The business of manufacturing companies is to design, manufacturing, sell and support products. Therefore, the definition of product is one of the central elements of information strategy for every manufacturing company. From that perspective, product is top level information object related to company business. Two important modeling aspects of any product are product configurations and product portfolios.
Configuration is a way to present multiple variation of the same product. Think about your car with few options – basic, luxury and sport. If you buy mobile phone, think about memory and color as configuration options.
Complex manufacturing business operation is organizing products in portfolios. You can think about portfolio of printers, wireless equipment, construction machinery, displays, TVs.
The definition of configuration and portfolio might overlap. It often depends on many factors such as information systems, business units, etc. Usually “configuration” is something simpler and focuses primarily on product characteristics – hardware, electronic, materials. At the same time, portfolios is more business oriented view on product development covering wider scope of product planning, manufacturing processes, profit and cross product and facility optimization.
Product customization is a fundamental reason why product configurations are so important these days. Modular approach together with configuration parameters are used to support development of product configuration in PLM systems.
How to modularize Bill of Materials?
Customization is a big challenge for manufacturing companies. Life was good in mass-production world, when the goal was to provide large series of items with predefined configurations. Not anymore… Today, clients are interested to how customize everything. Companies dealing with ETO type of business are facing similar challenges.
Efficient Bill of Materials management system can solve this problem. If you have flexible BOM management system allowing you to manipulate BOM structures and integrated with your ERP environment, you are halfway done. However, technology out of the box won’t help you. It requires to apply some best practices too. One of the practices I want to discuss is “modular Bill of Materials”. Wikipedia provide a very short article about that, but I liked the definition.
Modular BOMs define the component materials, documents, parts and engineering drawings needed to complete a sub-assembly. While the terms BOM and modular BOM are most commonly used in association with physical products, the concept can be used in a variety of industries (e.g. software, medical records). Modular BOMs are used by modern information systems to serve a variety of purposes, such as defining the components needed to produce a sub-assembly, and providing cost information for each component and “rolled-up” cost information for the overall sub-assembly.
The core idea of modularization is to create a set of “modules” (aka sub-assemblies) that you can manipulate in order to create a final product. The product development process will be divided into two essential steps: create your modular bills and create a planning bill for a specific product. The last one will allow you to roll out cost and delivery time for a specific product order. Below I put five steps to follow in order to modularize the process of Bill of Material management in your company.
1- Identify family groups.
This work can take time, but will allow you to make some steps to improve you product portfolio. Most probably you already have some portfolio management tools in house. Engineering has a tendency to complicate everything. So, you may find an overwhelming number of product families in your company. So, you must take some time and optimize that.
2- Identify options.
These are elements of products and bill of materials that can be added to multiple product families. Usually represents additional features that can be added and can be replaced. The typical example of options is different configuration of car in-dash navigation and entertainment system. What is also important at this stage is to identify constraints between options (conflicts, incompatibilities, etc.)
3- Create Master Bill of Materials.
This is a very important step. Master Bill of Materials represents all families and all options. This is “THE” bill of materials of all your products, which allows you to plan and to manufacture any product and configurations. In most of BOM management system you operate with ‘phantom’ feature to create an efficient master bill of materials. The reliability of BOM management system is very important at this stage.
4- Create planning BOM.
Planning bill of materials represents a specific product, configuration, order, etc. You generate “planning BOM” out of your master BOM in order to create a specific delivery task for your manufacturing system. You practically derive your planning BOM out of Master BOM. Tools that allows you to copy/compare structures and BOM levels are absolute must to make it work.
5- End item bill of materials
This is a final stage. End item BOM represent the customer world and the way to translate planning bill of materials into the delivery. There are multiple ways to create end item bills – create bill for every SKU#, manually configure options or implement automatic rule based configurations. In my view, the last one is the most promising alternative. However, it requires additional efforts to implement. So, don’t be surprise many of customers are manually configuring end item bills.
Modern manufacturing practices require good technologies and best practices applied together. To me, BOM modularization is one of best examples. You need to have an efficient BOM management system with technologies and user experience allowing you to work collaboratively on BOM in a very granular way. At the same time, you need to apply some planning steps to rationalize and optimize the way you work with configurations, custom orders and product customizations. The cost is a fundamental driver in a modern manufacturing world. An efficient BOM modularization will allow you to follow demands of customers for customization and keep product cost down.
Why 150% BoM will be obsolete in the future?
Modularization is a good approach, but modern PLM systems can bring some advantages in a way how to manage product configuration and support customization and options in products.
“150% BOM” is one of the oldest product development terminology describing product definitions which includes all product configurations, options and features. You cannot build this product. However, you can use 150% BOM to define a specific product configuration. I found a good explanation about what is that in Ed Lopategui’s GrabCAD blog – 150% BOM: Buy Two, Get One Free.
