM) system, an ERP application from Effective Management Systems (EMS) Milwaukee. The company is currently upgrading this eight-year-old system, which runs on a VAX minicomputer from Digital Equipment Corp., to the latest TCM release, supporting it in a Windows NT, client/server operating environment.

    A functional requirement

    Configuration technology is getting a particular boost from Web-based selling. Typically, a configuration engine, activated by a customer's browser, walks the buyer through valid feature and option combinations. It does the same for sales staffers out on the road and for order-entry clerks working the phone banks.

    For example, a configurator setting up custom-order doors for a building-supplies company can make sure the particular hinges the customer wants support the door's size and weight. Another system configuring, say, industrial test and measurement instruments, assures that each device ordered has an adequate power supply for the accessories it contains, and that the heat generated by its internal components remains within acceptable levels.

    Those are the types of problems that have traditionally bedeviled companies with make-to-order and even engineer-to-order products, especially in industries like machinery and electronics, which routinely tailor complex, highly engineered products to buyers' requirements (see "1,000 PCs to go, please" by Gerald Lazar in this month's issue).

    "Configuration seems to be a functional requirement that all end users are asking for," attests Barry Daitch, senior manager in the customer management practice of KPMG Peat Marwick in Boston. And although the market may be a confusing array of products, manufacturing companies are increasingly interested in off-the-shelf solutions to the myriad configuration challenges they now face in a world quickly moving to the Web for sales and order processing. While figures are hard to find, industry officials estimate a $200 million market growing to $600 million in the year 2000 and approaching $1 billion by 2003.

    Matching technology to needs

    But the swelling popularity of configuration software doesn't make it any easier for companies to find what they're looking for in a system. "It's very confusing, because each vendor comes in pushing their capabilities, expertise, and their orientations to the problem," says Robert DeSisto, research director, sales leadership strategy, for consultant the Gartner Group in Stamford, Conn.

    Many of the systems have significantly different capabilities, tailored to different end-user business approaches (see the table, "Matching configurators to business models"). They even come from different segments of the software industry, primarily the sales automation, ERP, and now, supply-chain planning sectors.

    Indeed, the configuration field has shifted to focus more exclusively on sales support activities. Earlier takes on the technology went by the title "product configurators", tools to help engineers set up product variations. Now the moniker "sales configurator" is more commonly heard.

    "[The sales configurator] provides Haworth salespeople with the ability to create a more interactive experience with our customers, and to more precisely meet their needs," says Al Lanning, vice president of sales at Haworth.

    Configuration also comes as an optional feature for many ERP systems, like those used at Lorin and ASI. At the mid-level are such systems as the Time Critical Manufacturing system from EMS, the Frontier system from Friedman, based in Deerfield, Ill., and PowerCerv's ERP Plus system. Meanwhile, top-tier ERP suppliers are mounting campaigns to add or augment the sales configuration capabilities in their applications. Oracle, Peoplesoft, and SAP are developing new configuration modules for their systems. Early this year, Baan acquired Aurum, a configuration vendor, giving it instant presence in the market.

    And now, suppliers of supply-chain planning systems are jumping in. For instance, i2 Technologies purchased configurator vendor Innomat in May, with plans to include its product-building capabilities along with order processing and scheduling functions of future releases. Observers expect other supply-chain specialists to follow, creating even more turbulence in a market experiencing acquisitions, consolidations, and even new configuration-vendor start-ups.

    "As fast as vendors are acquired, I see new vendors emerging as functionality expands," notes Gartner's DeSisto. At KPMG, Daitsch won't give clients specific vendor recommendations, due to the current volatility among suppliers. "The space is going to change dramatically over the next 12 to 18 months," he says.

    Increased efficiency

    This rush to market is a reaction to the industry's demand for faster, more effective ways to close deals with customers and to get the orders efficiently into production. The old way to deal with product variety is to bounce custom and special orders off the corporate engineering department. Large companies even maintain whole application-engineering staffs, employed to babysit salespeople, making sure their deals pass engineering and manufacturing muster.

    But the reiterative give and take can be costly and time consuming. Haworth, a Holland, Mich., maker of office furniture, used to take up to a week to get proposal drawings to customers that need furnishings custom fit for their workspaces. Now Haworth sales reps use Selling Chain configuration software from Trilogy Development Group in an implementation with spatial reasoning, three-dimensional layout, and a link to computer-aided design software that renders the configured products. Consequently, customers can see a model of their special order within about 10 minutes.

    The software frees up engineers for other tasks and significantly cuts the resources once consumed in the week-long quotation cycle. Additionally, it boosts customer satisfaction. For one thing, the buyer gets to sign off right away on an accurately configured drawing of the order. And the delivered goods will match the specifications exactly, because manufacturing rules written into the configurator assure that salespeople can't promise anything their companies can't actually build.

