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PROFITABILITY FOR SMALL
Why 21st Century Manufacturers Canâ€™t Ignore Mass Customization
Dell Computer has changed the competitive landscape by:
§ Offering customized products directly to customers on demand without premiums in either price or lead time
§ Minimizing inventory to unthinkable levels
§ Being agile—quickly responding to the market/technology changes
§ Eliminating the cost and risk of finished goods inventory
§ Successfully executing a mass customization strategy quarter after quarter, year after year
Did Michael Dell adopt a mass customization business strategy because he believed it would provide a magical path to build his business empire? No.
Michael Dell adopted mass customization for far more pragmatic reasons. From his humble college dorm room, he could only afford to build products on demand. He didnâ€™t have the resources (capital, work space, infrastructure, etc.) to build finished goods inventory and put it on a shelf in the hope that someone would come along and buy what he had built. He could only afford to produce real customer orders. Michael Dell was forced into this business strategy due to tangible constraints, not because he recognized the larger potential of this business strategy.
Increasingly, manufacturers covet the success of mass customizers like Dell Computer. E-business and mass customization have created new expectations in the marketplace and new demands for manufacturers. Manufacturers of configurable products must rapidly transition to a mass customization business strategy and, as a consequence, become lean, agile, and Internet-accessible.
Current information technology and business methodologies are based on an outdated paradigm: Mass Production. This paradigm prevents mass customizers from implementing a successful E-business strategy.
Savvy executives are beginning to realize that the millions of dollars invested in implementing sophisticated Enterprise Resource Planning (ERP) systems have failed to provide any competitive advantage. They will soon come to understand that ERP has its roots in mass production, an increasingly irrelevant business strategy that conflicts with 21st century customer needs and expectations. And, these same executives will be looking closely at companies like Dell Computer to find a more relevant and effective business strategy—a strategy called “mass customization.”
“Mass customization is more than just a manufacturing process, logistics system or marketing strategy. It could well be the organizing principle of business in the next century, just as mass production was the organizing principle in this one.”
Fortune, September 29, 1998, (pp. 115-116)
Fortune magazine is correct—mass customization is the organizing principle for 21st century manufacturers. Manufacturers must adopt the following beliefs to transition to a mass customization business strategy:
§ Mass customization and E-business will revolutionize the 21st century economy just as Mass Production revolutionized the 20th century economy.
§ Mass customization and E-business are inextricably linked—E-Business demands that customers interact directly with a manufacturer.
§ Mass customization must be addressed as an enterprise-wide business strategy, not a series of departmental challenges.
§ Enterprise Resource Planning (ERP) offerings such as SAP, Oracle, and PeopleSoft are optimized for mass production, not mass customization; new technology that augments ERP is required to support mass customization.
§ Add-on applications to ERP such as Sales Configurators do not solve the problem as they are focused on departmental solutions, not an enterprise-wide solution.
The Business Imperative
Manufacturers that thrive and prosper in the new millennium must treat customers as “insiders.” Under mass customization, the customer is an “insider.” The customer can purchase products that match their needs. The customer can select from an array of choices.
Under mass production, the customer is an “outsider.” The customer is limited to getting products the manufacturer produces and offers through its distribution mechanism. While mass-produced products can be instantly available (if they are in stock), they often fall short of the customerâ€™s needs.
The connection between customer and manufacturer must be seamless. Customers wonâ€™t have the manufacturerâ€™s sales people acting as an ombudsman on their behalf to get their quotes or orders processed. Customers will need to be able to determine what configurations are available, what price they will pay, and when they can expect delivery.
Manufacturers must adopt mass customization as an enterprise-wide business strategy to:
§ Link customers and configuration capability directly to the enterprise via the Internet.
§ Set expectations about what configurations can be produced.
§ Increase customer satisfaction and loyalty.
§ Reduce time-to-market.
§ Reduce internal costs to support evolving product offerings.
§ Decrease order cycle time.
§ Reduce the cost of documenting products.
§ Eliminate artificial product constraints due to effort/complexity to modify or enhance a product line.
§ Eliminate cost of configuration errors.
§ Increase flexibility and responsiveness to “give customers what they want”.
§ Reduce overhead.
§ Eliminate the costs associated with “specials”.
Customers no longer accept a “one-size-fits-all” solution. Customers want what they want, when they want it and at a competitive price. The dilemma facing manufacturers is illustrated by Henry Fordâ€™s statement: “You can have it in any color you want as long as itâ€™s black.”
The implication behind Mr. Fordâ€™s statement is quite profound for Mass Producers: The efficiencies that reduce a manufacturerâ€™s costs cannot be achieved if you allow variations in products.
Mass Customization is the antithesis of Mass Production. There has been an exponential expansion in customer expectations about what manufacturers should produce. This has contributed to corresponding increases in the complexity of product design, production, selling, and service. To manage this complexity, companies must deploy systems and processes that are optimized for mass customization. Hereâ€™s why.
