Only 67 percent of build-to-order and engineer-to-order manufacturers know how much it costs to produce customized products, and 73 percent don't know the cost of engineering change orders. This is according to a research report released today by software maker Cincom Systems.

These findings could be a wake-up call for manufacturers in the pump and valve industry.

"Customized products are an integral part of the product portfolio for pump and valve manufacturing companies," says Mark Stevens of the eLogic Group, a management consulting firm. "Yet most use cost methods that are better equipped for standard products because they don't have a clear understanding of their cost structure."

The common practice is to use a standard mark up from the cost of materials. But Mark Stevens questions this method, as it "may not fully account for the extra engineering and manufacturing time required."

"Companies need to analyze and streamline their business process so that customized products are nearly as easy to handle as the standard products," says Mark Stevens, eLogic Group. "Sales configuration application and workflow management are key elements of this process improvement."

Increasing revenue with product customization

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

As the building of simple/high-volume products moves offshore, the U.S. manufacturing industry is left with manufacturing very highly complex products. This trend is evident in the numbers. Most engineers (63 percent) have seen requests for customized products increase in demand over the last five years, and 26 percent anticipate that the growth rate will be between 25 percent and 50 percent in the next two years.

Cincom's research report, "Best Practices: Mass Customization and Build-to-Order Manufacturing," discusses the findings of the industry's first report - from an engineering perspective - on the state of mass customization and build-to-order practices. Cincom Systems targeted the survey at senior engineering managers at 900 manufacturers of complex industrial, electrical, and transportation equipment and systems.