Journal of Manufacturing Technology Management

Managing demand and supply uncertainties to achieve mass customization ability

Gensheng (Jason) Liu Rachna Shah Roger G. Schroeder
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Gensheng (Jason) Liu Rachna Shah Roger G. Schroeder, (2010),"Managing demand and supply
uncertainties to achieve mass customization ability", Journal of Manufacturing Technology Management,
Vol. 21 Iss 8 pp. 990 - 1012
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JMTM
21,8 Managing demand and supply
uncertainties to achieve mass
customization ability
990
Gensheng (Jason) Liu
Department of Marketing and Supply Chain Management,
Received April 2009
Revised March 2010 Fogelman College of Business and Economics, University of Memphis,
Accepted May 2010 Memphis, Tennessee, USA, and
Rachna Shah and Roger G. Schroeder
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Operations and Management Science Department,

Carlson School of Management, University of Minnesota,
Minneapolis, Minnesota, USA

Abstract
Purpose – Managing demand and supply uncertainties is critical for all manufacturers, but it has
added importance for companies that intend to achieve mass customization (MC) ability because these
uncertainties are an intrinsic characteristic of MC. The purpose of this paper is to investigate how
managing uncertainties in a firm’s demand and supply affects its MC ability.
Design/methodology/approach – Regression analysis and analysis of variance (ANOVA) are
conducted on data collected from 189 manufacturing plants to empirically test two hypotheses.
Findings – Both demand and supply uncertainty management have a positive impact on a
company’s MC ability. However, managing either demand or supply uncertainties independently of
the other is not enough to achieve MC ability; instead, a company needs to concurrently manage both
demand and supply uncertainties to achieve MC ability.
Originality/value – The current literature lacks a sound theoretical basis to link demand and supply
uncertainty management with MC ability. The paper provides such a theoretical foundation, and
systematically identifies several demand and supply uncertainty management mechanisms that
enable firms to achieve superior MC ability. In addition, it is one of the first large-scale empirical
studies to address the impact of managing both demand and supply uncertainties on MC ability.
Keywords Mass customization, Uncertainty management, Supply and demand,
Manufacturing industries
Paper type Research paper

Journal of Manufacturing Technology
Management
Vol. 21 No. 8, 2010
pp. 990-1012
q Emerald Group Publishing Limited
1741-038X
DOI 10.1108/17410381011086801
Introduction
Mass customization (MC) is the ability to manufacture a relatively high volume of
different product options for a relatively large market that demands customization,
without substantial tradeoffs in cost, delivery, and quality (adapted from McCarthy,
2004). It combines the cost-saving effectiveness of mass production with the value-added
processes associated with product customization (Westbrook and Williamson, 1993;
The authors gratefully acknowledge the valuable comments and suggestions of the editor, two
anonymous referees, and Emin Babakus. This work was supported in part by a grant from the
Fogelman College of Business & Economics at the University of Memphis.
 Berman, 2002; Duray, 2002). It is widely acknowledged that MC provides companies Demand
with competitive advantages (Kotha, 1995). and supply
MC ability is dependent upon two main competencies. The first is to accurately
understand customer needs and the second is to procure appropriate and timely supplies uncertainties
for the manufacture of the required product configurations (Westbrook and Williamson,
1993; Åhlström and Westbrook, 1999; Zipkin, 2001). However, uncertainties in demand
or supply make it difficult to efficiently match supply with demand. A company’s ability 991
to cope with demand uncertainties directly affects its ability to satisfy diversified
customer demand (Fisher, 1997). Likewise, a company’s ability to cope with supply
uncertainties affects its production efficiency, and will indirectly impact its ability to
satisfy diversified customer demand by preventing supply-demand mismatches
(Fisher et al., 1994; Lee, 2002). Thus, effectively managing both demand and supply
uncertainties should impact a company’s MC ability.
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In this paper, we theoretically link demand and supply uncertainty management to

MC, and empirically investigate this relationship with survey data. In the next section,
we use organizational information processing theory (OIPT) to identify mechanisms
that companies use to manage demand and supply uncertainties, and propose
hypotheses about their relationships with MC ability. Then, we describe the research
methods and report the findings. Academic and practical implications of the findings are
discussed in the last section.

