How would you describe your business operations – configurable or highly customized?

todd herman webI've been working with a client on an Enterprise Resource Planning (ERP) system selection project and have hit the same roadblock with two different ERP system developers. Both developers have a mid-market and an enterprise ERP system – my client is too big and its needs too sophisticated for the "template" mid-market ERP systems, yet not big enough for the "highly customized" enterprise ERP systems.

This roadblock got me thinking – how are the characteristics I've seen in ERP systems similar to characteristics I've seen in various businesses? Before I can answer this question, let me explain a few concepts, and introduce a few acronyms.

ETO vs ATO

Engineer To Order (ETO) refers to a manufacturing process where a product is custom–designed and custom-made for a particular customer. Examples of companies whose business models are based on ETO are companies building truck bodies – yes, there are differences, besides the paint job and logos, between Coke and Pepsi delivery trucks – or those building robotic automation systems. As the description implies, one or more engineers are generally required to design the product.

Assemble To Order (ATO) is a different type of manufacturing process where several individual component pieces are put together – frequently with some sort of adhesive or heating process – into a more complex product. Examples of ATO products are the bags used to collect blood donations, or the holiday gift baskets we'll soon see in stores.

As you might expect, ETO products – because they are highly customized – are usually expensive, while ATO products – representing various configurations of basic items – are much more affordable. Just like products, ERP systems can be highly customized or various configurations of base components

Enterprise ERP Systems – Customize To Order (CuTO)

Returning to my client and the ERP selection project. A few years ago, this client changed its business model to expand beyond its traditional business – it would begin to design and offer new types of products and services. The envisioned design and light manufacturing capabilities were completely new to my client and relatively new within its industry.

The capabilities required to support these new products and services could definitely be found in the enterprise ERP systems. As one sales rep put it, what you get in many enterprise systems is "a blinking cursor." As a result, significant vendor effort is required to understand a company's desired "future state" process, commit that process – which may be completely re-engineered compared to the "current state" – to a design document, and then develop the code to build out all the screens and functionality to go from "blinking cursor" to "functional system."

Such a system is highly customized to a specific company's needs, resulting in an end product different – and potentially significantly different – from the same ERP system tailored to a different company in the same industry. Let's call such systems – the software equivalents of ETO products – Customized To Order (CuTO).

Mid-Market ERP Systems – Configure To Order (CoTO)

Many mid-market ERP systems are an excellent fit for my client's traditional business. The problem comes from how well they can meet my client's new requirements.

These mid-market ERP systems rely on a combination of vendor-developed modules, third party-developed add-ins (software that plugs directly into the core system), and third party-developed bolt-ons (software that sits alongside the core system and interfaces information between the two) to extend the system's base functionality. The base ERP system and the available modules, add-ins, or bolt-ons all target a large number of companies. Thus, their functionality has been designed to fit the most common way a process can be performed, and to provide configuration options allowing for limited process variations.

Such ERP systems and related products can be assembled to meet a variety of company needs, and then configured to address company-specific functionality. Let's call these ERP systems – the software analogues to ATO products – Configured To Order (CoTO).

ERP System Trade-Offs – CuTO vs CoTO

There's a basic trade-off between customize-to-order and configure-to-order ERP systems – the former emphasizes functionality over flexibility, while the latter prizes flexibility above functionality.

While my client needs the functionality of a customize-to-order system, it cannot afford to lose the flexibility inherent in a configure-to-order system. After all, this client has been successful because of its "secret sauce" – it bends over backwards to satisfy its customer's needs and intends to keep doing so, while also introducing new products and services.

CuTO and CoTO as Company Business Models

As I recently thought about companies that successfully pivoted to adapt to the unprecedented changes wrought by COVID-19, I had an insight – the owners, executives, and managers of those companies seemed to view their business MORE as configured-to-order (CoTO) and LESS as customized-to-order (CuTO).

For example, a company making products for a very specialized industry had a department skilled in cutting, bending, and fabricating many different types of plastics. The pivot? Making face shields to protect workers, and plexiglass screens to create protective barriers between desks and cubicles.

Another example – a company that makes high-end compression socks for senior citizens has sophisticated knitting machines that can knit a complete sock, including knitting the toe closed. What did they do? Re-program the knitting machines to churn out face masks complete with knit-in integrated ear loops!

CuTO Company or CoTO Company – Which Are You?

If your company has successfully navigated COVID-19 disruptions by pivoting from its traditional products or services to new offerings, congratulations. Key people in your company likely viewed the company as a series of configurable operations, then creatively deployed them in new ways.

Perhaps your company has had a hard time adapting to our current reality, possibly because your key people view the company as a series of highly customized operations with little flexibility. If so, deliberately inventorying your company's skills and capabilities would be a productive exercise to soften this view and begin to expand your options.

Like most companies, we've also had to adapt to changed circumstances. Our 31+ years of process and technology experience helped us do this – and we can help you do the same for your company.

Sincerely,

toddsig

Todd L. Herman