- Email: [email protected]
VARIETY, POSTPONEMENT AND RECONFIGURATION: INSIGHTS FROM AUTOMOTIVE ORDER FULFILMENT SYSTEMS
VARIETY, POSTPONEMENT AND RECONFIGURATION: INSIGHTS FROM AUTOMOTIVE ORDER FULFILMENT SYSTEMS Bart MacCarthy1, Philip G Brabazon Operations Management Division, Nottingham University Business School, University of Nottingham, Jubilee Campus, Nottingham, NG8 1BB, UK
Abstract: High product variety is challenging for manufacturing enterprises that strive for operational efficiency whilst also satisfying customer demands for specific product variants. Here we consider innovative and flexible order fulfilment mechanisms that are emerging, particularly in the automotive sector. The concept involves reconfiguring products in the planning pipeline. The potential benefits are illustrated with results from a large scale simulation study conducted with a major automotive manufacturer. The logic of a reconfiguration strategy is compared with a postponement strategy and the similarities and differences identified. The relevance of pipeline fulfilment and reconfiguration strategies in non-automotive sectors is also discussed. Copyright © 2006 IFAC Keywords: order fulfilment, product variety, reconfiguration, postponement, customisation, automotive.
1. INRODUCTION Giving customers the specific product they want, when they want it, is a dominant marketing ‘mantra’ in many industries. If product variety is low and customer demand is largely predictable, then supplying from stock does not pose a significant risk. However, in many sectors, particularly those with high product variety, the costs and risks associated with holding high levels of finished stock are prohibitive. In high variety situations, stock holding must be considered selectively. Product variety is growing in almost all sectors (Cox and Alm, 1998; Bils and Klenow, 2001) and this growth is accelerating. Bils and Klenow (2001) estimate that product variety has increased by 1% per year over the last 40 years. Even more strikingly, they estimate that most of this growth has occurred in the last 20 years. The phenomenon is not just associated
1 Corresponding author. Tel: +44-(0)-115-951-4025/4011. E-mail address: [email protected]
with consumer products – it is just as important in industrial product markets. The growth in product variety poses challenges for manufacturing enterprises at many levels. Effective mass production systems are premised on product standardisation and high production volumes. These pre-requisites are challenged when there is significant heterogeneity in products. Transactional and operational costs associated with high product variety are well known e.g. in forecasting, order handling and demand management; supply chain management; setup and changeovers; and quality management (Fisher et al, 1994; Randall & Ulrich, 2001; Ramdas, 2004). The operational difficulties are exacerbated with global sourcing and globally dispersed production networks (Levy, 1995). When variety is combined with product customisation - i.e. where the customer can specify individual product features - then further operational challenges
arise. The Mass Customisation concept in its most general sense refers to the provision of products on a mass scale that are tailored to individual customer specifications. However, the realisation of Mass Customisation in its purest form is rare. In practice in most sectors, Mass Customisation implies firm limits on the level of customisation allowed across product features (MacCarthy and Brabazon, 2003a). This is principally to make Mass Customisation operationally tractable and economically viable for the producer. Mass Customisation has proven to be challenging in sectors in which it has been attempted and different operational modes have emerged (MacCarthy et al, 2004). An additional complicating factor is that product variety is not static but is continually evolving and changing as new products are introduced and product ranges develop and mature. How can producers fulfil the demand for customerfocused variety whilst operating efficiently, economically and with speed? Manufacturing approaches such as Assemble-to-Order, Build-toOrder and Engineer-to-Order are typically advocated, depending on product, customer and market factors. This paper considers emerging and innovative operational approaches that provide more flexible order fulfilment mechanisms. The manufacturing contexts considered are those with substantial upstream pipelines of planned products such as the automotive sector. In particular we consider the concept of reconfiguration of planned products in the planning pipeline with illustrative results from a large scale study of automotive product pipelines conducted with a major automotive manufacturer. Reconfiguration is also discussed in the context of postponement strategies. Its relevance to nonautomotive sectors is also discussed. 2. EXPLOITING DYNAMIC PRODUCT PIPELINES For non-trivial products the cumulative lead-times for sourcing of components and parts and for resource planning in manufacturing and assembly operations are typically longer than customers are prepared to wait. Producers must therefore commit to, and plan for production in future time periods without firm orders. In most cases this results in a dynamic pipeline of planned products to meet anticipated demand in future time periods (Vollman et al. 1992). Constraints on the pipeline increase close to actual production with consequently fewer opportunities for changes. The planning process attempts to ensure production plans that meet both forecasted and firm order commitments but also that utilizes supply and production capacities efficiently. On the one hand, product variety in the form of extensive product ranges complicates the planning process. On the other hand, high product variety in the planning pipeline can potentially be exploited in order to match planned products more precisely with