Theoretical background and hypotheses

The impact of demand and supply uncertainties on supply chain design has been widely
discussed in the literature. Fisher (1997) categorized supply chains into two types
depending on the product’s demand characteristics: efficient supply chains for functional
products with predictable demand, and responsive supply chains for innovative
products with unpredictable demand. Lee (2002) expanded Fisher’s framework by
including supply uncertainties. Based on their work, we define demand and supply
uncertainty management as the use of various mechanisms by manufacturers to cope with
uncertainties in demand and supply in order to satisfy customer demands more effectively
and efficiently.
While several researchers have highlighted the importance of managing demand
and supply uncertainties for MC ability (Da Silveira et al., 2001; Zipkin, 2001; Berman,
2002), the current study is the first one to examine the impact of both demand and
supply uncertainty management on MC ability. Including them both in one study
allows us examine their individual and the joint effect on MC ability. We also propose a
theoretical foundation for these relationships, which is missing from existing literature.
Specifically, we use OIPT to identify mechanisms that companies frequently use to
cope with demand and supply uncertainties, and hypothesize their relationships with
MC ability. This theoretical basis enables us to systematically examine the impact of
these uncertainty management mechanisms on MC ability, and reconcile divergent
findings in previous literature. Additionally, our study is distinct from previous studies
in one more aspect: while some of these relationships have been discussed in previous
studies, these were mostly conceptual in nature. In contrast, our study is empirical in
nature; we test our hypotheses using data from a large-scale survey enhancing
generalizability of the relationships.
 JMTM Organizational information processing theory
21,8 According to OIPT, there is a positive relationship between task uncertainty and the
amount of information that must be processed among decision makers during task
execution (Galbraith, 1974). Greater uncertainty means that more information is
required and processed during task performance. Therefore, uncertainty heightens an
organization’s information processing needs. OIPT prescribes two strategies that
992 companies typically use to cope with uncertainty and increased information processing
needs. The first strategy is to implement structural mechanisms and information
processing capability to enhance information flow, and the second strategy is to develop
buffers to reduce the effect of uncertainties (Premkumar et al., 2005). These two
strategies are in line with the reactive vs proactive flexibility strategies that the
literature suggests for coping with uncertainties (Hyun and Ahn, 1992; Gerwin, 1993)
and can be used by organizations when there are uncertainties in demand and/or supply
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in order to maintain and improve operational efficiency. Implementing structural

mechanisms directly affects uncertainty and is therefore a proactive approach, while
increasing buffers is a reactive strategy because it does not directly affect uncertainty
but rather mitigates the negative effects of uncertainty.

Demand uncertainty management and MC

The research model is shown in Figure 1. Demand uncertainties make it difficult for
companies to precisely match supply with demand (Randall and Ulrich, 2001). When
demand uncertainties are high, companies must manage these uncertainties well in
order to avoid higher levels of market mediation costs. Specifically, managing demand
uncertainties is a critical task for companies facing uncertain demand and pursuing MC
ability. Therefore, companies that are able to manage demand uncertainties better than
their competitors are able to achieve higher levels of MC ability, leading us to propose the
following hypothesis:
H1. Demand uncertainty management is positively related to MC ability.
Since firms can adopt both proactive and reactive approaches to cope with uncertainty,
we identify four demand uncertainty management mechanisms. Proactive demand
uncertainty management mechanisms include modular product design, postponement
of differentiation, and make-to-order. The reactive strategy includes firms building
inventory buffers to reduce the effect of demand uncertainty. Next, we briefly discuss
each mechanism and its relationship with MC ability. A summary of these mechanisms
is provided in Table I.
Modular product design. One way to provide a wide range of end products is for
companies to use modular components and processes which can be configured in many
different ways (Ulrich, 1995). An example of a modular product is lego blocks; there are
approximately 4,000 different types of lego blocks, which can be combined to make over
a half million different end products. Modular product design helps achieve
high-product variety through low-component variety, thus helping cope with
uncertainties in demand (Baldwin and Clark, 1997). Several researchers have noted
the importance of modular product design for MC (Garud and Kumaraswamy, 1995;
Feitzinger and Lee, 1997; Bourke et al., 1999; Da Silveira et al., 2001; Berman, 2002;
Mikkola and Skjøtt-Larsen, 2004; Tu et al., 2004). Modular product architecture offers
great product variety through reconfiguration; efficient product creation; fast speed to
 Demand
Modular product and supply
design
uncertainties
H1a
Postponement of
Demand differentiation
uncertainty H1b 993
management
Make-to-order
H1c

Inventory buffer H1d

for demand
MC ability
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H2a
Trust-based
relationship H2b
with suppliers

H2c
Supplier involvement in
Supply NPD
uncertainty H2d
management
Supplier lead-time
reduction

Inventory buffer Figure 1.

for supply Research model

market through standardization; and low costs for design, production, distribution, and
service. These characteristics are all key components of MC (Sanchez, 1999). Thus, we
state the following hypothesis:
H1a. Modular product design is positively related to MC ability.
Postponement of differentiation. By carrying standard components and moving
customization downstream, as close to end customers’ demand as possible, companies
have the flexibility to use the same materials to fulfill the need of many different
customers. For instance, Benetton holds large inventory of sweaters in a base color
(cream), which can be dyed in the color of customer’s choice after receiving customer
orders. Such postponement allows Benetton to sell a highly customized product with a
very short lead time. Thus, in postponed manufacturing, product customization can be
separated from speculative manufacturing of basic materials (Berman, 2002). This
separation frees primary manufacturing to focus on large economic runs of standard
products or generic components and modules. Customization is deferred to a later
stage. The result is a more responsive supply chain that can satisfy individual
customer needs without incurring higher production and inventory costs (van Hoek
and Weken, 1998; van Hoek, 2001). Many of MC’s most important benefits such as
lower overhead and inventory cost, shorter product-development cycles, reduced stock
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21,8

994

Table I.
JMTM

mechanisms
management
Demand uncertainty
Hypothesized
relationship with
Mechanism Strategy How it helps cope with demand uncertainties Selected literature MC ability

