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Benchmark survey: manufacturing operations.

BENCHMARK SURVEY: MANUFACTURING OPERATIONS Software developers rarely think of themselves as running traditional manufacturing businesses. The physical production of software has never required clanking machines or warehouses full of raw materials; in fact, it's still possible for a small developer to turn out commercially acceptable software with little more than a spare computer and an office photocopier.

Nevertheless, manufacturing has become an increasingly critical area of concern for software companies of all sizes. The typical micro software company now spends 18% of its revenues on what accountants call "cost of goods sold," a category that includes product components, manufacturing operations, fulfillment, and shipping. For mass-market products at the low end of the price spectrum, finding ways to shave a few cents per unit off manufacturing costs can have a dramatic impact on the bottom line. For more expensive products, such savings on component costs may be less critical--but there are equally critical manufacturing problems involved in coordinating the production of many versions of packages that now generally include several manuals, diskettes (sometimes in multiple formats), four-color packaging components, reference cards, registration materials, marketing brochures, and other elements.

Because of the growing importance of manufacturing operations, Soft*letter recently surveyed its readership and the senior managers of several thousand micro software companies on a broad range of production-related topics. Our goal was to offer useful insights in three areas:

* To identify key financial and staffing benchmarks that will help companies measure their performance against industry norms.

* To answer questions about current industry practices in such areas as package design, use of outside vendors, and support for multiple disk formats.

* To provide basic data about manufacturing costs that could improve the accuracy of planning and budgeting efforts.

By our September 20, 1989 cutoff date, we had received 235 usable questionnaires from a broad range of software companies, providing us with a statistically sound database for analysis in most of the areas we had hoped to investigate. As with other Soft*letter Benchmark surveys, our policy was to require all survey respondents to provide us with their company names; thus, the database does not include any anonymous responses. (However, all the names of participating companies remain confidential.)

In analyzing this data, we found that it was useful to look at our respondents from several different demographic perspectives:

* Company size: 101 survey responses came from companies with less than $1 million in annual sales, 74 came from companies in the $1-5 million size range, 12 came from those with $5-10 million in sales, and 32 from those with over $10 million; 16 companies did not provide revenue data. (For statistical purposes elsewhere in this survey, we have combined the responses of all 44 companies reporting over $5 million in sales into a single analytical category.)

* Manufacturing volume: 92 of the companies in our survey said they manufacture 5,000 units or less per year (median output for this group was 1,000 units), 68 produced 6,000 to 50,000 units (median output, 15,000) and 44 produced more than 50,000 (median output, 200,000); 31 did not supply data on total volume. The median manufacturing volume for all respondents was 8,000 units per year; eight companies produced over a million units, while 38 reported a volume of 500 or fewer units.

* Product price: Since manufacturing strategies often depend on product pricing decisions, we asked respondents to identify the list price of their "most popular title" and we asked several followup questions that also referred to this "most popular" product. The survey responses included 34 titles priced below $100, 28 in the $100-299 range, 20 in the $300-999 range, and 13 above $1000; six companies provided no pricing data. The median price for all "most popular" titles was $195; the range among all respondents ran from 99^ to $20,000.

* Development platform: We asked our respondents which platforms they "currently manufacture" products for, and DOS predictably topped the list, with 185 companies. The Macintosh placed a strong second, with 89 companies; others included the Apple II (43), OS/2 (30), Unix (29), the Amiga (22), the Atari (20), Windows (20), and "Other" (30).

* SKUs: The software industry has no generally accepted definition of a "stock-keeping unit" (SKU)--that is, a distinct version in inventory that is not interchangeable with other versions. But it is clear that even single-product companies now have to cope with a proliferation of SKUs. When we asked "how many individual titles (SKUs) do you currently manufacture," the median answer was seven titles; a hundred companies said they produced one to five, 80 fell in a range between six and 20, and 45 produced 25 or more SKUs or titles.

In general, we found that the most interesting patterns emerged when we looked at our data in terms of product price, manufacturing volume, and company size. Even with these three views as a framework, however, the possible permutations--some of which are bound to be crucial to individual readers--quickly got out of hand. To keep this report within reasonable bounds, therefore, we've tried to restrict our focus to a set of topics that seem to have the broadest application to mainstream manufacturing concerns.

But because we recognize also that many readers will want to explore narrower slices of the database, we've arranged to make the raw data from our questionnaires available in spreadsheet form. To order a copy of the Manufacturing Benchmark Survey Data Disk, contact Soft-letter at 17 Main Street, Watertown, Mass. 02172; telephone 617/924-3944. Available disk formats include Lotus 1-2-3 (PC 5.25" and 3.5") and Excel (Mac, PC 5.25" and PC 3.5"). Data disk cost is $25 prepaid.)
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No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:details of how survey was done
Date:Sep 1, 1989
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