How Much Do Your Engineering Change Orders Cost You?

June 15, 2007
Some manufacturers lack proper cost information.

It seems that manufacturers need to get a better handle on their costs with regard to customized products. According to a new study by Cincom Systems, only 67% of build-to-order and engineer-to-order manufacturers know how much it costs to produce customized products, and 73% don't know the cost of engineering change orders.

"Manufacturers that cannot determine the cost of customized products take a huge risk in taking orders that may not be profitable. More importantly, without understanding the cost of selling, it is difficult to make strategic decisions regarding product mix and target customer segments," says Jim Wilson, Cincom program director and author of "Best Practices: Mass Customization and Build-to-Order Manufacturing."

Despite the lack of cost information, more than half of the survey respondents believe that they have the ability to charge a 10% or higher premium with a product customization strategy. While 73% of total respondents see product customization as critical for products over $100,000, 25% also see them as critical for products under $1,000.

This is a growing issue as 63% of the engineering reported requests for customized products increasing over the last five years, and 26% anticipate that the growth rate will be between 25% and 50% in the next two years.

Cincom Systems targeted the survey at senior engineering managers at 900 manufacturers of complex industrial, electrical, and transportation equipment and systems between January and February 2007.

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