Modular product Structural By having different products share common Ulrich (1995), Baldwin and Clark (1997) þ
design mechanism to cope components as much as possible, the demand for and Fisher (1997)
with uncertainty components becomes more predictable than that
of the end products
Postponement of Structural Postponing product differentiation to latter stages Feitzinger and Lee (1997), van Hoek et al. þ
differentiation mechanism to cope of the supply chain makes earlier stages less (1999), Lin et al. (2000), Waller et al. (2000)
with uncertainty affected by product variety and, consequently, and Lee (2002)
more efficient
Make-to-order Structural Manufacturing products after the demand Fisher (1997) and Lee (2002) þ
mechanism to cope materializes helps avoid the uncertainties in
with uncertainty demand and the errors associated with demand
forecasting
Inventory buffer Buffer to reduce A certain amount of inventory acts as a buffer to Schmitt (1984), Fisher (1997) and 2
for demand the effect of hedge against demand uncertainties. It helps Svensson (2001)
uncertainty satisfy customer demand in a timely manner so as
to avoid losing business. However, the increased
inventory cost could be enormous
 obsolescence, and the ability to respond quickly to changing customer needs, can be Demand
attributed to postponing customization in the production process (Feitzinger and Lee, and supply
1997). Thus, we test the following hypothesis:
uncertainties
H1b. Postponement of differentiation is positively related to MC ability.
Make-to-order. Svensson and Barfod (2002) argue that different degrees of make-to-order
enable different degrees of MC between the two extremes of pure standardization and pure 995
customization. Lampel and Mintzberg (1996) classify the standardization-customization
continuum into five types based on the stage of production at which customer gets
involved. Duray et al. (2000) also find that mass customizers with a higher degree of
customer involvement have higher usage of make-to-order planning systems than other
manufacturers. MC combines the cost efficiency of mass production and high variety of
pure customization. The use of make-to-order enhances the degree of customization, the
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attribute that resembles pure customization (Westbrook and Williamson, 1993;

Berman, 2002):
H1c. The degree of make-to-order is positively related to MC ability.
Inventory buffer for demand. According to OIPT, inventory buffer can be used to hedge
against demand uncertainties and to reduce their effect on efficient operations
(Premkumar et al., 2005). However, its relationship with MC is not apparent. On one
hand, with inventory buffer a company can satisfy customer demand from stock, so
responsiveness to customer demand is enhanced. On the other hand, when MC is the
goal, the number of final product options could be extremely large, thus the investments
in inventory required to support all the options would be enormous (Westbrook and
Williamson, 1993; Feitzinger and Lee, 1997). Given the large number of possible final
product configurations in a MC environment, we believe that the negative effect of
increased cost is stronger, so that the combined effect of inventory buildup for demand
on MC is negative:
H1d. The use of inventory buffer for demand is negatively related to MC ability.

Supply uncertainty management and MC

Uncertainties in supply impose severe difficulties in operations, making it difficult for
companies to meet customer demand in a reliable manner. Hendricks and Singhal (2003)
found that part shortage was the leading cause of supply chain glitches. Other sources of
production delay include quality problems and long lead times in procuring right parts
at the right time from the suppliers. Therefore, to be responsive, companies have to
adapt to variations in supply (Duguay et al., 1997). Managing supply uncertainties
effectively enable a company to procure supplies reliably (Handfield and Pannesi, 1995)
and mitigate supply uncertainties’ negative impact on a company’s ability to pursue MC
because it is able to match supply with demand more effectively. As a result,
manufacturing cost is lowered, product quality is enhanced, and responsiveness to
customer demand is improved. Thereby, the company becomes more efficient in
delivering customized products to customers leading us to propose the following:
H2. Supply uncertainty management is positively related to MC ability.
Similar to proactive and reactive mechanisms for coping with demand uncertainties
management, we identify four supply uncertainty management mechanisms.
 JMTM Trust-based relationship with suppliers, supplier involvement in new product
21,8 development (NPD), and supplier lead-time reduction are structural mechanisms that
companies use to reduce supply uncertainties. Inventory buffer for supply is used to
reduce the effect of supply uncertainties. Table II provides a summary of these
mechanisms.
Trust-based relationship with suppliers. In an uncertain environment, trust-based
996 relationships with suppliers are easier to modify than relationships that are purely based
on formal contracts, and therefore enhance a company’s responsiveness to changing
customer needs (Hoyt and Huq, 2000). From the resource-based perspective,
collaboration founded on trust enables companies to accumulate resources that are
rare, valuable, hard to imitate, and have no readily available substitutes (Dyer and
Singh, 1998). Dell computer has trust-based relationships with its suppliers, which is a
major factor that contributes to its MC ability (Magretta, 1998). Trust-based
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relationships with suppliers reduce supply uncertainties by ensuring a reliable and

