Impact on cost accuracy and profitability from implementing product configuration system – A case-study

This article aims at analyzing the impacts from implementing a product configuration system (PCS) on company profitability and improved cost estimations in the sales phase. Companies that have implemented PCSs have achieved substantial benefits in terms of being more in control of their product assortment, making the right decisions in the sales phase and increased sales of optimal products.

Those benefits should have direct impact on improved profitability in terms of increased contribution ratios and more accurate cost estimations used to determine the price in the budgetary quotations. As the literature describes, there are various benefits from implementing a PCS, however the effects on the company’s profitability have not been discussed in details.

This study analyzes the impact from implementing a PCS on the accuracy of calculations in the quotations and the impact on the relative contribution ratios. For that reason, a configure-to-order (CTO) manufacturing company has been investigated. A longitudinal study is performed where both the accuracy of the cost calculations and the profitability is analyzed before and after implementation of a PCS.

The comparison reveals increased profitability and accuracy of the cost estimation in the sales phase can be achieved from implementing a PCS.