Dear Build-to-Order / Make-to-Order — Dumpster Dive if you want to Survive!

A big thanks to Lora Cecere, the Supply Chain Shaman, for inspiring this post as a result of her recent Thoughts on Thriving. I’m sure she had zero intention of doing so, but when inspiration strikes … it’s time to write!

One of the advantages of working with a LOT of engineers (and I mean a LOT of traditional engineers, not code junkies who may or may not have a formal, accredited, education), is that you get to talk to a lot of engineers in build-to-order / make-to-order direct (reliant) industries, and even three years after COVID started, and a year after the majority of the world proclaimed it over (and secretly accepted its endemic and we just have to live with it), manufacturers with build-to-order / make-to-order divisions are still having significant issues which primarily focus around:

  • a 12-to-24 month wait for (critical) parts (despite getting orders in early, and often being told they are a “priority” or a “customer of choice” [which pretty much only means the supplier chose to take your money])
  • a lack of a modern order management system that can make sure that the parts are properly allocated when they come in to the customer they were for (and not auto-allocated in a group as soon as any “build” can be completed, often allowing a smaller customer to jump the queue over a larger one that’s been waiting six months larger — and, FYI, even SAP installations don’t necessarily solve this)
  • a lack of engineers qualified to maintain / refurbish existing systems until the parts arrive to allow the replacements to be built and …
    as Lora pointed out
  • inventory glut in their pre-manufactured systems divisions as inflation curbs demand from those thinking twice about an unnecessary purchase, or one that can be delayed.

These divisions are usually separately run on different P&Ls, and often entirely different, fully owned, companies, which use different, non-complementary, and often destructive, strategies to deal with their problems.

The inconsistent, wrong, and often destructive, decision by the pre-manufactured consumer / (small) business division, seeing a monthly increase in inventory (storage) costs in conjunction with a decreased market value (as competitors announce newer “better” products), is usually to just find a very large retailer or distributor who will take them at a (massive) discount, especially if, across all units produced, they can break even or minimize the loss, and move on. (And if the organization gets desperate for cash, sometimes fire sale the inventory in a reverse auction.)

Why is this wrong and destructive? In many cases, the products, and more specifically, the parts they contain, have value well beyond what the organization ends up getting and, in fact, with a little re-engineering could often be used to solve the make-to-order / build-to-order crisis in the other division, at least in the short term. Even if the systems say it can’t be done or the engineers don’t tell you that it can.

What you need to understand is that the problems we are facing are exacerbated by business models that are typically built by business people with limited engineering knowledge and often no understanding of a real engineering mindset. Couple this with the reality that most engineers have limited to no knowledge of the larger business, limited knowledge of how to communicate alternative business solutions to a crises in business terms, and usually no willingness to do anything that would rock the boat. (You need to understand that some of the lies in the engineering stereotype are true. [Cue Huey Lewis.] Understanding this helps with effective communication.)

More specifically, the business models that dictate:

  • complete separation of divisions
  • using outdated systems, because there’s still x years on the amortization
  • never deviating from the initial design and bill-of-materials because that’s what was sourced/agreed-to-contracted, or whatever and/or
  • rigid separation of duties between product lines and divisions, even when the engineering team is qualified to work across them

And, ultimately, prevent creativity, re-use, and, most importantly, creative destruction where this could be the only solution to current problems. These business models and systems work(ed) well in predictable normal operating conditions when there was always sufficient, or excess, timely supply, but those days are gone and might never come back. (The next pandemic could be tomorrow, wars are still raging and having global impacts, multiple countries are amidst various levels of political upheavals, inflation and/or recessions are rampant globally, and supply chain disasters that used to be once a century are now more frequent than once a decade.)

Adaptability is key. The control system needs a processor? Who cares if the one in that pre-built unit in inventory not selling is based on a two year old design — it’s probably still more powerful than is needed and more than likely to survive the lifespan of the unit. Or, worst case, you over ordered the high-end model and need to rip out a more expensive component. If you’re talking a multi-million build-to-order contract with a key (strategic) customer, what’s a few margin points vs. not fulfilling the contract at all and possibly losing the customer?

In other words, if you’re going to treat excess inventory like trash, it’s time to dive into your inventory dumpster, find the diamond parts, and send the rest for recycling — individual business unit / P&Ls be damned. At the end of the day, it’s the overall health of the business, and transferring inventory from division A to division B at cost (to keep the accountants happy) so that a unit that would otherwise take a big loss prevents that loss and even makes a profit for the business is the right decision!

And if you let the engineers out of the tiny cubicle you forced them into, you’ll realize that the one thing a typical engineer is really good at, and the one thing a typical engineer wants to do, is solve these types of systems problems. Real engineers love the challenge! It’s the one thing that excites them more than any business process or perk you can offer them (with the possible exception of more pay, but even that is temporary joy because the smarter engineers realize if you’re offering them more pay without them asking, they must be worth way more to a competitor … and if they’re going to work in a box, they might as well be paid handsomely for it).

So, don’t be afraid to be creative, flexible, and dumpster dive! (And don’t tell me the customer won’t accept any variation on the order … if their business is being held up or seriously impacted by your delay, and they know they can’t get what they need any faster anywhere else, they’ll work with you on a modification they can get next month that will do the job versus having to wait another year.)

And if you don’t have a pre-manufactured division, this advice still applies to you. Except, instead of dumpster diving in your organization’s own inventory, do so in pre-manufactured systems being sold at heavy discount (for the purposes of dumping), local suppliers with excess inventory of products with usable components, and even consumer electronics stores (where deep discount computers can yield perfectly good processors and memory that can be worth as much as the entire system to you).