flexible supply of materials and parts at low cost, which is critical for MC:
H2a. A trust-based relationship with suppliers is positively related to MC ability.
Supplier involvement in NPD. Speed and cost efficiency in designing and delivering new
products to customers with changing needs is an implicit characteristic underlying MC.
Early supplier involvement in NPD speeds up the design process and reduces design
cost (Bower and Hout, 1988; Clark, 1989). Companies have engaged in extensive
collaborative efforts with suppliers to reduce the risk of suppliers not being able to ramp
up fast enough in the product introduction phase (Austin and Lee, 1998). Involving
suppliers in the NPD process ensures that the desired materials or components can be
smoothly delivered by the suppliers, thus avoiding supply disruptions during the
production process. The resulting cost and time savings in both design and production
processes facilitate MC (Salvador et al., 2004):
H2b. Supplier involvement in NPD is positively related to MC ability.
Supplier lead-time reduction. Supplier lead-time reduction helps reduce uncertainties
during the lead time. When supplier lead times are shortened, companies become more
responsive to customer demands, and can provide customized products more cost
effectively due to lower levels of safety stocks required in the supply chain (Womack
et al., 1990; Pine, 1993). Practitioners regard supplier delivery performance as a major
challenge while implementing MC (Åhlström and Westbrook, 1999). Significant gains
in efficiency can be made through a process that focuses on reducing lead times and
error (Comstock et al., 2004). We believe that supplier lead-time reduction has a positive
impact on MC:
H2c. Supplier lead-time reduction is positively related to MC ability.
Inventory buffer for supply. OIPT suggests that inventory buffer can be used to hedge
against supply uncertainties and to reduce their effect on efficient operations
(Premkumar et al., 2005). Carrying a stock of materials or parts reduces the risk of supply
running out. However, the risk of running out has to be balanced against inventory
carrying costs and obsolescence risks (Anderson, 2004). Inventory buildup results in
reduced response time to customer demands, but this benefit might be counteracted
by the detrimental effect of increased inventory cost. We believe that the negative effect
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Hypothesized
relationship with MC
Mechanism Strategy How it helps cope with supply uncertainties Selected literature ability

Trust-based Structural mechanism A trust-based relationship with suppliers, Monczka et al. (1998), Hoyt and þ
relationship with to reduce uncertainty especially information sharing and Huq (2000) and Lee (2002)
suppliers coordination with suppliers, helps reduce the
risks of supplier failure
Supplier Structural mechanism Involving suppliers in the NPD process helps Austin and Lee (1998), þ
involvement in NPD to reduce uncertainty ensure that they are able to meet the Handfield et al. (1999) and Lee
requirements for the design and delivery of (2002)
parts and components for producing the new
product
Supplier lead-time Structural mechanism Supplier lead time is a major source of supply Van Der Vorst et al. (1998) and þ
reduction to reduce uncertainty uncertainty. Shorter supplier lead times make Simchi-Levi et al. (2000)
supply chains more flexible and more capable
of delivering needed materials
Inventory buffer for Buffer to reduce the Safety stock of key parts and components can Schmitt (1984) and Lee (2002) 2
supply effect of uncertainty be used to hedge against the risk of supply
disruption. However, the increased inventory
cost could be enormous

Supply uncertainty

mechanisms
management
Table II.
uncertainties
and supply
Demand

997
 JMTM of increased inventory carrying cost has a stronger effect, because placing components
21,8 for products in stock will greatly decrease production cost efficiency in MC (Pine, 1993).
Therefore, we hypothesize a negative relationship between inventory buffer for supply
and MC ability:
H2d. The use of inventory buffer for supply is negatively related to MC ability.
998 Methods and results
Measurement
The measures used in this study are shown in the Appendix. We adapted Tu et al.’s
(2001) scale to measure MC ability. Their original instrument was rigorously developed
and empirically validated using multiple statistical methods, and was later validated by
Liu et al. (2006). We measure some of the demand and supply uncertainty management
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mechanisms with objective measures, and measure the other mechanisms subjectively.
The subjective measures include both multi- and single-item scales. Although
multi-item scales are generally recommended in social science research for their higher
content validity, using single items is preferred when the construct is clearly understood
by the respondents and captured by a well-stated single item (Nunnally, 1978;
Venkatraman and Grant, 1986). Both of the two single-items, postponement of
differentiation and supplier lead-time reduction, are straightforwardly stated and
directly reflect the content we intend to measure, thereby reducing the potential for
measurement error. Many previous operations management (OM) studies have included
both single- and multi-item scales (Tatikonda and Rosenthal, 2000; Rosenzweig et al.,
2003). In this study, all items were measured using managerial perception with
seven-point Likert scales, where 1 – “strongly disagree” and 7 – “strongly agree”.
We control for possible country and industry effects on MC achievement, because the
literature indicates that country and industry have effects on operations in
manufacturing organizations (McKone and Schroeder, 2002; Shah and Ward, 2003;
Ketokivi and Schroeder, 2004). In addition, large companies are more likely than their
smaller counterparts to have higher MC ability because of additional available
resources. Therefore, we also control for possible extraneous effects of organizational
size. As suggested by Dean and Snell (1991), plant size is measured with the natural
logarithmic transformation of the number of employees within each plant.

Data collection
Data were collected at the plant level, which is consistent with previous survey studies
on MC (Duray et al., 2000; Tu et al., 2001). To ensure global representativeness of the
sample and high generalizability of the results, the sample was drawn from multiple
countries and industries. Six countries were selected to represent a major portion of the
industrialized world in North America, Europe, and Asia. They are the USA, Germany,
Finland, Sweden, Japan, and Korea. The three broad industries included in the data are
electronics, machinery, and auto suppliers, which are among the most widely studied
industries in relevant OM research.
There was a research team in each of these countries. In each country, the research
team selected a list of manufacturing plants in each industry. A phone call to
prospective plants was first made to solicit participation, and a mail survey was sent to
the plant if it decided to participate. This approach ensured a very high response rate
of approximately 65 percent, reducing the need to check for non-respondent bias
 (Flynn et al., 1990). Data were collected as part of a broader research project, and many Demand
other research questions have been examined with the larger data set. Other studies that and supply
have used the same scales with the same data set are listed in the Appendix along with
the corresponding scales. uncertainties
Altogether 189 plants responded to the survey. Four cases with missing values for
MC were deleted from further analysis. Therefore, our final sample consists of 185
plants. Table III provides a brief profile of the data. 999