customer specifications. The behaviour and characteristics of this type of order fulfillment mechanism, known as Virtual-Build-to-Order (VBTO), have been analyzed in detail in the literature (Brabazon and MacCarthy, 2004). This type of order fulfillment is particularly relevant to the automotive sector. 3. RECONFIGURATION IN DYNAMIC PRODUCT PIPELINES When it is possible to reconfigure products in the planning pipeline then further opportunities arise for matching customers to products. Thus, a planned product in the pipeline may be altered into the precise specification for a particular customer or may be modified to be close to what a customer has requested or may be left unaltered from its initial planned specification. Consider a ‘linear’ pipeline of planned products consisting of a fixed number of production slots each occupied with a planned product variant. The pipeline moves progressively towards production. An arriving customer may be satisfied from finished stock if the product variant they request is available in stock. If not, the customer may be allocated a product in the pipeline if the right variant exists. If the right variant is neither in stock or currently in the planning pipeline a ‘Build-to-Order’ request is made and a future product entering the pipeline is configured to the specification requested and allocated to that customer. Planned products that move through the pipeline without being allocated to the customers are added to stock. The authors have conducted extensive simulation of such systems. The results are part of a large scale simulation study conducted with a major automotive manufacturer. The details of the simulation environment and simulation experimentation are fully described in Brabazon (2006). Space precludes a full description of the simulation. A number of the basic findings have been corroborated with a Markov chain analysis (Brabazon, 2006). Here we focus on what happens when reconfiguration of products in the planning pipeline is allowed. The power of reconfiguration to improve fulfillment performance is illustrated in Figure 1. Here the product range has 1024 unique product variants, with product #1 being the lowest specified variant and product #1024 being the highest specified. For this simple pipeline model, in the absence of reconfiguration flexibility, an available product of the correct variant must exist in the pipeline for a customer to be fulfilled. If the ability exists to reconfigure a variant in the pipeline into other variants, there is a greater chance of finding a suitable product in the pipeline. This is shown in Figure 1 for a range of reconfiguration levels.
In Figure 1 reconfiguration is measured in terms of the fraction of the product range that any product can be reconfigured into. For example, if a product can be reconfigured into +/- 10 variants, the flexibility is measured as 20/1024 (~0.02). The length of the pipeline is determined by the number of products in it. The Figure shows the likelihood of fulfillment under different reconfiguration flexibility conditions and for a range of pipeline lengths. Clearly when a degree of reconfiguration is possible, the likelihood of customers finding a product that meets their specification increases and the likelihood that a customer will need to compromise reduces. One of the reasons that pipeline fulfillment combined with reconfiguration is attractive is that the customer base is not homogeneous. Customers differ not just in the precise products they desire but in their willingness to compromise, to trade-off aspects such as price against product features and in their desired waiting time. 1 0.9 0.8
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Fig. 1. Benefit of reconfiguration flexibility at different pipeline lengths (product range 1024). Customers and market segments differ also in their interest in, and requirements for product customisation. Some may be happy with selecting from the variety that is currently on offer. Some may lack the expertise or confidence to configure a product. Indeed the demand for precise customisation across many product features is often stronger in Business-to-Business (B2B) markets than in Business –to-Consumer (B2C) markets. In B2B environments, customers are often more knowledgeable and seek products that have specific features that function and perform in specific ways. By exploiting both the flexibility in the customer base and a flexible reconfiguration strategy then the full potential of the dynamic product pipeline may be realised to meet a greater proportion of the customer demand in an effective and efficient manner.
