ERP in Manufacturing Series: Variable Configuration
For companies with complicated possibilities of feature and option combinations on their basic products, the ability to create a custom sku with a dynamic bill of material at order entry can be an efficient and effective way to improve customer service while reducing data maintenance complexity. Different ERP vendors refer to this feature under different names; for the purpose of this article, we will refer to it as variable configuration.
Product Combinations & Skus
If the above description of when variable configuration is helpful is too vague, think about the math. An easy scenario to imagine would be a make-to-order computer manufacturer. Suppose a manufacturer offers three basic computers. Suppose that for each computer, the shell can come in three different colors. Now there are nine potential skus. The manufacturer also offers customers the choice of two different processors, four different graphics cards, three different monitor sizes, five different hard disk sizes, two different read/write drives, and seven port choices. Now you are up to 15,120 possible combinations. Add two different sound system options, four different loaded software packages, and two different battery options, and you now offer 241,920 combinations.
There will be organizational resistance to loading up almost a quarter of a million individual skus into a new ERP system, each with its own independent bill of materials, cost, list price, and financial performance. Statistically, it is likely that two thousand of the possible combinations will account for 90% of all sales, and 50% of the combinations will never be sold. Variable configuration solves this problem by allowing the customer order to determine the identity of the product, all under the sku identity of one of the three basic computers. Incorporating VC into an ERP system, customer service never has to say, “I’m going to ask to see if we offer that feature on that product,” when they cannot find a product description matching the customer’s need.
Variable configuration is not for the technically faint of heart. You need a highly competent and logical data maintenance professional (or team) to build out and test the configuration choices. In most cases, there will be logical complications where you can offer option A on this, but not on that. Product costing also requires a lot of up front testing time, since errors probably will not be caught unless they are so extreme as to cause the final cost of the product to be nonsense.
In return for this up front effort, the people in order entry, and customers, are able to enjoy a large ease of use benefit. Once established, data maintenance people have a smaller continual workload, since the addition of a fourth shell color requires adjustment only to one features structure, and not the addition of 80,640 more sku possibilities.
If the number of skus you offer scares you from a data maintenance standpoint, or if you find yourself continually having to add large blocks of materials because a customer asks for an option that wasn’t loaded previously, make sure you ask your ERP vendor about their approach to variable configuration.
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