Assessment of measurement properties

Whenever possible, we used multiple informants for each plant to avoid single rater
bias. For all multiple respondent scales, we examined their inter-rater agreement, the
degree to which different raters within the same plant agree on the ratings to the scales,
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using the ratio method developed by James et al. (1984). All inter-rater agreement
coefficients are either above or only slightly below 0.7. We conclude that the
instruments have acceptable agreement among different informants within a plant.
Therefore, we aggregated the responses for each item on the survey across all
informants. Our final sample of 185 plants includes one aggregated response per plant.
Following Anderson and Gerbing (1988), we used the confirmatory factor analysis
(CFA) method to assess convergent and discriminant validity of the scales. In the CFA
model, each indicator’s estimated pattern coefficient on its underlying construct factor
was significant at p , 0.001, which established convergent validity of the scales.
To assess discriminant validity, models were constructed for all possible pairs of latent
constructs, where the estimated correlation parameter between the two latent constructs
was constrained to one. The x 2 differences between the unconstrained model and the
constrained models ranged from 32.8 to 114.8 which were all significant at p , 0.001
with one degree of freedom difference. This implies that each of the construct pairs were
distinct from each other, providing evidence of discriminant validity among them.
Unidimensionality of the scales was established by significant indicator loadings in
the CFA as well as the good model fit (O’Leary-Kelly and Vokurka, 1998). The model fit
indices were as follows: the normed Chi-square (x 2/df) was 1.342, which was below the
suggested cutoff of two. NNFI ¼ 0.961, CFI ¼ 0.973, and IFI ¼ 0.974, which were
all above 0.9. RMSEA was 0.038, which was below 0.05. All these fit indices confirmed

Number of plants
Industry
Country Electronics Machinery Auto suppliers Total

Finland 14 6 10 30
Germany 9 13 19 41
Japan 10 11 13 34
South Korea 10 10 11 31
Sweden 7 10 7 24
USA 9 11 9 29
Total 59 61 69 189
Note: Median (mean) plant size – total number of hourly and salaried personnel employed ¼ 414 Table III.
(1,086) Sample profile
 JMTM a good fit of the measurement model. Together with the significant item loadings,
21,8 unidimensionality of the scales was consequently established.
Additionally, we estimated the inter-item reliability for all multi-item scales. All
Cronbach’s a values were above the suggested standard of 0.70, indicating acceptable
internal consistency among items (Flynn et al., 1990). The mean of all item scores was
used as the value for that scale in subsequent analyses.
1000
Regression and results
We used multiple linear regression analyses to test H1 and H2. Prior to conducting the
analysis, we examined assumptions underlying regression analysis including linearity,
homoscedasticity, independent error terms, and normality. Residual analyses did not
reveal any violation of these assumptions. The variance inflation factors indicate that
multi-collinearity is not a concern in this study. Analysis of Cook’s distance did not
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reveal any influential observations (Hair et al., 1998).

Altogether we tested four regression models (Table IV). The base model includes
only the control variables as independent variables. In addition to the control variables,
the demand model includes the demand uncertainty management mechanisms and the
supply model includes supply uncertainty management mechanisms, respectively. The
full model includes all the independent variables. We compared each model with its
nested models to examine the incremental change in R 2 due to additional independent
variables, which is shown in Table V.

Base model Demand model Supply model Full model

R2 0.073 0.184 0.161 0.225

Adjusted R 2 0.031 0.127 0.103 0.151
p-value 0.093 0.000 0.002 0.000
Standardized coefficient
Control variables
Finland 20.015 20.048 20.171 20.143
The USA 20.058 0.055 0.002 0.088
Japan 20.203 * 20.180 * 20.057 20.074
Germany 0.253 * * * 0.178 * 0.184 * 0.131
Sweden 20.011 20.018 20.042 20.054
Machinery industry 20.031 20.066 20.001 20.038
Electronics industry 0.121 0.088 0.051 0.037
Plant size 0.092 0.058 0.037 0.028
Demand uncertainty management
Modular product design 0.254 * * * 0.171 * *
Postponement of differentiation 0.174 * * 0.150 *
Degree of make-to-order 0.211 * * 0.195 * *
Inventory buffer for demand 0.052 0.075
Supply uncertainty management
Trust-based relationship with suppliers 0.196 * * 0.135
Supplier involvement in NPD 0.073 0.033
Supplier lead-time reduction 0.178 * * 0.151 *
Table IV. Inventory buffer for supply 0.085 0.043
Results of
regression analyses Note: Significance at: *p , 0.10, * *p , 0.05 and * * *p , 0.01
 The base model shows that country, industry, and plant size account for a small but Demand
marginally significant amount of variance in MC ability ( p , 0.10). Industry type and and supply
plant size are not associated with MC ability, but country is statistically significant.
Specifically, plants in Japan have a lower MC ability while plants in Germany have a uncertainties
higher MC ability. All other country variables are insignificant.
The demand model is statistically significant. The four demand uncertainty
management mechanisms account for a significant amount of variance in MC ability 1001
(an incremental R 2 of 0.110, p , 0.001), indicating that overall demand uncertainty
management has a positive relationship with MC ability. Therefore, H1 is supported
by the data. All four demand uncertainty management mechanisms, except inventory
buffer for demand, have statistically significant and positive influences on MC ability.
H1a-c are supported. Inventory buffer for demand does not have a statistically
significant impact on MC ability. Thus, H1d is not supported.
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The supply model is also statistically significant. The four supply uncertainty
management mechanisms account for a significant amount of variance in MC ability
(an incremental R 2 of 0.088, p , 0.01). Therefore, H2 is also supported by the data.
A trust-based relationship with suppliers and supplier lead-time reduction both have
significant and positive influences on MC ability, which substantiate H2a and H2c.
However, neither supplier involvement in NPD nor inventory buffer for supply has a
significant relationship with MC ability. Therefore, H2b and H2d are rejected.
The full model is significant and explains a significant amount of variance in MC
ability. In addition, the full model explains a substantively larger amount of variance
than the demand model and the supply model individually. This suggests that demand
and supply uncertainty management represent distinctly unique dimensions and their
joint presence in the regression model contributes to MC ability above and beyond the
inclusion of either one alone.