4. COMPARING RECONFIGURATION AND POSTPONEMENT By exploiting both the flexibility in the customer base and a flexible reconfiguration strategy then the full potential of the dynamic product pipeline may be realised to meet a greater proportion of the customer demand in an effective and efficient manner. One of the strategies advocated for high variety situations is to postpone some parts of the value– adding process until clear demand signals on final product requirements are known with some degree of certainty. A postponement strategy assumes implicitly that later demand information is more reliable and less risky than earlier information on which forecasts may have been based. The postponement concept can be interpreted and implemented in different ways (Bowersox and Clos, 1996; van Hoek, 2001; Yang et al. 2004). ‘Place’ postponement delays commitment to the specific final location of a product until real demand signals are received. ‘Form’ postponement delays commitment within the manufacturing system on some key physical product attributes until real demand signals are received. This is the type of postponement most commonly referred to in the literature. ‘Time’ postponement delays commitment to any product attributes until real demand signals are received. ‘Time’ postponement is much less commonly discussed than ‘place’ or ‘form’ postponement. These different postponement strategies may be combined. Analysing the relationships between postponement and reconfiguration strategies provides interesting insights. A reconfiguration strategy is essentially ‘Time’ postponement but with added formalism and constraints. From this perspective the full VirtualBuild-to-Order (VBTO) approach may be viewed as combining both ‘Place’ and ‘Time’ postponement strategies, again with added formalism and constraints. The concept of customer-order-decoupling point or order penetration point may also be used to compare the different strategies (Olhager, 2003). Postponement strategies imply a fixed, single decoupling point. The VBTO and pipeline reconfiguration approaches imply a moving or floating decoupling point, as orders may be satisfied from physical stock or any point in the planned pipeline. When a postponement strategy is from a fixed decoupling point, customer lead time is a function of the queuing time at the decoupling point and the downstream processing and logistics times. In a floating decoupling point system customer lead time is a more complex function.
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For example, as reconfiguration flexibility increases, not only can more customers be fulfilled, but overall they tend to wait longer as they are fulfilled from further upstream in the pipeline. The effect is dependent on the ratio of variety level to pipeline length. This indicates that the impact of introducing pipeline reconfiguration flexibility on operational and customer performance metrics must be considered carefully in the designing new order fulfilment systems.
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Figure 1 illustrated how reconfiguration flexibility altered fulfilment likelihood. Figure 2 demonstrates that reconfiguration flexibility also impacts customer lead time. It does not mean that customers are always fulfilled in shorter time when compared to a conventional system without pipeline fulfilment.
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Fig. 2. Frequency distribution of the pipeline location from where products are allocated to customers, at four levels of reconfiguration flexibility (pipeline length 128, variety 512). Although ‘Form’ postponement has been much advocated in Mass Customisation strategies, it turns out to be a rather difficult concept to adopt in practice. Form postponement relies on re-engineering of product architectures and the manufacturing and order fulfilment processes in a way that ensures that parts of the process can be decoupled for stability whilst other parts can be driven directly by current demand requirements. It relies on the existence or creation of a strong decoupling point in the manufacturing system where a product can go from a generic state upstream of the decoupling point to being fully specified downstream. This may not be viable or feasible in many cases. The automotive sector is a case in point. Although it is argued that the sector must move to a Build-toOrder strategy (Holweg and Pil, 2004), it has remained strongly wedded to volume production. Designing automotive assembly plants with a defined physical decoupling point that allows ‘Form’ postponement is technically difficult. More fundamentally it does not address the point that different customers may require vehicles to be customised in different ways. The automotive customer-base is not homogeneous. For some customers colour may be the principal determinant of choice, for others engine size and for others a detailed combination of features and options. Many customers for passenger vehicles have little interest in detailed customisation of their vehicle whilst for some it may be the determining factor in a purchase. Satisfying this range of requirements is not feasible with a single fixed decoupling point. The automotive sector can and does exploit its extensive product pipelines and the differences in the customer base for more effective order fulfilment. Some automotive companies are opening up not just their extensive inventories of finished vehicles but also their planning pipelines as well, to enable customer requirements to be more accurately served from the variety that is currently in the system, either realised or planned. When the power of
reconfiguration is added, as demonstrated here, then the attractions of this flexible form of order fulfilment are clear.
