EIN5322

ENGINEERING MANAGEMENT PROJECT

MASS CUSTOMIZATION

PREPARED BY:

RAUL LEYTE-VIDAL
Mass customization is, according to Joseph Pine “the development, production, and

delivery of customized products and services on a mass basis”. In order to keep afloat of

narrowing market niches, many organizations are adapting their capabilities to release

products customized to match customer needs. Successful implementation of mass

customization processes require a shift in the organization strategy as built-to-order

(BTO) replaces the make-to-stock (MTS) approach many companies follow. For this

purpose, product configuration management is fundamental to the success of the

organization as a modular design of the product is required. In mass customization,

product and option selection must be carefully modeled in order to capture the customer’s

needs without straining the organization’s core manufacturing capabilities. Many firms

use the concept of building smaller subsystems, designed independently, that are able to

function properly when assembled. In order to reach this level, organizations must create

standardized parts, thus reducing duplicates, and increasing the flexibility of use among

different product lines. Configuration systems thereby represent the crucial interactive

interface between customers and manufacturers, enabling customers to add or remove

product functionalities. A poorly developed configuration system could lead to decreased

customer satisfaction and loyalty, as well as high manufacturing costs and poor quality.

Mass customization success depends not only on the configuration system, but on making

efficiency improvements through automated production processes, integrated supply, and

delivery chains. An example of this can be seen in the rental car business where they

upgrade to higher end vehicles if the requested one is unavailable. The demand of certain

un-stocked items has evolved into a process called downward substitution, where a

higher functionality item may be substituted for a lower one if the lower end item is not
available. Mass customization overall success is based on creating variety and

customization through flexibility and quick responsiveness. Mass customization shifts the

focus from the product’s price, to buying on satisfied needs and wants at a competitive

and affordable price. Companies that focus on mass customization fragment the market

through economies of scope, in contrast to mass producers who seek to reduce choice

through economies of scale.

Mass customization provides benefits as higher profits can be seen because comparative

shopping is more difficult and the customers’ focus shifts from price to benefits and when

properly implemented could augment not only the company's performance on price and

customization performance, but also on quality.

According to Joseph Pines, in his book Mass Customization: The New Frontier in

Business Competition, explains that there are four types of mass customization. The first

one is referred to as Collaborative customization, which is refers to firms reaching to

individual customers to determine the precise product offering that best serves the

customer’s needs. This information is then used to specify and manufacture a product that

suits a specific consumer. The next type is called Adaptive customization, which is when

firms produce a standard product, but this product is customizable in the hands of the end

user. The other one is Transparent customization, where firms provide consumers with

unique products, without explicitly telling them that the product is customized, and

finally, the Cosmetic customization approach, where firms produce standardized physical

products, but sell and market them to different customers in unique ways.

The primary challenges using mass customization include an increased complexity and

uncertainty in business operations, which result in higher operational costs. A higher level
of product customization, in return requires greater product variety, which involves a

greater number of parts, processes, suppliers, retailers, and distribution channels. A direct

consequence of such proliferations is an increased complexity in managing all aspects of

business from raw material procurement to production and ultimately to distribution. In

addition, increased product variety introduces greater uncertainty in demand realizations,

increases manufacturing cycle times, as well as shipment lead-times.

This increase in system complexity can drive the operational cost up even more due to

more complex planning, resource usage, more complex production setups, use of

responsive and customizable manufacturing technologies, an increase in safety stocks of

inventory, and higher distribution costs become more spread throughout the supply chain.

Moreover, there is a sizeable increase in costs to support the customer co-design interface

via a Web site or in a physical store. These additional expenses can be counterbalanced

by a number of new profit or cost saving potentials. First, customers are many times

willing to pay a premium for customization, to an extent. Second, a well planned and

designed mass customization strategy could significantly counterbalance the cost

overruns through a number of strategic and calculated mechanisms. According to Jiao

and Tseng there are mechanisms to reduce cost and time, mainly referred to as delayed

product differentiation (DPD), which partitions the supply chain into two stages: a

standardized portion of the product is made during the first stage, while the differentiated

portion is made in the second stage. The success of these mechanism is directly related to

the fact that most companies offer a portfolio of product that consists of families of

closely related products that differ from each other in a limited number of features. In the

auto industry for example, a standard version of a car is partially equipped, however
dealer ships can install options based on specific customer requests at a competitive

premium.

