What is the Right Product Structure for the High Tech Sector?
To give a text bookish definition, Product structure is a hierarchical decomposition of a product, typically know as the BOM (Bills of Material). The High Tech Sector typically has a Model BOM with Option Classes and Options. With so many variants offered by competitors, the industry has no other way but to offer a better customer experience to garner market share. And one way of offering a better customer experience is to give as many choices as possible to the customer to choose from. For example, giving various ranges of RAM to the customer to choose from gives a feeling of contentment to the customer.
Typically, High Tech industry uses the ATO (Assemble to Order) Model BOM structure with nested ATO Model BOMs. The advantage with ATO Model is that it is invoiceable, shippable and can be planned in the ERP System. Typically the entire manufacturing is done by the Contract Manufacturer, who then ships it to the Original Equipment Manufacturer (OEM). The customer chooses the configuration and books the order. The Build information is sent by the OEM to the Contract Manufacturer through a B2B signal. The OEM creates a Work Order in his system and completes the Work Order Cycle. The Contract Manufacturer maintains a parallel system at his premises. There is duplication of transactions in this case. The Planning Parameter is maintained as ‘Make’ though the entire product is bought by the OEM. Since there are no Purchase Orders created in the system, there has to be a customized payment process. PTO (Pick to Order) may be the other alternative but typically OEMs like to have the top model as invoiceable, shippable and planned. The current ERP systems do not support these. Also there are further impacts on Install Base (Field Replaceable Units) and leads to mismatch in physical and system count.
There are other variants like mix of ATO and PTO but that further complicates things to a greater extent.
Given this scenario, it makes sense to book the Order and then create a Purchase Order for the Configured Item. Standard ERP packages do not explode the BOM details in the Purchase Order. Hence a custom solution needs to be built here with further tweaking in the Payment process to accommodate the listing of chosen components.This brings us to the debate on whether we should change our Business process to accommodate the standard ERP Packages. ERP Packages are built keeping in mind the best practices but cannot address 100% of a company’s business processes. It is always advisable to keep the business process intact and tweak the ERP system if the business process gives a strategic advantage to the company. After all no two companies can have exactly the same business process.
Please post your comments and/or send an e-mail to sandeep_chatterjee@infosys.com.