ANOVA and results

Multiple methods can be used to study the same research question. Method
triangulation greatly enhances the validity of the research results (Jick, 1979) and helps
develop a holistic understanding of the phenomena of interest (Boyer and Swink, 2008).
To further explore the impact of demand and supply uncertainty management on MC
ability, we applied a second method, analysis of variance (ANOVA).
To split the sample into groups with different levels of demand/supply uncertainty
management, we used cluster analysis because it maximizes distances among the
groups. We first calculated a score for a plant’s demand uncertainty management by
adding up the standardized scores of the four demand uncertainty management
mechanisms. We computed a score for supply uncertainty management in a similar
manner. Then we conducted a two-step cluster analysis with these two scores as the

Models Difference in df Change in R 2 F-value p-value

Demand vs base model 4 0.110 5.817 0.000

Supply vs base model 4 0.088 4.511 0.002
Full vs base model 8 0.152 4.113 0.000 Table V.
Full vs demand model 4 0.041 2.240 0.067 Comparison of regression
Full vs supply model 4 0.064 3.457 0.010 models
 JMTM cluster taxon (Ketchen and Shook, 1996). The result is a four-cluster solution, which is
21,8 summarized in Table VI.
The first two rows of Table VI show the cluster means on demand and supply
uncertainty management for the four groups. The results show that the four groups
manage their demand and supply uncertainty to a significantly different extent
( p-value , 0.001). Group 1 has high levels of both demand and supply uncertainty
1002 management. Group 2 has a low level of demand uncertainty management but a medium
level of supply uncertainty management. On the other hand, Group 3 has a medium level
of demand uncertainty management but a low level of supply uncertainty management.
Group 4 has a high level of demand uncertainty management and a medium level of
supply uncertainty management.
We then examined the differences in MC ability among the four distinct groups using
ANOVA. In order to rule out the effects of country, industry, and plant size from MC
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ability, we took the standardized residual from the base regression model as the
dependent variable in the ANOVA. The ANOVA results are summarized in the bottom
row of Table VI. First, the significant F-test results indicate that MC ability differs
significantly among these four groups of plants. In addition, Group 1 has significantly
higher MC ability than all the other three groups, and there is no significant difference in
MC ability among the other three groups. When either demand or supply uncertainty
management is at a low level (Group 2 or 3), even if the other one is at a medium level, MC
ability is very low. When demand uncertainty management is at a high level but supply
uncertainty management is at a medium level (Group 4), the mean MC ability gets higher
but the difference is not significant. Only when both demand and supply uncertainty
management are at high levels (Group 1), is MC ability significantly higher than the
other groups.
These results indicate that in order to achieve superior MC ability, plants should
extensively manage both demand and supply uncertainties. These results complement
the regression results shown in Table IV. In the regression analysis, we considered
individual effects of demand and supply uncertainty management. For instance, in the
demand model, we only investigate the relationship between the demand uncertainty
management and MC ability, without considering the level of supply uncertainty
management. Supply uncertainty management could be at a low or high level for the
plants in our sample. However, the ANOVA enables us to examine the joint impact of the
two effects. For each of the four groups, we know whether the demand/supply

Group 1 Group 2 Group 3 Group 4 F-value

(n ¼ 41) (n ¼ 65) (n ¼ 26) (n ¼ 53) ( p-value)

Demand uncertainty 1.436 21.900 0.085 1.177 100.001

management (high) (low) (medium) (high) (0.000)
Supply uncertainty 3.027 20.693 23.116 0.037 143.585
management (high) (medium) (Low) (medium) (0.000)
MC ability 0.563 20.179 20.306 2 0.066 6.762
(2 *, 3 *, 4 *) (1 *) (1 *) (1 *) (0.000)
Table VI. Notes: Significant difference between groups at *p , 0.01; F statistics and associated p-values are
Clusters and derived from one-way ANOVA; numbers in parentheses indicate the group numbers from which this
ANOVA results group was significantly different according to the Bonferroni pairwise comparison procedure
 uncertainty management is at a high, medium, or low level. While the regression results Demand
show that demand and supply uncertainty management each contributes to MC ability, and supply
the ANOVA results reveal that both of them are necessary and critical for achieving
superior MC ability. uncertainties

