In the past, manufacturing in the United States was predominantly defined by the assembly line-style production of standard products. Manufacturers would create large volumes of these standardized products based on a make-to-stock, forecast-driven model, and customers would have to find one that best approximated their needs, with little to no room for customization.
The rise of custom design and to-order manufacturing by extension has altered the nature of this industry by creating an environment wherein customers can approach a manufacturer with requirements unique to their specific needs, rather than seeking a mass produced part or product.
Custom manufacturing is a fluid environment, and the symbiotic relationship between customer and manufacturer must be as seamless as possible if deadlines and quality standards are to be met. As the name implies, there’s no blueprint to follow for a custom job. The entire production process is one of discovery, and that means both parties need to be agile and flexible enough to make critical changes in near real-time without throwing off the entire project.
Demand- and supply-side challenges in custom manufacturing
The custom manufacturer’s job starts with a customer order, and in the demand-driven world of custom manufacturing, the requirements for each product are completely unique. The entire production process, from design, to billing and manufacturing will be specific to that individual project. This means that there is a lot less operational predictability, since the manufacturer isn’t relying on traditional sales projections, but instead has to be able to react quickly to each individual order as it comes in.
As a consequence, a manufacturer has to have a much deeper understanding of its own supply dynamics. For example, procurement has to become a much more agile process in a custom environment. If a customer sends a design that requires a part or material the manufacturer is unfamiliar with, it will have to quickly track down a vendor, vet it for quality and an acceptable lead time and place the order.
Beyond this individual example, this sort of agility has to permeate the entire customer/manufacturer relationship due to the uncertainty that comes with every step of the production process. Customers can change designs after the procurement process has started, meaning that the manufacturer will have to quickly adjust to accommodate new materials or component part designs. Additionally, the manufacturer may find that it’s impossible to physically create a part based on the design after everything was “finalized,” necessitating changes to the original design. Having the operational flexibility to make these alterations quickly and correctly is critical for keeping costs to a minimum and ensure the project proceeds on schedule.
Why custom manufacturers turn to ERP software solutions
The primary facilitator of the manufacturer/customer relationship is an ERP system in which the entirety of the production process can be viewed, adjusted and reported on by stakeholders in every functional area on both sides of the transaction. Agility, flexibility and responsiveness are the key reasons why manufacturers and their customers rely on ERP solutions to manage all stages of the process and the product.
For example, an ERP system will be able to easily integrate with CAD software. As a design is completed within the CAD program, the ERP system can automatically capture the costs of the design. But with the understanding that those designs and costs are hardly ever finalized right off the bat, the system allows users to make changes which will reflect new material requirements, lead times, costing and other relevant aspects of the project.
Another major ERP feature that custom manufacturers need is revenue recognition. Revenue recognition during production refers to the process of recording revenue as various milestones in a project are reached. This is different than traditional billing because the manufacturer can bill and collect money for a production process without being able to recognize the revenue for it. The revenue recognition principle states a company can record revenue when it is realized or earned. Under certain conditions, a manufacturer may be able to record revenue before the product is delivered to a customer.
Revenue can be recognized at the point of sale, before and during production, after delivery or as part of a special sales transaction. Long-term projects often require the buyer to make payments as certain milestones are reached, whether it’s the finalization of the original design, the creation of a working prototype or any other predetermined marker of progress. This is a common arrangement in the custom manufacturing industry since customized projects or products that can take months or even years to complete.
For custom manufacturers, ERP software serves as a collaborative platform that allows for greater visibility and flexibility throughout the entire production process, from the initial quote to the day the product is shipped. When customer requirements are driving the project, manufacturers need to be ready for the unexpected and possess the internal capability to make considerable changes on the fly.