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Infinite product worlds: Creating customized products with CPQ

The days of the off-the-shelf product are over: the increasing demand for customization is affecting more and more industries, not only for consumer products, but also in B2B. According to the German Industry 4.0 Index*, 80 percent of the companies surveyed consider customized products to be an important success factor for their business. Read our article on CPQ and Variant Configuration to learn how you can take a holistic approach to creating infinite product worlds from your product portfolio.

Alexander stands thoughtfully by the coffee machine. He is the product master data manager for a major construction equipment manufacturer and has just come from a position in marketing and product development. The meeting, with the unwieldy name "Zero-Emission 2030," unveiled the results of the company's previously top-secret product portfolio realignment program. The presentation featured futuristic construction equipment with quiet, zero-emission electric drives that are expected to propel the company into a successful future. Out with the old diesel wheel loaders and wheeled excavators and in with the new "ZX" series.

It was clear to Alexander that the new generation of machines would be electrically powered. What made him wonder, however, were the comments of the Chief Development Officer: "With our new ZX platform, we will also set new standards in the versatility of our machine configurations. After all, our customers no longer want construction machines off the peg. Today, they can just choose the paint job. Tomorrow, they will be able to choose from hundreds of options, extensions and additional functions in our modular product system to put together exactly the right machine for their particular application. This will also enable us to enter new industries. And customers will even be able to purchase and activate new features through software updates. The marketing manager nodded vigorously at these sentences - for once, they agreed on this point. Only the production manager is thereafter strangely quiet.

Countless companies find themselves in this situation today. B2B customers are increasingly demanding customized products and solutions that are tailored to their specific needs. And not just in mechanical and automotive engineering, as in our fictional example. Capital goods, electrical engineering, medical devices, architecture and construction, infrastructure: there are few industries that are not thinking about bringing more customized and configurable products to market to provide their customers with tailored solutions. And there are plenty of companies that already do. And for these companies, CPQ (configure, price, quote) software tools play an important role. CPQ („Configure, Price, Quote“) eine wichtige Rolle.

Product variant

A product variant is, as the name implies, a version of a product with specific characteristics. Take a simple T-shirt, for example: this product comes in many different variations that differ in size and color. A product variant is purchasable and therefore has a unique order code or SKU and a fixed price. After a certain number of product variants per product, the use of CPQ and rule-based variant configuration. Variant configuration.

kleines Mädchen steht im Kleiderschrank mit zwei T-Shirts in der Hand und kann sich nicht entscheiden

Configuration of millions of product variants

But first, what does it actually mean for a product to be configurable? Configuration means that a product can be tailored to a certain degree to the needs and desires of the customer. A typical example is the vehicle configurators of the major car manufacturers: For a basic model, you order a special paint job, a special engine, and combine various other features to create your personalized dream car. Many B2B vendors have long relied on configurable products. From industrial equipment and machinery to electrical engineering and construction, customization has been a leading business model in many industries for years.

The following applies to all of these products: In addition to the many new possibilities, there are also combinations that must be excluded. Either because they are technically impossible or nonsensical, such as painting on a coated surface, or because they are undesirable, such as an upscale interior with an engine that is too small. Another common feature is that the product has a different final price depending on the configuration. There are options and features that make the price higher and those that make the product cheaper.

Alexander pulls out his calculator: "If we have 5 basic platforms, and suppose we also offer 5 different superstructures, 4 different drives, 6 different battery capacities, 8 different carrier arms and 20 different grabs, buckets and other tools? That brings us to just under a hundred thousand product variations. And that doesn't even include the many optional features. The new ZX modular system makes it possible to configure, offer and sell millions of different product variants. Each of these variants has to be priced correctly and, finally, it has to be possible to manufacture them." It begins to dawn on Alexander that this variant management will affect almost every department in the company.

Variant configuration

Variant or product configuration encompasses all the procedures, processes, and tools that lead to the creation of product variants. This usually requires in-depth dependency and rule knowledge to ensure the "buildability" of a variant, i.e. to exclude options and properties that cannot be combined. 

Anzug in der Schneiderei mit Maßband und Nähten

It also touches many of the company's software applications, such as ERP, PIM, PDM, CAD, and CPQ. Product variants created by configuration can be unique items that are custom-made only for that one customer. This is also referred to as "batch size 1" - i.e. a custom-made product.

Variant management is a company-wide challenge

The choice of configurable products touches almost every aspect of your business. Whereas in the past the production of finished or standard products (also known as "MTS", "Made to Stock") was aimed at producing, selling and delivering large quantities of similar items as efficiently as possible, today product development, production, logistics, sales, marketing and not least product data management must be equipped to manage, produce and sell a very large number of product variants. And it must be possible to offer and produce this variety of products just as efficiently and leanly as conventional finished products.

First and most important requirement: Configurable products must be modular. This means that many different product variants can be created from a basic product by adapting and modifying mechanical parts, surfaces, electronic components and, not least, the installed software. That is why product development plays such an important role: In order to create countless product variants from one product, products must be designed as building blocks where everything fits together. This often requires a radical rethink in engineering, and the systems and tools must be able to handle product variants and flexible bills of materials.

Sales also needs new tools to ensure that product configuration does not become an obstacle in the sales process.

CPQ (Configure, Price, Quote)

CPQ solutions are the front end of product configuration to the customer or sales representative. Therefore, these tools need to be as user-friendly as possible, usually guiding the user step-by-step through their choices and options (configure). Often, a visualization of the configuration, such as a dynamic 3D rendering, is also enabled. Other important components include pricing, e.g. based on surcharges or discounts (Price), and the creation of a customer-specific quotation (Quote). CPQ solutions typically use standardized interfaces to ERP systems for order processing.

The role of CPQ in sales

The aforementioned CPQ tools and software solutions are used for this purpose. They allow the user to make a guided selection of their desired options, features and equipment. Combination rules and restrictions can be used to exclude combinations that cannot be produced or are not desired. Ideally, a CPQ solution can also visualize the compiled product configuration, for example as a rendering or 3D model. A datasheet is dynamically generated with the exact dimensions, weights and performance specifications, the correct price is determined, the quotation text is generated and a customized quotation is created so that the customer can order "his" configured product as quickly as possible.

There is also a fundamental change in the way manufacturing and logistics work: the shift from MTS (Made to Stock) to CTO (Configure to Order) has far-reaching implications for how a product variant is manufactured and delivered. It is no longer produced from stock, but a single, individual production order is triggered only when the customer places an order.

Alexander was not idle in the meantime. He has coordinated with product development, sales and manufacturing and now has a rough idea of what all will change, including in his area of product data management. And he understood that this was a holistic issue that required many people and departments to work well together to make the new product kit a success. In our next article, you will learn how best to implement such collaboration, what processes, software tools, and interfaces are necessary for product configuration, and what role CPQ, ERP, and PIM systems play in the process.

Contact us for more expert knowledge on this topic!

Want to learn more about holistic and customer-centric variant management, variant configuration, and CPQ? In a no-obligation meeting, we will provide you with exciting insights and inspiration for endless product worlds.






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