5. RELEVANCE OF PIPELINE RECONFIGURATION TO OTHER SECTORS Fulfilling orders from the pipeline with reconfiguration may contribute to a firm’s ability to meet customer demand in high variety situations. However its precise application will depend on how product variety is realised and how late in the planning pipeline a product specification can be changed. These will be affected by a number of factors e.g. the business and market; the flexibility in the supply base; product architecture and technology issues; and flexibility in manufacturing and assembly operations. In some sectors only upgrading of planned products may be possible (one way flexibility) whilst in others, planned products may have features removed as well as added (two way flexibility). Software-based product features for instance are likely to be amenable to flexibility in either upward or downward directions. The costs associated with reconfiguration also have to be borne in mind. Initially a product at the most upstream position in a dynamic pipeline may have only minimal specification and essentially be a capacity slot with no cost implications for specification changes. There may be upstream pipeline segments where product specification is relatively open in many features and where changes in these features incur minimal costs. There may be pipeline segments close to production where changes to product specifications are technically feasible but the costs are prohibitively high e.g. because of subsequent assembly balancing or set up costs. Some costs may be associated with specific product features where no cost is incurred if a change is made up to a specific point in time but there is a step change in cost if a change is made after that point. Thus investments decisions for flexible systems to enable more dynamic order fulfilment and to make production more tolerant of variant changes will need to balance a range of factors. With this in mind it is likely that pipeline fulfilment with reconfiguration will be most appropriate in situations in which: • there is significant variety in product features; • meeting customer demand with variants close to their specification is an important issue for a significant proportion of the customer base; • it is impractical technologically or unattractive in terms of cost to achieve flexibility and responsiveness by buffering the process with inventory at a fixed decoupling point.
Fulfilment models of this type are used in the manufacture of machinery and capital equipment (Raturi et al. 1990, Bartezzaghi & Verganti 1995a,b). There is interest in adopting these forms of models in the housebuilding sector, where there is growth in the use of factory based production (Housing Forum 2004, Winch 2003) and house customization (Barlow 1999). There may be further opportunities for exploitation in sectors such as instrumentation and computer servers.
6. CONCLUSIONS Pipeline fulfilment with reconfiguration flexibility is an important addition to our thinking on order fulfilment models. It brings significant benefits in terms of fulfilment likelihood and a consequential reduction in customer compromise. But these systems need to be designed with care. They may be viewed as a combination of ‘Time’ and ‘Place’ postponement strategies with a floating decoupling point for customer order penetration. The approach is emerging in the automotive sector and has applicability in other sectors that have significant variety in product ranges and features and where at least some customers are choosy. The authors’ current work is developing a comprehensive simulation environment for studying the design, management and control of real automotive pipelines with a major automotive producer. REFERENCES Barlow, J., (1999) From craft production to mass customisation. Innovation requirements for the UK housebuilding industry, Housing Studies, Vol.14 No.1, pp.23-42. Bartezzaghi, E. and Verganti, R., (1995a) Managing demand uncertainty through order overplanning, International Journal of Production Economics, Vol 40, Nos 2-3, pp 107-120. Bartezzaghi, E. and Verganti, R., (1995b) A technique for uncertainty reduction based on order commonality, Production Planning & Control, Vol 6, No 2, pp 157-170. Bils, M., and Kennow, P. J., (2001), The Acceleration in Product Variety, The American Economic Review, 91(2), pp. 274-280. Bowersox, DJ. Closs, DJ. (1996) Logistical Management. McGraw-Hill publishing. Singapore. Brabazon, P.G., (2006) ‘Mass Customization: fundamental modes of operation and study of an order fulfilment model’, PhD Thesis, University of Nottingham, UK. Brabazon, P.G. & MacCarthy, B.L., (2004) Virtualbuild-to-order as an order fulfilment model for mass customization. Concurrent Engineering: Research and Applications. Vol 12, No2, pp. 155-165.