A 150% BOM isn’t sorely in need of some fitness training or sadly overdrawn at the bank. In fact, a 150% BOM is just another name for a variant structure, or more specifically, a configurable BOM. Configurable BOMs have one or more optional components and/or modular subassemblies, which, when properly set, define a specific variation of a product. In effect, a configurable BOM is many possible BOMs loaded into just one product structure. When left un-configured, the BOM contains more parts and subassemblies than needed, i.e. more than 100%. Hence, the term 150% BOM. So why 150% and not 110% or 117.32%? That’s just the we way we roll in BOM town.
Variant structure, configurable bill of material, modular BOM… the industry invented multiple names to cope with the complexity of communication and product development processes in manufacturing organizations. The core idea of modularization or configuration is not directly related to assembly to order process (ATO), but used widely for configurable and complex products. You can see 150% BOM, 200% BOM and similar BOM organization maintained by engineering department to facilitate creation of final products from predefined parts and sub-assemblies. The product development is actually divided into two essential steps – create your modular (150% BOM) and create a planning bill of a specific product. The last one will allow you to roll out cost and delivery time.
So, why engineers created 150% BOM concept? Do we really need that? In my view, the approach was a way for engineers to manage the complexity of product structure and product variation. You can see it for product configurations and also in bill to order (BTO) situations where complex product development is managed in a way of product technological foundation combined with features developed for specific customer. With absence of better tools, Excel spreadsheet becomes the best product configuration environment and matrix with 150% BOM is the simplest model to present that.
However, the future of “150% BOM” and matrix BOM organization can be different. In my view, the concept will disappear in the future. In my view, the complexity of product environment is growing. In many situation, to produce 150% BOM is not feasible anymore. With the level of product complexity, mix of mechanical, electronic and software components, ability of engineers to bring them all together into one 150% BOM can be not practical and even less efficient. We will need to invent new tools to manage the complexity of configurations and product data. With growing demand for personalization, we are not far from the situation, PLM and ERP systems will have to roll out bill of materials individually configured for a specific customer (and this is not only in aerospace and defense industry).
Growing complexity of products, move to mass customization, regulatory and cost pressure, global manufacturing – this is a reality of modern manufacturing environments. We need to develop a new approach how to manage product development and manufacturing of these products. Product configurations and BOM is a centerpiece of this approach. A simple 150% BOM spreadsheet will be replaced with new BOM tools.
PLM, Mass Customization and BOM Vertical Integration
A car can be any color as long as it is black. This famous Henry Ford quote speaks about how manufacturing handled customization in the past. That was the era of mass production. The idea of limited customization options combined with high level of standardization and high volumes of batch production allowed to decrease cost and improve productivity. The concept of mass production is applied to different products in process and discrete industries – food, chemicals, fasteners, home appliances and automobiles.
However, mass production is getting less popular these days. What comes next you ask? The next trend in manufacturing is going to be “mass customization”. This is the idea of total “custom output”. Manufacturing is looking how to create a possibility to produce goods in smaller batches to meet customer specific requirements. Wikipedia article provides a good summary of mass customization concept together with explaining economical value.
The concept of mass customization is attributed to Stan Davis in Future Perfect and was defined by Tseng & Jiao (2001, p. 685) as “producing goods and services to meet individual customer’s needs with near mass production efficiency”. Kaplan & Haenlein (2006) concurred, calling it “a strategy that creates value by some form of company-customer interaction at the fabrication and assembly stage of the operations level to create customized products with production cost and monetary price similar to those of mass-produced products”. Similarly, McCarthy (2004, p. 348) highlight that mass customization involves balancing operational drivers by defining it as “the capability to manufacture a relatively high volume of product options for a relatively large market (or collection of niche markets) that demands customization, without tradeoffs in cost, delivery and quality”.
However, to turn manufacturing from Ford-T production mode to mass-customizable requires lots of changes in the way companies design and build products. My attention caught by McKinsey article – How technology can drive the next wave of mass customization. Read the article and draw your opinion. Author speaks about mass customization trends in manufacturing and how it potentially impact enterprise software and IT. Look on the following picture – the list of “new customizable products” looks very impressive.
New technologies in manufacturing are going to make mass production possible – social and crowdsourcing, customer facing product configurators, 3D scanning, dynamic pricing and many others. Clearly, I can see lots of opportunities in new tech development for software and hardware companies. It also requires structural changes in product development and process organization.