    "It provides Haworth salespeople with the ability to create a more interactive experience with our customers and to more precisely meet their needs," notes Al Lanning, vice president of sales.

    Eliminating the rework that results from incorrect orders provides the primary cost justification for configuration systems, notes Gartner's DeSisto. "There are hard-dollar savings that are directly attributable to the elimination of misconfigured orders and the expense of fixing them," he says.

    Additionally, companies can usually expect top-line growth when they install configuration capabilities, he insists. The bump in sales comes from the abilities of configuration software to shorten the sales cycle and to enable users to cross-sell and up-sell customers on related or upgraded products.

    Accordingly, Alstom Gas Turbines (AGT) in Lincoln, England, aims to double business by the year 2000 without adding salespeople. The current staff is simply handling more orders with the help of SellingPoint salesforce automation software--with configuration for complex products as its centerpiece--supplied by Concentra of Burlington, Mass. "The project is the cornerstone of the drive toward doubling our business," states Peter Bonham, AGT's configuration manager.

    From homegrown to off-the-shelf

    Even before the onslaught of off-the-shelf configuration engines began building steam in the early 1990s, many corporate MIS departments were writing their own. For example, Lorin's new PowerCerv configuration module replaces a homegrown product builder. For years computer and electronics companies have used automated systems to put together combinations of memory, CPU, disk options, and other features for customers.

    New functions invite new users
    Observers agree that much of the growing popularity of configuration software comes from its expanding functions and capabilities. Features like graphical rule-building environments with drag-and-drop editing make systems easier to install and maintain. Meanwhile, new capabilities like Internet deployment, which offer high-performance support for millions of call-in customers, make configuration software more useful to a larger set of companies.

    For manufacturers with very simple products, the technology still may be unnecessary, "but the number of those is getting smaller, as the power of configurators gets stronger and stronger and stronger," states Steve Smiley, senior consultant for the ERP vendor Effective Management Systems.

    New functionality can push sales configuration into applications that wouldn't benefit much from the traditional approach, with its emphasis on complex products, observes Robert DeSisto, a research director at Gartner Group. To illustrate, he tells how the appliance maker Whirlpool of Benton Harbor, Mich., benefited by installing the SC Pricer from Trilogy Development Group.

    A function that emerged within the last year, pricing configuration simplifies and automates product pricing, accounting for complicating factors like volume discounts, customer discounts, and special rebates and promotions. Significantly, the systems help companies quickly and accurately deploy pricing to their sales channels.

    Whirlpool makes mostly standard models, which don't cry out for traditional, part-by-part configuration. But its paper-based pricing system was both labor intensive and unresponsive: it made it hard to cut prices on, say, window air conditioners when a cool spring dampened demand, says DeSisto.

    A new configurator has cut the overall time required for Whirlpool to update prices from 110 days to a mere 14. Now one person physically changes the company's 41 price sheets in an hour. Three people used to consume 72 hours on the same task.

    "When we talk about configurators, it's not just about configuring products anymore," says DeSisto. "Sales configuration is defined as configuring products, pricing, commissions, financing, and contracts."

    Indeed, Digital is widely considered the field's pioneer. Starting in the late 1970s, it wrote software using artificial-intelligence, expert-system technology that helped make sure all the components a customer asked for in a Digital server--then about the size of a bookcase--didn't attempt to transgress any of the laws of physics, says Greg Yannekis. Back then he worked in manufacturing distribution and supply-chain management for Digital. Yannekis is now practice manager, supply-chain solution segment for Benchmarking Partners, software analysts and consultants based in Cambridge, Mass.

    DEC eventually scrapped its home-built system for software by Trilogy. Digital's configurator had required its own configuration department to operate, and it didn't mesh with the company's other systems. Not only did Trilogy integrate well, but it also traveled in a laptop, giving salespeople a tool to take on the road. "Digital did many things, but Trilogy did only one," summarizes Yannekis. "The Digital configurators were good, but Trilogy's were great."

    By now, buying configuration capability, rather than making it, has emerged as the consensus approach, spreading from high-tech manufacturers to furniture makers, industrial equipment producers, and other business segments. "We don't have vast amounts of resources to do the integration and development work," says Ouellette of Lorin.

    "Companies have come to realize that buying packaged software and then customizing it gets them out of the software development business," concurs Daitsch of KPMG.

    It's not all good news

    Smaller companies like Lorin and ASI typically favor configurators that come built into ERP packages. That spares the time and expense of integrating a best-of-breed solution and can also result in faster implementation.

    But best-of-breed sales systems also generally provide integration with ERP applications. "They have to integrate. It's not an option," asserts Gartner's DeSisto. "And there's a cost of putting that integration in place."

    Users can also expect higher ongoing software maintenance costs, as upgrades and other changes by either party require adjustments in the link between their systems, he says.