Cox W M and Alm R (1998) The Right Stuff: America’s Move to Mass Customization, Federal Reserve Bank of Dallas. Fisher, M. L., Jain, A. and MacDuffie, J. P., (1995) Strategies for Product Variety: Lesson from the Auto Industry, in Kogut, B. and E. Bowman (eds), Redesigning the Firm, pp. 116 – 154, Oxford University Press, New York. Holweg M and Pil F (2004), The Second Century: Reconnecting Customer and Value Chain through Build-to-Order, Moving beyond Mass and Lean Production in the Auto Industry, MIT Press, Boston MA. Housing Forum, 2004, Manufacturing Excellence: UK capacity in offsite manufacturing (Construction Excellence, London, UK). Levy, D.L. (1995), International Sourcing and Supply Chain Stability, Journal of International Business Studies, Second Quarter, pp. 343-360. MacCarthy B and Brabazon P (2003a) In the Business of Mass Customisation - Mass Customisation as a Manufacturing Strategy, IEE Professional Journal on Manufacturing, August / September, pp.601-610. MacCarthy B. L., Brabazon P.G., Bramham J., (2003) Fundamental modes of operation for mass customization, International Journal of Production Economics, Vol.85 (3), pp. 289-304 Olhager, J., (2003) ‘Strategic positioning of the order penetration point’ International Journal of Production Economics, Vol 85 No 3, pp. 319-329 Ramdas K (2002), Managing Product Variety: An Integrative Review and Research Directions, Production and Operations Management, Vol 12, No 1, pp 79-101. Raturi, A.S., Meredith, J.R., McCutcheon, D.M. & Camm, J.D. (1990) Coping with the build-toforecast environment, Journal of Operations Management, 9 (2) 230-249. VanHoek R I (2001), The Rediscovery of Postponement: a literature review and directions for research, Journal of Operations Management, Vol. 19, No. 2 ,pp 161-184 Yang B Burns N D and Backhouse C J ( 2004), Postponement: a review and integrated framework, International Journal of Production Research , Vol 24, No 5, pp 468 - 487 Vollman, T.E., Berry, W.L., Whybark, D.C., 1992, Manufacturing Planning and Control Systems, 3rd Edition, Dow Jones-Irwin. Winch, G.M. (2003), "Models of manufacturing and the construction process: the genesis of reengineering construction", Building research & information, Vol.31 No.2, pp.107-18.
Abstract: High product variety is challenging for manufacturing enterprises that strive for operational efficiency whilst also satisfying customer demands for specific product variants. Here we consider innovative and flexible order fulfilment mechanisms that are emerging, particularly in the automotive sector. The concept involves reconfiguring products in the planning pipeline. The potential benefits are illustrated with results from a large scale simulation study conducted with a major automotive manufacturer. The logic of a reconfiguration strategy is compared with a postponement strategy and the similarities and differences identified. The relevance of pipeline fulfilment and reconfiguration strategies in non-automotive sectors is also discussed. Copyright © 2006 IFAC Keywords: order fulfilment, product variety, reconfiguration, postponement, customisation, automotive.
