SAP CPQ and Various Forms of Manufacturing

SAP CPQ and Various Forms of Manufacturing

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Author: Bill Thane

CPQ can be an effective tool for configuration, pricing and quoting in discrete manufacturing. A quick, and high level, example is; what is the difference between discrete manufacturing, process manufacturing and engineer-to-order?

What is Discrete Manufacturing?

Discrete ManufacturingDiscrete Manufacturing is identified as follows:

  • Finished products are produced by combining various components, and subcomponent parts into a finished product. A bicycle is a perfect example.
  • The components are assembled or configured into a distinct unit.
  • Generally, there is a Bill of Materials (BOM) associated with the products of a discrete manufacturing process.
  • In discrete manufacturing, products often have a product code or number and are often changed based on an individual client’s needs.
What is Process Manufacturing?

CPQ does not usually fit into situations that process manufacturing. Products that are processed generally do not require any configuration. Also, companies selling process manufactured products tend to focus on pricing capabilities such as profit and pricing optimization as opposed to calculating and quoting a product price. 
process manufacturing

Process Manufacturing is identified as follows:

  • Process manufacturing creates a batch of a product or substance using a formula or recipe and not a bill of materials. An example of this is paint.
  • The finished product can be easily divided as opposed to being a distinct and separate unit. For example using the paint example; The manufacturer can make a 1000 gallons of paint and then divide into 1000 one gallon cans. 
  • Process manufacturing often combines all ingredients at once in a batch while discrete manufacturing follows a route i.e. the wheels of the bicycle are attached at one workstation and the seat is attached at another workstation.
  • Process manufacturing will create a product that cannot be disassembled back to its initial components. 

Generally speaking, companies engaged in process manufacturing tend to benefit from purpose built applications that focus on pricing strategies, profit optimization, and product presentation such as SAP Commerce.

Engineer-to-Order and Manufacture to Stock: 

Occasionally manufacturers will look to CPQ to solve Engineer-to-Order (ETO) and Make-to-Stock (MTS) processes. Although, not a natural fit, it is possible to do this if the following conditions are met:
Engineer to order
  • There is a set of materials that are used that are available with few exceptions. Pricing and or costs of these materials are known and can be calculated. 
  • The manufacturing processes are conducted “in house” and not bid out to subcontractors and there is a pricing and or a cost structure for each process.
  • The number of deviations to these conditions is less than 20%. 
  •  Example: You could be making containers out of a number of different stocks with a number of different finishes. CPQ could determine:
    • The amount of paper stock required for the box. 
    • The cost of cutting, finishing and printing
    • The cost of shipping. 

In reference to the above example, a recent client of Canidium is using SAP CPQ to determine the cost of various packaging solutions to ship their products to various international markets. Thus, there is some flexibility of using CPQ for those prototype or engineered use cases, but a configuration engine is not purpose built to always provide the most effective solution. 

In general, however, ETO and MTS rely on many processes such as engineering, product lifecycle management, design and procurement that lie outside of standard CPQ capabilities. However, due to the increasing integration of SAP CPQ into the SAP ECC and S4/HANA landscape, there are increasing solution opportunities in this type of manufacturing.  

SAP CPQ for Discrete Manufacturing Applications:

CPQ solutions for discrete manufacturing offer several advantages:

  • Since the cost of the part, component, or assembly being used to manufacture the product can be incorporated into CPQ, it is easier to control margins at a quote level. (SAP CPQ offers a built in Margin Health functionality that would offer this advantage)
  • Ease in creation of professional and branded custom facing documents – ERP configuration software and modules rarely have document generation capability that would be appropriate for customer facing proposals and quotes.
  • Built in functionality to dynamically generate and create configurable, sales or service Bill of Materials data and documents. This is often an important requirement in discrete manufacturing. Customers request a detailed list of the components and parts that make up the product.
  • CPQ solutions can  offer either built in or integration capabilities with 2D and 3D software to allow for visualization of configurations. There are many 2D and 3D software vendors that offer excellent embedded viewers that connect to their systems. SAP CPQ offers a robust offering of API capabilities to allow the integration of these viewers and the transfer of configuration data to enable this capability. 

SAP CPQ is a key component of the manufacturing ecosystem. The ability to integrate seamlessly with SAP Variant Configuration and Advanced Variant Configuration as well as a strong connectivity solution set with SAP ECC, C4 and S4/HANA enhances the power of the SAP solution set. 

As we see the shift of traditional manufacturers to new and innovative ways of presenting their products and engaging with their customers, the combination of SAP Commerce and SAP CPQ offers tremendous versatility. The ability, utilizing this combination of solutions to not only offer on demand quotations but also to offer access to parts catalogs, equipment financing, and online knowledge bases allows SAP and their customers to execute on their customer experience strategies. 

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