Discussion and conclusion

Theoretical contribution 1003
Although existing literature implies that managing demand and supply uncertainties
are important in a company’s acquisition of MC ability, there lacks a theoretical basis
for such a relationship. In this study, we provide such a theoretical basis, OIPT. Demand
and supply uncertainties that are inherent in MC impose increased information
processing needs on a company, and managing these uncertainties will enhance a
company’s information processing capability, which will lead to enhanced MC ability.
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Based on the two strategies that OIPT suggests for coping with uncertainty, we
identified individual demand and supply uncertainty management mechanisms that are
likely to help a company achieve MC ability through reducing demand and supply
uncertainties or their effect. Although several of these mechanisms have been associated
with MC in previous studies, the discussion was scattered and disjointed (Feitzinger and
Lee, 1997; Magretta, 1998; Svensson and Barfod, 2002; Mikkola and Skjøtt-Larsen, 2004;
Salvador et al., 2004). In addition, we included a broader set of uncertainty management
mechanisms in this study. OIPT provides the theoretical foundation to link both demand
and supply uncertainty management mechanisms with MC, and therefore help us
integrate disparate findings in previous literature.

Empirical contribution
This is the first study to empirically examine relationships between uncertainty
management and MC using data from a large-scale survey, which greatly enhances the
generalizability of the research findings. Our results show that effectively coping with
uncertainties in demand significantly affects a company’s ability to mass customize.
Modular product design, postponement of differentiation, and make-to-order contribute
to MC ability. These findings are consistent with the conventional wisdom expressed in
extant literature. Countering demand uncertainty with increased buffers of finished
goods inventory, while enjoying theoretical support does not make logical sense. A broad
variety of end product configurations is a salient feature of MC; holding buffers to meet
customer demand can be prohibitively expensive (due to inventory costs) and may not
increase responsiveness due to the customized nature of the products.
Supply uncertainty management also has a positive relationship with MC ability.
A trust-based relationship with suppliers and reducing supplier lead time both facilitate
MC. We did not find a significant association between inventory buffer for supply and
MC ability, perhaps because stocking additional parts is a double-edged sword: on one
hand, it shortens the response time to customer demand, and on the other hand, the
additional cost associated with increased buffers is large enough to cancel out its benefit
to improved responsiveness. These results help managers to prioritize different
mechanisms that they use to deal with demand and supply uncertainties toward the goal
of MC.
Our study failed to identify a significant relationship between supplier involvement
in NPD and MC. This is contradictory to the general belief that in order to successfully
 JMTM achieve MC ability a manufacturer should work closely with its suppliers in the product
21,8 design process (Duguay et al., 1997; Mikkola and Skjøtt-Larsen, 2004). Perhaps early
involvement of suppliers in the product design process does not add value to all types of
products (Laseter and Ramdas, 2002), and it can in fact add cost and slow down the
development process for some product types. Perhaps there is a difference between
radical NPD and incremental product innovations. Most claims in the literature
1004 advocating supplier involvement in NPD are derived from radical NPD processes
(Handfield et al., 1999; McDermott, 1999). Our study confirms the important contribution
of modular product design to MC. It is suggested that modularity could even impede
breakthrough innovations (Fleming and Sorenson, 2001). Taken together, these studies
imply that for MC, incremental innovations using the principle of modular product
design are more frequently effective than breakthrough innovations of designing
radically new products. In incremental innovations, supplier involvement in the design
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process might not be as critical as it is in designing radically new products.

Our ANOVA results indicate that solely managing either demand or supply
uncertainties does not lead to improved MC ability. In order to achieve superior MC ability,
a company should extensively manage both demand and supply uncertainties. These
results are consistent with the claims expressed in current supply chain management
literature. For a supply chain to be effective, all its elements should be integrated as a
system and no element should be neglected (Frohlich and Westbrook, 2001; Chen and
Paulraj, 2004). Failing to successfully manage either customer-facing or supplier-facing
uncertainties could hurt effectiveness or efficiency of the entire supply chain.
Limitations and future research
With regard to measurement, we used single items to measure two uncertainty
management mechanisms – postponement of differentiation and supplier lead-time
reduction. In order to avoid measurement bias, the questions were stated in a way that
directly reflects the intended content. In addition, the positive and significant
relationship of the two variables with MC ability indirectly confirms that the two single
items are valid measures, mitigating concerns generated because of the use of single
items. Nevertheless, multiple items can be developed in future research for better
measurement validity.
The data used in this study is cross sectional. Longitudinal data might provide more
insights in the dynamic nature of the impact of demand and supply uncertainty
management on MC ability. Future studies could collect longitudinal data and further
examine the relationships among uncertainties, uncertainty management, and MC ability.
This study fills a gap in the literature by theoretically and empirically relating both
demand and supply uncertainty management to MC. It is our hope that future research
will build on this study and further explore the implications of demand and supply
uncertainty management, as well as other enablers of MC ability.

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Further reading
Hallgren, M. and Olhager, J. (2009), “Flexibility configurations: empirical analysis of volume and
product mix flexibility”, Omega, Vol. 37 No. 4, pp. 746-56.
 Liu, G.J., McKone-Sweet, K. and Shah, R. (2009), “Assessing the performance impact of supply Demand
chain planning in net-enhanced organizations”, Operations Management Research, Vol. 2
Nos 1/4, pp. 33-43. and supply
Mishra, A.A. and Shah, R. (2009), “In union lies strength: collaborative competence in new uncertainties
product development and its performance effects”, Journal of Operations Management,
Vol. 27 No. 4, pp. 324-38.
Salvador, F. (2007), “Toward a product system modularity construct: literature review and 1009
reconceptualization”, IEEE Transactions on Engineering Management, Vol. 54 No. 2,
pp. 219-40.
Sohel, A., Roger, G.S. and Debasish, N.M. (2010), “The relationship among modularity, functional
coordination, and mass customization”, European Journal of Innovation Management,
Vol. 13 No. 1, pp. 46-61.
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(The Appendix follows overleaf.)