1. INRODUCTION Giving customers the specific product they want, when they want it, is a dominant marketing ‘mantra’ in many industries. If product variety is low and customer demand is largely predictable, then supplying from stock does not pose a significant risk. However, in many sectors, particularly those with high product variety, the costs and risks associated with holding high levels of finished stock are prohibitive. In high variety situations, stock holding must be considered selectively. Product variety is growing in almost all sectors (Cox and Alm, 1998; Bils and Klenow, 2001) and this growth is accelerating. Bils and Klenow (2001) estimate that product variety has increased by 1% per year over the last 40 years. Even more strikingly, they estimate that most of this growth has occurred in the last 20 years. The phenomenon is not just associated
1 Corresponding author. Tel: +44-(0)-115-951-4025/4011. E-mail address: [email protected]
with consumer products – it is just as important in industrial product markets. The growth in product variety poses challenges for manufacturing enterprises at many levels. Effective mass production systems are premised on product standardisation and high production volumes. These pre-requisites are challenged when there is significant heterogeneity in products. Transactional and operational costs associated with high product variety are well known e.g. in forecasting, order handling and demand management; supply chain management; setup and changeovers; and quality management (Fisher et al, 1994; Randall & Ulrich, 2001; Ramdas, 2004). The operational difficulties are exacerbated with global sourcing and globally dispersed production networks (Levy, 1995). When variety is combined with product customisation - i.e. where the customer can specify individual product features - then further operational challenges
arise. The Mass Customisation concept in its most general sense refers to the provision of products on a mass scale that are tailored to individual customer specifications. However, the realisation of Mass Customisation in its purest form is rare. In practice in most sectors, Mass Customisation implies firm limits on the level of customisation allowed across product features (MacCarthy and Brabazon, 2003a). This is principally to make Mass Customisation operationally tractable and economically viable for the producer. Mass Customisation has proven to be challenging in sectors in which it has been attempted and different operational modes have emerged (MacCarthy et al, 2004). An additional complicating factor is that product variety is not static but is continually evolving and changing as new products are introduced and product ranges develop and mature. How can producers fulfil the demand for customerfocused variety whilst operating efficiently, economically and with speed? Manufacturing approaches such as Assemble-to-Order, Build-toOrder and Engineer-to-Order are typically advocated, depending on product, customer and market factors. This paper considers emerging and innovative operational approaches that provide more flexible order fulfilment mechanisms. The manufacturing contexts considered are those with substantial upstream pipelines of planned products such as the automotive sector. In particular we consider the concept of reconfiguration of planned products in the planning pipeline with illustrative results from a large scale study of automotive product pipelines conducted with a major automotive manufacturer. Reconfiguration is also discussed in the context of postponement strategies. Its relevance to nonautomotive sectors is also discussed. 2. EXPLOITING DYNAMIC PRODUCT PIPELINES For non-trivial products the cumulative lead-times for sourcing of components and parts and for resource planning in manufacturing and assembly operations are typically longer than customers are prepared to wait. Producers must therefore commit to, and plan for production in future time periods without firm orders. In most cases this results in a dynamic pipeline of planned products to meet anticipated demand in future time periods (Vollman et al. 1992). Constraints on the pipeline increase close to actual production with consequently fewer opportunities for changes. The planning process attempts to ensure production plans that meet both forecasted and firm order commitments but also that utilizes supply and production capacities efficiently. On the one hand, product variety in the form of extensive product ranges complicates the planning process. On the other hand, high product variety in the planning pipeline can potentially be exploited in order to match planned products more precisely with
customer specifications. The behaviour and characteristics of this type of order fulfillment mechanism, known as Virtual-Build-to-Order (VBTO), have been analyzed in detail in the literature (Brabazon and MacCarthy, 2004). This type of order fulfillment is particularly relevant to the automotive sector. 3. RECONFIGURATION IN DYNAMIC PRODUCT PIPELINES When it is possible to reconfigure products in the planning pipeline then further opportunities arise for matching customers to products. Thus, a planned product in the pipeline may be altered into the precise specification for a particular customer or may be modified to be close to what a customer has requested or may be left unaltered from its initial planned specification. Consider a ‘linear’ pipeline of planned products consisting of a fixed number of production slots each occupied with a planned product variant. The pipeline moves progressively towards production. An arriving customer may be satisfied from finished stock if the product variant they request is available in stock. If not, the customer may be allocated a product in the pipeline if the right variant exists. If the right variant is neither in stock or currently in the planning pipeline a ‘Build-to-Order’ request is made and a future product entering the pipeline is configured to the specification requested and allocated to that customer. Planned products that move through the pipeline without being allocated to the customers are added to stock. The authors have conducted extensive simulation of such systems. The results are part of a large scale simulation study conducted with a major automotive manufacturer. The details of the simulation environment and simulation experimentation are fully described in Brabazon (2006). Space precludes a full description of the simulation. A number of the basic findings have been corroborated with a Markov chain analysis (Brabazon, 2006). Here we focus on what happens when reconfiguration of products in the planning pipeline is allowed. The power of reconfiguration to improve fulfillment performance is illustrated in Figure 1. Here the product range has 1024 unique product variants, with product #1 being the lowest specified variant and product #1024 being the highest specified. For this simple pipeline model, in the absence of reconfiguration flexibility, an available product of the correct variant must exist in the pipeline for a customer to be fulfilled. If the ability exists to reconfigure a variant in the pipeline into other variants, there is a greater chance of finding a suitable product in the pipeline. This is shown in Figure 1 for a range of reconfiguration levels.