    What's more, a best-of-breed choice will probably cost more up front, DeSisto notes. Of course, prices vary widely. A system from Concentra, for example, ranges from $2,000 to $4,000 per seat, depending on the number of seats. A typical installation ranges from $500,000 to $1 million for the software, consulting, and training, excluding hardware, says Dave Lemont, chief operating officer at Concentra.

    On the other hand, with ERP purchases, the cost of the configuration component is typically buried in the package price, DeSisto notes.

    Nevertheless, he cautions, "the benefits of a best-of-breed configurator's functionality far outweigh the potential costs of the integration. If an organization requires the functionality, and sacrifices it for integration, they're not going to achieve the return on investment they could have, had they gone with best-of-breed."

    The primary shortcoming for ERP-based solutions, says DeSisto, "is the use of these technologies in the hands of salespeople, channel partners, or over the Web with a customer. They have not demonstrated that they can develop the customer interfaces that will enable those channels to use it effectively during a selling or buying situation."

    Structural guidelines

    To get the most out of whichever configuration system you choose, there are several points to keep in mind. Guidelines on system selection from consultants start with the admonishment to carefully examine business needs and issues. When selecting a particular configuration system, advises DeSisto, the fundamental questions are: How much variability does a salesperson need to make a quote; how much variability can the company's manufacturing operations offer and how much variability will the company demand of its suppliers. "That will help you understand the capabilities you need to provide, in what areas," as an alternative to merely comparing vendors, he advises.

    The software frees up engineers for other tasks and significantly cuts the resources once consumed in the week-long quotation cycle.

    Another important step is collecting and codifying the rules that a company uses to set up products. Usually that's a task for engineering departments, working under the direction of the IT managers who have overall responsibility for configuration-system implementation. Writing the rules can be time consuming, and even gut wrenching to arrive at best practices suitable enough to code in as instructions for a configuration module.

    "A lot of the problem has to do with getting ready," warns Daitch. "It's a big task to structure rules and data in a way that enable them to go into a configuration system. A lot of end users want to start writing code right away. It's difficult to sell them on the value of structuring their information."

    Everything evens out in the end

    For Perlick, a maker of bars and beverage-dispensing equipment, rule writing consumed two members of its 10-person engineering staff for one year. "It used up some significant resources for quite a while," recounts Jon Hoppe, manager of engineering services for the Milwaukee-based company. Perlick uses the configuration module attached to its ERP system from EMS.

    Since taking it live last November, the company still sinks some engineering time into systems support. In the months right after implementation, the commitment amounted to 20 to 30 hours weekly. Currently, system maintenance is down to about 8 hours weekly, Hoppe reports. He expects further reductions, as the company fine-tunes the system.

    In exchange, Perlick acquired more than the expected efficiencies during its sales and order-entry process. The use of a sales configurator also helps the company maintain inventory more accurately. For example, if parts needed to build a particular bar are out of stock, the company's inventory-control module gets early notification. Likewise, special parts that have to be turned out by Perlick's own manufacturing department are scheduled more rationally into the facility's production plan. Hoppe says there's no last-minute scramble to make or acquire special parts.

    Assessing both the benefits of the configuration system and the efforts needed to install it, Hoppe muses, "This is one of those things that you can't live with, and you can't live without." //

    Jeffrey Zygmont writes about business, technology, and other of life's pleasures from Salem, NH.

    Software configuration lessons learned

  • When getting started, engineers will wrangle as they try to identify and agree on the best practices among the rules of thumb they currently follow to configure products.

  • That struggle to codify the rules and procedures to program into a configurator pays off in better, more consistent workflow through the factory.

  • Pay attention not just to the engineering rules, but also to setting up logical, efficient sequences for the configurator to present to the sales staff using it.

  • Functionality varies widely among systems, so identify your specific business needs before selecting vendors.

  • When selecting vendors, don't settle for the demo the vendor built in advance; ask to see the development toolkit he used, and let him build a demo in real time.

  • Shop for a package that's stable and well developed, because configurators are rapidly evolving. One company had to redo some installation steps before it even got up and running, because its vendor reworked the application.

    For more information

    Baan
    Barneveld, The Netherlands
    703-471-8785 (in the U.S.)

    Effective Management Systems
    Milwaukee, WI
    414-359-9800

    Friedman
    Deerfield, Ill.
    847-948-7180

    i2 Technologies
    Irving, TX
    214-860-6000

    Oracle
    Redwood Shores, Calif.
    1-800-ORACLE1

    Peoplesoft
    Pleasanton, Calif.
    925-225-3000

    PowerCerv Corporation
    Tampa, FL
    813-226-2600

    SAP
    Walldorf, Germany
    1-800-872-1727

    Trilogy
    Austin, TX
    512-794-5900



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