This headline seems ridiculous doesn’t it? But cabinet dealers who tried tracking purchases of a semi-custom cabinet line in their traditional accounting system describe the experience like a failed moon-shot. Tons of nasty technical challenges, lots of creative “work-arounds” and then on launch day, the system impressively comes to life only to explode before it leaves the atmosphere.
Let’s Start Simple
From a technical standpoint, the failed launch is caused by the differences between configured and non-configured products.
Semi-custom cabinets are configured products. The buyer selects from a number of different options to get the exact kind of cabinet they want. Non-configured products are like stock cabinets. The buyer picks from a limited selection of products and the manufacturer produces them in one way only.
Accounting systems are set up to deal with non-configured products. Loading an inventory system with all the non-configured products the dealer sells is more of a labor challenge than a technical one. Here’s a quick summary of the steps a dealer would go through to load non-configured products into an accounting system:
- Accounting system’s inventory module is loaded with sku’s (a.k.a. product codes), descriptions and costs, all of which should be easily obtained from suppliers
- Employees key in product codes on a sales order after selling items
- Purchasing converts sales orders into detailed purchase orders for order placement
- Revenue flows in into the G/L from the sales order and cost flows into the G/L from the purchase order with all the detail needed
- Management enjoys reports on cost of goods sold and other financial data it needs to manage the business
Houston, we have a problem – Configurable Product
If dealing with non-configured products is a “model rocket launch” for accounting systems then dealing with configured products is like “colonizing Mars.” Configurable products are made-to-order and dynamically customized or configured by the customer. Each configuration has a different cost associated with it. And these costs vary dramatically. This causes problems for traditional accounting systems which depend on static lists of product codes to track revenue and costs.
Imagine the challenge when the accounting system tries to handle the configurable product line in a traditional manner. One choice is to glaze a cabinet (15% upcharge), while another choice is to add a rollout tray ($250 charge). We have one product (the cabinet) and two options (the glaze and the rollout tray). This means the accounting systems need a static list of four SKU’s in order to quickly match cost to sales. The four combinations are:
- Cabinet only
- Cabinet with glaze
- Cabinet with rollout tray
- Cabinet with glaze and rollout tray
As the number of options grows, so does the need for NASA engineers. The engineers are required to tackle the technical challenges created by the length of the static list. The length of the list grows exponentially as options are added. The more choices you have, the more product combinations possible and the less capable a traditional accounting system becomes at dealing with all the data.
So when your local accounting software guru tells you he can handle your semi-custom line in the new accounting system he wants you to buy, ask him one question. “Which is greater, the number of sku’s needed to deal with our semi-custom line or the number of stars in our galaxy?” Unfortunately, the truth is the number of required SKUs is far greater than the number of stars in our galaxy.
If you want a truly humbling experience, go to a secluded spot the next time the night sky is clear and gaze at the stars. Now visualize multiplying each star you see by millions upon millions. That imagery should help you appreciate how many sku’s are needed to deal with a semi-custom cabinet line.
Now think of your staff creating and maintaining all those “stars” and how your server will slow down as your accounting system desperately searches for the right “star” among all those different options. I think you’ll come to appreciate why even very bright people fail when they attempt to use traditional accounting systems to track configurable products.
Unfortunately, the sad reality is that the brute-force approach to solving the configurable product challenge doesn’t work. But what does?
Come On, Everyone Knows Size Really Matters
I remember my college girlfriend telling me that the size of the cabinet dealership I might own one day really didn’t matter. Well, when it comes to dealing with configurable products it does, trust me. Smaller dealerships should ignore the inventory module of their accounting system and use paperwork to replace its function. The paperwork will be labor intensive, contain errors and be difficult to manage; however, at lower sales volumes paperwork is very cost effective.
But strange things begin to happen when there are more than five sales people.
The volume of revenue five or more salespeople generate starts to break the paper processes down. The day gets consumed by looking for lost paperwork, correcting errors and retyping data into different systems. What is needed at larger dealerships is automation that sits at the front end of the process and organizes the data in a way that a traditional accounting system can handle.
Such systems simplify dealing with configurable products by using a more generic grouping combined with descriptor techniques to create “sku’s” for the accounting system with the correct cost and sell amounts. Such systems reduce labor and product costs as well as improve financial reports.
Rocket Fuel is Really Expensive
Manufacturers have spent millions upon millions tackling these challenges with the largest software and consulting firms in the world. And while they might end up with a solution at some point, the dollars being spent are staggering. So before you think “Yeah, but I’m different,” talk to other cabinet dealers who have attempted solutions on their own. Not the owners — I mean the people actually using the system on a daily basis. Once you do that, you’ll count your lucky stars that you did the research first before inadvertently authorizing hundreds of thousands of dollars in sunk costs on your own Mars colonization program.