Responding to customer enquiries in make-to-order companies: problems and solutions

Kingsman, B G and Hendry, L and Mercer, Alan and De Souza, A (1996) Responding to customer enquiries in make-to-order companies: problems and solutions. International Journal of Production Economics, 46-47. pp. 219-231. ISSN 0925-5273

Abstract

Make-to-order companies are in the business of supplying products in response to a customer order in competition with other companies, on the basis of price, technical expertise, delivery time and reliability in meeting due dates. Dealing properly with enquiries is the major problem that MTO companies face. A lack of co-ordination between sales and production at the customer enquiry stage often leads to confirmed orders being delivered later than promised and/or being produced at a loss. The treatment of an enquiry is a multi-stage decision process. The initial decision is whether or not to prepare a bid, and if so, how much effort to put into the specification and estimation process. The MTO company has the choice of putting in a lot of effort to prepare a competitive bid or making a quick estimate with a high safety margin to allow for errors and unforeseen problems expecting further later negotiation with the customer. Consideration has to be given to the likely accuracy of the cost estimates produced. The feasibility of being able to produce the order with the current work load at different delivery times needs to be evaluated together with any extra costs incurred. An input/output planning approach based on the control of a hierarchy of backlogs of work is proposed to produce a dynamic capacity planning model to determine the capacity to provide at each work centre in future time periods, allocating overtime, transferring operators, process as split batches etc. In setting the price and lead time to quote to the customer, the probability of winning the order plays an important role. A model based on a chi-squared analysis of data on past enquiries is proposed to divide the market into sectors of similar orders. It is extended to produce a strike rate matrix for each sector giving the probability if winning orders in that sector as a function of the price and lead time quoted. A general model for the whole enquiry process is presented, together with a decision support/expert system. This indicates where the qualitative judgmental rules, typically used by companies, could be used to advantage.