The cornerstone of an ERP system (and the Mass Production paradigm) is the bill of materials—the recipe of ingredients required to build a product. Mass producers create a top assembly bill of material for each order configuration. Even the most minute change requires the creation of a new top assembly bill of material. This, of course, requires Engineeringâ€™s expertise and knowledge, consumes scarce Engineering resources, and increases order cycle time.
As more and more order configurations are needed, the burden to create, support and maintain additional top assembly bills of material grows exponentially, particularly when new options or enhancements are created. While the process of creating top assembly bill of materials is efficient when there is a limited number of configurations, it has dire impacts if each order configuration must be documented. This problem is compounded when you realize this effort will likely have no benefit for any future orders.
Mass Production with Mass Customization
Under Mass Production, Marketing decides what product configurations will be offered, Engineering designs and documents these configurations, Manufacturing builds the varying configurations and puts them in finished good inventory for subsequent sale to a customer or distributor. When order configurations come in that have not previously been documented, Engineering must document the new configuration.
Under Mass Customization, Engineering defines the configuration possibilities in the form of reusable knowledge (not bills of material), Marketing decides which configuration possibilities will be offered to customers by filtering Engineeringâ€™s knowledge, and Manufacturing builds configurations derived from the Customerâ€™s use of this shared knowledge immediately after order receipt. Engineering defines additional knowledge to integrate in new features and options.
Under Mass Customization, (1) configuration knowledge is captured, reused, and leveraged across the enterprise, (2) a bill of material and Engineering resources are not needed for each order configuration unless a new feature or option is needed, and (3) the customerâ€™s order requirements are mapped directly into Manufacturing. Under Mass Production, these efficiencies are impossible.
to Mass Customization
Adopting Mass Customization as a business strategy will have a profound and positive affect on an enterprise. Mass Customization is not a departmental problem; it must be approached on an enterprise-wide basis. It affects Sales, Marketing, Order Administration, Engineering, Manufacturing, Service and, most importantly, your customers.
21st century customers will not “settle” for what a manufacturer produces. Mass customization ensures that customers wonâ€™t be forced to “settle.” It also ensures that the challenge of “giving customers exactly what they want” can be met efficiently and cost-effectively.
About the Author:
Dave Gardner is a Fellow of The Business Forum Association. Dave is the Founder and Principal of Gardner & Associates Consulting, and he has over 25 years experience in the design and implementation of innovative business process solutions for "start-up" as well as established companies. He has extensive experience helping companies implement mass customization (build-to-order/assemble-to-order), configuration management systems, order entry systems, and other operations infrastructure. He has held management positions in Engineering, Manufacturing, Sales, Marketing, and Customer Service.
Dave joined Tandem Computers in 1979 where he was responsible for Corporate Documentation Standards for Tandem's highly configurable and expandable computer systems.In 1983, he designed and implemented a Configuration Guide for Dialogic Systems instituting a process that greatly simplified a complex, modular product such that the field sales organization and international OEM customers could easily define their order requirements. This methodology satisfied the product definition needs of sales, marketing, engineering, manufacturing, customer service and finance.
Dave improved on this approach at System Industries by developing a process that not only accommodated "new system" orders but also fully addressed "add-on" orders. At System Industries, nearly 60% of the employees used the Configuration Guides as a means to validate and order highly configurable and expandable storage sub-systems used widely with Digital's computing systems. He also played a key role in the definition of the end-user requirements and subsequent implementation of a Configurator at a Fortune 500 semiconductor manufacturer. He also led the effort to develop a Process and Packaging Capabilities Guide defining the company's product offerings. The guide was converted into a Windows "Help" application integrated with the Configurator. He has helped semiconductor capital equipment manufacturers with detailed configurator requirements analysis and assessed the business process impacts associated with implementing a mass customization process. He has assisted a provider of enterprise configuration solutions used in the automotive industry with marketing and sales issues.
Dave also helped a large format color printer company design and implement the operations infrastructure to transition the company from product development to manufacturing. This included defining and implementing engineering documentation processes and procedures, designing and implementing an on-line document control system that improved communication between facilities in Sunnyvale, San Jose, and Anaheim, defining the product structure and implementing an MRP system. He is presently engaged in helping a 35-year old Michigan-based capital equipment manufacturer reinvent its operational infrastructure by implementing MRP to plan materials and conserve cash, control inventory, establish cost control systems, define pricing strategies, and assist with organizational development issues.
Dave is a graduate of San Jose State University (BA) and Santa Clara University (MBA). In 1998, the Board of Directors of the Institute of Management Consultants elected Dave Gardner a Certified Management Consultant, CMC. The principal purpose of the Institute of Management Consultants is to establish professional and ethical standards for management consultants. By attaining the CMC designation, Dave has joined the ranks of over 20,000 CMCs worldwide who have demonstrated their professional competence and commitment.
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