 JMTM Appendix
21,8

Unless otherwise indicated, the instructions for all scales are: Please indicate the extent to which you
agree or disagree with each of the following statements about this plant and organization. Responses are
1010 anchored as 1 = strongly disagree and 7 = strongly agree.
Mass Customization Ability

Inter-rater Cronbach’s
Agreement Alpha
Mass customization ability (Liu et al., 2006; Sohel et al., 2010) 0.807 0.769
MC1: We are highly capable of large scale product customization.
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MC2: We can easily add significant product variety without increasing

cost.
MC3: Our setup costs, changing from one product to another, are very
low.
MC4: We can customize products while maintaining high volume.
MC5: We canadd product variety without sacrificing quality.
MC6: Our capability for responding quickly to customization
requirements is very high.

Demand Uncertainty Management

Inter-rater Cronbach’s
Agreement Alpha

Modular product design (Salvador, 2007; Hallgren and Olhager, 2009) 0.743 0.734
MD1: Our products are modularly designed, so they can be rapidly
built by assembling modules.
MD2: We have defined product platforms as a basis for future product
variety and options.
MD3: Our products are designed to use many common modules.

Postponement of differentiation 0.697 NA

We delay the purchase of components that differentiate final product
configurations until the latest possible moment.

Degree of make-to-order:

Overall, what percent of your customer orders fall into the following categories?
MTO5 Ad-hoc design activities MTO4 Customized fabrication
MTO3 Customized assembly MTO2 Customized product delivery
MTO1 No customization – standard products are shipped

Figure A1. Degree of make-to-order = MTO5 × 5 + MTO4 × 4 + MTO3 × 3 + MTO2× 2 + MTO1 × 1

Measurement of variables
(continued)
 Demand
and supply
Inventory buffer for demand: uncertainties
Cost of production ($000)
Value of inventories (average annual $000):
Finished goods 1011
Work-in-process

1
Inventory buffer for demand = (Finished goods inventory + Work-in-process inventory)/Cost of production
2
Since the distribution is skewed, we took log-transformation to make it approximately normal.

Supply Uncertainty Management

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Inter-rater Cronbach’s
Agreement alpha

Trust-based relationship with suppliers (Liu et al., 2009) 0.923 0.781

TB1: We are comfortable sharing problems with our suppliers.
TB2: In dealing with our suppliers, we are willing to change
assumptions, in order to find more effective solutions.
TB3: We believe that cooperating with our suppliers is beneficial.
TB4: We emphasize openness of communications in collaborating with
our suppliers.

Supplier involvement in new product development (Mishra and Shah, 2009) NA* 0.815

In terms of a recently completed product development project:

SD1: Suppliers were involved early in the design efforts, in this project.
SD2: We partnered with suppliers for the design of this product.
SD3: Suppliers were frequently consulted about the design of this product.
SD4: Suppliers were an integral part of the design effort.

Supplier lead-time reduction 0.882 NA

Our company strives to shorten supplier lead-time, in order to avoid
inventory and stockouts.

Inventory buffer for supply:

Cost of production ($000)

Value of inventories (average annual $000):
Work-in-process
Raw materials

1
Inventory buffer for supply = (Raw materials inventory + Work-in-process inventory)/Cost of production
2
Since the distribution is skewed, we took log-transformation to make it approximately normal.
* Single respondent.

Figure A1.
 JMTM About the authors
Gensheng ( Jason) Liu is an Assistant Professor at the Department of Marketing and Supply
21,8 Chain Management, Fogelman College of Business and Economics, University of Memphis. He
received his PhD in Operations and Management Science from Carlson School of Management,
University of Minnesota in 2007. His research interests include mass customization, and supply
chain management, and empirical research methods. His earlier work has appeared in Decision
Sciences Journal and Operations Management Research. Gensheng ( Jason) Liu is the
1012 corresponding author and can be contacted at: gliu@memphis.edu
Rachna Shah is an Associate Professor in the Department of Operations and Management
Science, Carlson School of Management, University of Minnesota. She received her PhD in
Operations Management from Fisher College of Business, The Ohio State University in 2002. She
also has an MBA from The Ohio State University and a BA in Economics and Mathematics from
Delhi University in New Delhi, India. Her research interests focus on the implementation of lean
methods in manufacturing and service operations, antecedents and consequences of such
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implementation, and the interface between operations, supply chain management, and
information technology. She has published in journals such as Journal of Operations
Management, Decision Sciences, and IEEE Transactions.
Roger G. Schroeder holds the Frank A. Donaldson Chair in Operations Management at the
Carlson School of Management. He received his PhD from Northwestern University and has
published over 150 papers in academic journals and proceedings on the topics of quality
management, operations strategy, and high performance manufacturing. He is a fellow of the
Decision Sciences Institute and a fellow of POMS and has received the Lifetime Scholarship
Achievement Award from the Academy of Management, Operations Management Division. He
also received the annual Dean’s Prize for best researcher in the Carlson School of Management
and was inducted into the University of Minnesota Academy of Distinguished Teachers.

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