In Figure 1 reconfiguration is measured in terms of the fraction of the product range that any product can be reconfigured into. For example, if a product can be reconfigured into +/- 10 variants, the flexibility is measured as 20/1024 (~0.02). The length of the pipeline is determined by the number of products in it. The Figure shows the likelihood of fulfillment under different reconfiguration flexibility conditions and for a range of pipeline lengths. Clearly when a degree of reconfiguration is possible, the likelihood of customers finding a product that meets their specification increases and the likelihood that a customer will need to compromise reduces. One of the reasons that pipeline fulfillment combined with reconfiguration is attractive is that the customer base is not homogeneous. Customers differ not just in the precise products they desire but in their willingness to compromise, to trade-off aspects such as price against product features and in their desired waiting time. 1 0.9 0.8
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Fig. 1. Benefit of reconfiguration flexibility at different pipeline lengths (product range 1024). Customers and market segments differ also in their interest in, and requirements for product customisation. Some may be happy with selecting from the variety that is currently on offer. Some may lack the expertise or confidence to configure a product. Indeed the demand for precise customisation across many product features is often stronger in Business-to-Business (B2B) markets than in Business –to-Consumer (B2C) markets. In B2B environments, customers are often more knowledgeable and seek products that have specific features that function and perform in specific ways. By exploiting both the flexibility in the customer base and a flexible reconfiguration strategy then the full potential of the dynamic product pipeline may be realised to meet a greater proportion of the customer demand in an effective and efficient manner.
4. COMPARING RECONFIGURATION AND POSTPONEMENT By exploiting both the flexibility in the customer base and a flexible reconfiguration strategy then the full potential of the dynamic product pipeline may be realised to meet a greater proportion of the customer demand in an effective and efficient manner. One of the strategies advocated for high variety situations is to postpone some parts of the value– adding process until clear demand signals on final product requirements are known with some degree of certainty. A postponement strategy assumes implicitly that later demand information is more reliable and less risky than earlier information on which forecasts may have been based. The postponement concept can be interpreted and implemented in different ways (Bowersox and Clos, 1996; van Hoek, 2001; Yang et al. 2004). ‘Place’ postponement delays commitment to the specific final location of a product until real demand signals are received. ‘Form’ postponement delays commitment within the manufacturing system on some key physical product attributes until real demand signals are received. This is the type of postponement most commonly referred to in the literature. ‘Time’ postponement delays commitment to any product attributes until real demand signals are received. ‘Time’ postponement is much less commonly discussed than ‘place’ or ‘form’ postponement. These different postponement strategies may be combined. Analysing the relationships between postponement and reconfiguration strategies provides interesting insights. A reconfiguration strategy is essentially ‘Time’ postponement but with added formalism and constraints. From this perspective the full VirtualBuild-to-Order (VBTO) approach may be viewed as combining both ‘Place’ and ‘Time’ postponement strategies, again with added formalism and constraints. The concept of customer-order-decoupling point or order penetration point may also be used to compare the different strategies (Olhager, 2003). Postponement strategies imply a fixed, single decoupling point. The VBTO and pipeline reconfiguration approaches imply a moving or floating decoupling point, as orders may be satisfied from physical stock or any point in the planned pipeline. When a postponement strategy is from a fixed decoupling point, customer lead time is a function of the queuing time at the decoupling point and the downstream processing and logistics times. In a floating decoupling point system customer lead time is a more complex function.
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For example, as reconfiguration flexibility increases, not only can more customers be fulfilled, but overall they tend to wait longer as they are fulfilled from further upstream in the pipeline. The effect is dependent on the ratio of variety level to pipeline length. This indicates that the impact of introducing pipeline reconfiguration flexibility on operational and customer performance metrics must be considered carefully in the designing new order fulfilment systems.