Customer co-design of product configuration, or in other words collaborative

customization, is an integral feature of mass customization and one that extends this

strategy from conventional approaches of DPD, as it instills a sense of design ownership

and aligns the customer with the company’s strategic goals. The information acquired

during this process allows firms to cut back on fixed costs necessary to maintain a high

level of operational flexibility. This knowledge may lead to reduced or eliminated need

for forecasting product demand, reduced product return, reduced obsolescence, and field

failure costs.

Another method of mass customization is the use of partial standardization, where firms

offer customers a limited number of options to choose from while keeping their product

mostly standardized. Alienware Corporation, a small computer firm that has recently

merged with Dell computers uses this approach. When ordering from Alienware, a

customer may select a standardized system but may also purchase it by selecting from

different options. For example, when buying a laptop computer, the customer may select

from several types of processors, memory, or video cards as well as other similar options

for all the other specifications of the system. All at different specific prices so that

customers may select options according to their specific needs. This type of

standardization has increasingly become popular in several industries, but most

specifically in the computer, printer, and automobile industries.

The main benefits encountered by using this approach are an increased customer

satisfaction, increased market share, increased customer knowledge, reduced order

response time, reduced manufacturing cost, and increased profit. During a survey

conducted by Ahlstrom and Westbrook, it was recorded that the benefits companies

experienced with mass customization were related more to the customers and market

impact than profit and cost factors; However, they also encountered some disadvantages

including increased material cost and manufacturing cost, lower on-time deliveries,

supplier delivery performance, increase in order response time, and reduction in product

quality. Apparently most of these disadvantages were cost related. Although cost could be

an advantage of mass customization, it sometimes could be a disadvantage because of the

premium cost that the production system incurs for including the flexibility of

customization, and sacrificing some degree of cost efficiency that usually is associated

with standardization. Furthermore, the production process at most companies may not

have fully evolved into a mass-customizing one, but continues to produce batches of

standardized products.

As an example, Toyota Motor Company contends that in addition to Japan's declining

economy, some difficulties have been experienced with the implementation of mass

customization practices, and they acknowledge that this has also contributed to Toyota's

lower profits and declining competitive strength. Toyota executives discovered the hard

way that mass customization is clearly different from continuous improvement and was

an unfamiliar way of doing business for them. They found out that both continuous

improvement and mass customization need very different organizational structures,

values, management roles and systems, learning and training techniques, and customer

relations. Therefore, implementing mass customization was proving for them more costly

and more difficult than what they expected resulting in a weaker competitive position and
declining profits. Although mass customization appears to have some disadvantages, the

benefits that a company enjoys from its use seem to far outweigh the negatives. To

implement mass customization effectively companies need to consider some specific

organizational strategies. Companies that want to get involved in mass customization

need to change their structure to fit the progression from standardization toward mass

customization with each progressive stage indicating higher customization. Companies

that are adaptable to the changing environment and tailored to specifically meet the

customer demands/expectations are more likely to be effective. Dell for example has

eliminated any intermediaries in its production chain and interacts directly with its

customers especially via the internet. This eliminates the need to use the expensive

salespeople and/or wholesalers, retailers, and middlemen thus making the whole

operations more cost-effective. Also, improved relationship between production and

marketing within the firm needs to be developed; internal and external flexibility should

be enhanced; and the integration of the entire information technology and support system

must be strengthened.

Also, companies need to focus on adapting the operations function to mass

customization. Ahlstrom and Westbrook found that the three top methods used by

companies to implement mass customization include material processing, increased range

of stock, and assembly of core modules. The production factory is considered the heart of

the business; operations should work together with other functions in the firm to provide

products and services that anticipate and respond specifically to customers' needs.

The product nature also impacts the degree of mass customization. Some products and

markets may not be appropriate for such mass customization changes. Customers of
commodity products like oil, gas, and wheat for example may not expect product

differentiation. Also, some other products and markets especially in public utilities and

government sectors have to be standardized and customization is not an option in fact

rules and regulations may prohibit any form of variations from a standardized product.

Electricity and water supplies, for example, cannot be offered on a customized basis to

customers for obvious reasons in that the high risks to human life and safety may be

avoided.