PLM becomes one of the most critical drivers in the way development and manufacturing will be organized. Now, I’d like to be more specific. In my view, it is heavily comes down to the way product information and bill of materials related processes will be managed. The ability to have customer facing configurator, with dynamic pricing, optimizing company manufacturing facilities requires significant vertical integration. Today these processes heavily disconnected and implemented in silos. This is not how things should work in 21st century. To connect custom bill of material with specific engineering option and make product delivery lead time short is an interesting process, communication, collaboration and planning challenge. I found the following passage from McKinsey article connected to that –
True scale in mass customization can only be achieved with an integrated approach where technologies complement one another across a company’s various functions to add customization value for the consumer, bring down transaction costs and lead times, and control the cost of customized production
Mass customization ends up with ugly bill of materials (BOM) integration challenge. By enabling BOM vertical integration, future PLM systems will make mass customization processes possible, shorten time from the moment customer hits company e-commerce web site and until the moment, product will be shipped.
These days top-down view of products becomes more and more important. The ability of PLM software to manage this top-down view becomes an essential part of PLM technologies alongside with BOM and configuration management. Many companies just cannot manage their information without breaking up into portfolios.
Manufacturing companies are driven by increased complexity of product dependencies forced to pay attention to their ability to overlook product portfolios and configuration. In addition to that, an increased merger and acquisition activities are bringing an additional level of complexity. Manufacturing companies are acquiring other companies to increase their market presence, bring new technology, people and products. This is a place where the need for software managing portfolio of products, programs, projects comes out. The following picture can give you an idea of complexity in large manufacturing brands (thanks FB miss-understanding of things page)
This picture shows the reality of portfolios. I’m sure most of the large brand-companies in manufacturing domain can come with a similar presentations shows brands, portfolio, products. It raises an importance of portfolio management part of PLM. Portfolio management represents “top-down” view on product families, structures and ends up with Bill of Materials. Top-down view of products becomes more and more important. The ability of PLM software to manage this top-down view becomes an essential part of PLM technologies alongside with BOM and configuration management. Many companies just cannot manage their information without breaking up into portfolios.
Portfolio Management and Hollow Corporations
The term “hollow corporation” stands for a company that outsources majority of their production activity. A compatible U.S. buzzword is “virtual business”. There are few references defining what is “hollow corporation”. Business glossary here defines it as a business in which “important elements are outsourced to subcontractors“. Ten years old article brings the main two drivers behind the Hollow Corporations trend – globalization and technology. Here is the passage I liked:
Component tasks can be performed anywhere in the world. People in diverse parts of the globe working on common technology platforms provided by Microsoft and Google can now share work product seamlessly. They can communicate easily and cheaply across long distances due to undersea fiber optic cables. Through technology, distance between workers is no longer the limitation it was once.
However, I can see virtual corporation trend goes much beyond tech companies such as Google and Microsoft. Wikipedia link to “virtual business” brings another set of definitions I found useful. Among few of them “virtual enterprise” is the most interesting:
A virtual enterprise is a network of independent companies – suppliers, customers, competitors, linked by information technology to share skills, costs, and access to one another’s markets. Such organizations are usually formed on the basis of a cooperative agreement with little or no hierarchy or vertical integration. This flexible structure minimizes the impact of the agreement on the participants’ individual organizations and facilitates adding new participants with new skills and resources. Such arrangements are usually temporary and dissolve once a common goal is achieved. A virtual enterprise is rarely associated with an independent legal corporation or brick and mortar identity of its own.
The pioneers of virtual business came from internet space. You may think about Amazon and other virtual booksellers as an example of very successful virtual businesses connecting buyers and sellers only by using technologies and internet. However, I can see manufacturing companies are actively embracing virtual corporation space too. In my view, expression “hollow corporation” is getting new meaning these days in manufacturing world. Company like Nike took a new type of relationships with suppliers and created a new type of business. Many other manufacturers across the globe took the concept of delivering new innovative products combined with high efficiency of supply chain networks.
The last fact made me think about future role of PLM in such type of corporations. Typical vertically integrated manufacturing company is centralized around manufacturing planning control (MPC) system. This is a central place and main system in manufacturing universe. These days MPC functions are typically implemented as part of commercial ERP systems. The main purpose of vertical integration is to put manufactured products out of production lines. With new concept of virtual corporations, the manufacturing center of gravity is moving towards suppliers and outsource manufacturers. It puts product development in focus and makes a lot of sense to bring PLM system to manage design, product portfolios, configurations and coordinate it with customer demand and customer focus.
Industry landscape is changing these days and it brings new requirements for computer systems in engineering and manufacturing. Vertically integrated manufacturing model is changing towards more flexible networks that can react fast on customer demands.
Picture credit – (c) Can Stock Photo
Good explanation and very informative examples & links.