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Figure 1 illustrated how reconfiguration flexibility altered fulfilment likelihood. Figure 2 demonstrates that reconfiguration flexibility also impacts customer lead time. It does not mean that customers are always fulfilled in shorter time when compared to a conventional system without pipeline fulfilment.
Pipeline location
Fig. 2. Frequency distribution of the pipeline location from where products are allocated to customers, at four levels of reconfiguration flexibility (pipeline length 128, variety 512). Although ‘Form’ postponement has been much advocated in Mass Customisation strategies, it turns out to be a rather difficult concept to adopt in practice. Form postponement relies on re-engineering of product architectures and the manufacturing and order fulfilment processes in a way that ensures that parts of the process can be decoupled for stability whilst other parts can be driven directly by current demand requirements. It relies on the existence or creation of a strong decoupling point in the manufacturing system where a product can go from a generic state upstream of the decoupling point to being fully specified downstream. This may not be viable or feasible in many cases. The automotive sector is a case in point. Although it is argued that the sector must move to a Build-toOrder strategy (Holweg and Pil, 2004), it has remained strongly wedded to volume production. Designing automotive assembly plants with a defined physical decoupling point that allows ‘Form’ postponement is technically difficult. More fundamentally it does not address the point that different customers may require vehicles to be customised in different ways. The automotive customer-base is not homogeneous. For some customers colour may be the principal determinant of choice, for others engine size and for others a detailed combination of features and options. Many customers for passenger vehicles have little interest in detailed customisation of their vehicle whilst for some it may be the determining factor in a purchase. Satisfying this range of requirements is not feasible with a single fixed decoupling point. The automotive sector can and does exploit its extensive product pipelines and the differences in the customer base for more effective order fulfilment. Some automotive companies are opening up not just their extensive inventories of finished vehicles but also their planning pipelines as well, to enable customer requirements to be more accurately served from the variety that is currently in the system, either realised or planned. When the power of
reconfiguration is added, as demonstrated here, then the attractions of this flexible form of order fulfilment are clear.
5. RELEVANCE OF PIPELINE RECONFIGURATION TO OTHER SECTORS Fulfilling orders from the pipeline with reconfiguration may contribute to a firm’s ability to meet customer demand in high variety situations. However its precise application will depend on how product variety is realised and how late in the planning pipeline a product specification can be changed. These will be affected by a number of factors e.g. the business and market; the flexibility in the supply base; product architecture and technology issues; and flexibility in manufacturing and assembly operations. In some sectors only upgrading of planned products may be possible (one way flexibility) whilst in others, planned products may have features removed as well as added (two way flexibility). Software-based product features for instance are likely to be amenable to flexibility in either upward or downward directions. The costs associated with reconfiguration also have to be borne in mind. Initially a product at the most upstream position in a dynamic pipeline may have only minimal specification and essentially be a capacity slot with no cost implications for specification changes. There may be upstream pipeline segments where product specification is relatively open in many features and where changes in these features incur minimal costs. There may be pipeline segments close to production where changes to product specifications are technically feasible but the costs are prohibitively high e.g. because of subsequent assembly balancing or set up costs. Some costs may be associated with specific product features where no cost is incurred if a change is made up to a specific point in time but there is a step change in cost if a change is made after that point. Thus investments decisions for flexible systems to enable more dynamic order fulfilment and to make production more tolerant of variant changes will need to balance a range of factors. With this in mind it is likely that pipeline fulfilment with reconfiguration will be most appropriate in situations in which: • there is significant variety in product features; • meeting customer demand with variants close to their specification is an important issue for a significant proportion of the customer base; • it is impractical technologically or unattractive in terms of cost to achieve flexibility and responsiveness by buffering the process with inventory at a fixed decoupling point.
Fulfilment models of this type are used in the manufacture of machinery and capital equipment (Raturi et al. 1990, Bartezzaghi & Verganti 1995a,b). There is interest in adopting these forms of models in the housebuilding sector, where there is growth in the use of factory based production (Housing Forum 2004, Winch 2003) and house customization (Barlow 1999). There may be further opportunities for exploitation in sectors such as instrumentation and computer servers.
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