In addition, a quick integration and instantaneous production and delivery to customer are

essential for effective mass customization. Companies use specific software and the

internet to quickly record customer needs and specifications; then they use their

production and operations to change these into customized product designs and

processes; and integrate all these to produce the final product and service, which are then

delivered to the customers as soon as possible and often within few days of receiving the

order. The whole process of mass customization from initial order receiving to final

product delivery should be smoothly coordinated and integrated with very little friction to

be effectively implemented.

Minimal cost of operations is another essential factor for mass customization

implementation. Beyond initial investment to create the mass customized operations

factory, the whole production system must add as little as possible to the cost of

production of the product or service. Dell, for example, has a very low expense operating

ratio of about nine percent which makes it extremely cost-effective for the company and

also contributes to its profitability. Finding other ways to lower the cost of production and

operations of the firm will make it easier to implement mass customization.

Modularity in product and process. Product and process modularity are critical

determinants of mass customization effectiveness. Modularity in products means the

design and production of the product are based on the appropriate combination of

different components or subassemblies, called modules, and customers may be interested

in various options for each module. The best illustration of modularity may be seen in

Lego's toys where various pieces or components may be fit together in a variety of shapes

and forms and these may be changed several times to fit the customized preferences. The

personal computer manufacturer offers the modularity feature in terms of memory size,

processor speed, video card, hard disk size, and peripherals, and customers may select

from a variety of options for each of these modules. Similarly, a modular process causes a

product to go through a specific set of operations and enables the storage of inventory in

semi-finished form; and products differ from one another based on the types of operations

that were used in the production line.

Mass customizers need to automate as many tasks as possible to make use of the benefits

of automation and standardization. Also, the links between modules must be automated

and the activities of integrating people and tools to perform them must be integrated

instantly. Communication networks, shared databases that provide simultaneous customer

information, computer-integrated manufacturing, workflow software, and other group

technology related resources must all be integrated to ensure that the company uses the

right resources to serve and satisfy its customers' unique and specific needs/wants.

Strong customer relations. Mass customization needs continuous, close interactions

between the firm and its customers. By being in constant touch with its customers, the

firm can find out what its customers specifically need and produce products and services
to meet these needs and deliver them quickly and efficiently. This is an important key

factor for the mass customization success. Without strong customer relations, a firm

cannot effectively meet customers' demands and implement the mass customization

strategy. All of the firm's activities should be coordinated to focus on and achieve close

interactions with the customers.

Overall when firms that used mass customization were evaluated in terms of financial

performance, they performed significantly higher in terms of market share, return on

investments, and profit margins than their counterparts that did not use mass

customization. Successful mass customizing firms may continually use and transfer the

valuable information into the organization's knowledge base as well as adapt and

customize to customers' needs. Therefore, with the focus on these eight strategies

effectively implemented, mass customization clearly would benefit the firm in terms of

improved overall performance, especially financial performance; and Dell's remarkable

overall and financial performance over the years provides an excellent corroboration to

this point.

Customization may also lead to new complexity from the customer perspective. More

customization does not necessarily mean greater delight, and therefore greater value, for

the customer. Customer satisfaction may not only plateau after a certain customization

level of the product, it may decrease because of the frustration a customer feels due to

excessive choice or variety. Setting the right degree of customization and carefully

selecting the options for customization are crucial for mass customization success.

Finally and perhaps most important, mass customization demands strong change

management capabilities. Business managers and their employees often get accustomed
to a dominant logic that is shaped by the attitudes, behaviors, and assumptions they have

witnessed in their environments for a long time. Today, the thinking of many managers is

conditioned by managerial routines, systems, and incentives created under the mass

production framework. Firms must begin at the level of normative management with the

challenge to change the old and adversarial perceptions of the customers and develop an

attitude of listening to and aligning with customers.

Mass Customization is increasingly gaining momentum in production and operations

management. Combining the two opposite terms of mass production and customization

used to appear virtually impossible; however, today it is not an oxymoron but a clear

reality. Several major firms including Dell, Motorola, General Motors, Toyota, Hewlett-

Packard and others are actively using mass customization in their production. Models to

show the operational strategies that facilitate the mass customization process and the

overall organizational strategies to enable effective mass customization have been

presented. Due to its widespread use among many major production companies and the

strong contribution it makes toward a firm's overall performance and success, this unique

production trend mass customization will continue to dominate production and operations

management in the future.

Citation

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