CTO – What does it really mean?

Various Methods of Product Configuration

We sell and manufacture products that are configured by selecting options according to the customer’s bespoke needs. Sometimes customers configure themselves, sometimes we do it on their behalf, sometimes it is done through dealers, and sometimes we receive pre-configured orders.

We have been doing this for our clients for many years. In principle, a dedicated web application is enough to click through the options selected by the client. In ERP we have warehouses and production orders, and we issue invoices. Product configuration is a different world…

However, sometimes we have different requirements, particularly as the company continues to develop each year. It means product configuration is an important aspect of our business, particularly for our clients.

What impact does the fact that our products are configurable have on the sales process?

We have different sales channels. So, the question is, does every product require a different sales process and different settings depending on the channel? Do we have the same process of registering an order and configuring product features in the B2B channel through ERP? And if we change configuration rules (e.g. new options for products, new groups of products), in how many places do we have to edit information?

And for the price lists?

Do we need a ‘booklet’ with tables of prices and surcharges depending on the selected options? Or will the system automatically determine the sale price based on the selected options (again – regardless of the sales channel)? How easy is it to update the price lists?

When will production know what machines and materials it will need to fulfil customer orders?

When can we confirm the delivery date for these orders? Do we have to wait for the configured orders to flow into the ERP or can we do it at the time of configuring the product?

And if we don’t have the materials, will we be able to buy them in time?

Wouldn’t some buffers in the warehouses be useful? Especially for components with a long lead time?

Okay, it’s pretty obvious that product configuration is not a ‘different world’ from ERP, is it? If we produce configurable products, we should have them in the ERP system just like all other products (of course with full configuration information!).

Well, now we come to the key question: when to use product configuration and when to stick with classic indexes? And this is a very difficult question because it depends.

A configurable product is often presented as an example with IKEA chairs, although for IKEA each combination of chair features simply means a different product code!

In addition, we buy chairs at IKEA from the shelf, i.e. from the warehouse … Let’s go back for a moment to the title of the article, where the abbreviation CTO – Configure To Order appears. CTO means that the customer configures his order according to his needs and can do it “freely” (of course, according to certain rules). His product may be unique and unrepeatable, another customer may never order such a product. This is not the case with IKEA, where the customer buys what is available on the shelf.

Is it possible to combine both approaches (configurable and non-configurable products) within one company? Of course, we even have customers who have certain families of products configured to order and some produce as non-configurable for stock. These are just cases from the furniture industry. In the machinery industry, all products can be configured – because each item can have a different set of features (e.g. exact dimensions of each item)

To sum up – CTO is just another type of production. If it occurs in our company, then the sale and production of such products should be covered by our ERP system, just like any other area of activity. It is not separated and must be an integral part of ERP!

Author: Grzegorz Nowak – Architect InfoConsulting