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How to mass customize: Product architectures, sourcing configurations
How to mass customize: Product architectures, sourcing configurations Fabrizio Salvador Research Associate, University of Padova, Vicenza, Italy
Cipriano Forza Associate Professor, University of Padova, Vicenza, Italy
Manus Rungtusanatham Associate Professor, Arizona State University, Tempe, Arizona
The interdependencies of product, process, and supply chain design need to be carefully considered if the goal of mass customization is to be met. But suggested solutions for addressing this problem seem oversimplified, or univocal. A mass customization strategy can be pursued with differing “intensity” as competitive environment and company aspects change. Building on this idea, the findings presented here highlight how production volume and product variety are key variables in strategy implementation. More specifically, this multiple case study shows how, based on the joint behavior of these variables, a firm can define two options—“soft” and “hard”—for implementing strategy and decide on product architecture and first-tier supply chain configuration.
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ow can a company effectively pursue mass customization, offering a readily available and competitively priced product that best fits the increasingly heterogeneous needs of a large customer base? Moreover, given the tendency to allocate a large portion of component manufacturing activities to suppliers, how can the supply chain respond to this need for fast, efficient mass customization? These questions reflect a heightened awareness of a key competitive issue. The bad news is that practical answers are not easily identifiable. Despite ten years of active research on mass customization, the official management wisdom appears to offer only a few widely accepted general prescriptions that are difficult to translate into operational strategies. We know, for instance, that in discrete manufacturing a firm may need a modular product structure that can allow it to postpone customization activities. And we know that to achieve an efficient, customer-oriented flow of goods, a firm must perform product modularization and design in tandem with process and supply chain design. But beyond such difficult-to-refute wisdom, an overarching framework capable of tying together these related ideas in the context of mass customization has yet to be articulated. What advice can we give a manager thinking about mass customizing, say, a new family of microwave ovens? Is it the same advice we would give to the manager envisioning the mass customization of a new generation of heavy trucks? Pragmatically, differences in product complexity, product variety, production volumes, and so on may require different firms to implement mass customization in different ways. This particular insight is based on a detailed study of six product families designed, manufactured, and marketed by six highly successful European firms. To avoid the risk of deriving industry-specific messages, we selected the six companies from three different industries: telecommunication equipment, transportation equipment, and food processing equipment. Moreover, within each industry the selected pair of product families differed in terms of the ratio of product variety to production volume.
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The growing importance of mass customization
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ow relevant is the mass customization imperative in your industry? Although we cannot claim that the phenomenon is sweeping away the remains of mass production everywhere, there are clear signs that it is becoming more and more a widespread concern. A number of key drivers are already present in some form or another in many industries. Recognizing these drivers and their persistence is crucial to understanding and assessing the potential of mass customization in in order to help a firm gain a long-term competitive advantage.
Market deregulation Many major markets, once strictly regulated by national laws, are rapidly being deregulated. This presents an opportunity—and a challenge—for firms wishing to operate in more than one major market. While a standardized, socalled “global product” would be quite attractive and advantageous for such firms, the presence of environmentspecific factors often mandates that a company tailor its product offerings specifically to the new market(s) it is trying to penetrate. Besides issuing an invitation to other firms to compete in a given market once dominated by a handful of firms, market liberalization is often seen as a mechanism to lower prices,
Although we cannot claim that mass customization is sweeping away the remains of mass production in every industry, there are clear signs that it is becoming more and more a widespread concern. improve delivery times, and so on. Consequently, firms and their suppliers that once operated in strictly regulated markets are now being “encouraged” to engage in product differentiation in order to escape the trap of perfect competition. After the deregulation in the European telecommunication services industry, telecom equipment suppliers had to respond to the demands for greater customization from their customers, the service providers. Forced by greater competitive pressure to cut overhead costs, the providers decided to reduce in-house technical staff. This decision ul62
timately impaired their ability to adapt pieces of equipment to the characteristics of their specific telecom network, obligating them instead to transfer these customization activities to the equipment suppliers.
Product regulations Cross-national agencies and regulatory bodies that promote standardization (such as the International Standards Organization or the European Commission) encourage firms to sell the same product across national markets. Yet the reality is that products sold in different countries still have to comply with different regulations and countryspecific constraints. For example, power transformers sold in the US and in the EU differ not only on voltage and frequency related to the specifications of electric power distribution, but also on many aspects related to insulation, materials, and so forth. These differences impede the ability to offer the same product in both markets. To make matters worse, we are also witnessing a proliferation of new country-specific (regional-specific, city-specific) regulations that mandate compliance to emerging environmental and safety concerns. Consider the stringent emission requirements imposed on cars that are titled and licensed in the state of California, or the safety requirements imposed on Scandinavian vehicles.
Customer needs and experience Final customers themselves are also demanding more choices over product features. The abundance of readily available product information has given them the opportunity to better assess the fit of a product to their specific needs. At the same time, being more aware of the multiple available alternatives, they are less willing to buy a product that does not satisfy their constraints perfectly. For example, many customers are now aware that they can ask for refrigerators matching the color and style of their kitchen; as a result, they are less willing to accept a “standard” white refrigerator. Moreover, customer experience gained through product use further drives customization. In making product replacement decisions, each customer can use his accumulated knowledge about products and their functions to gauge whether the features of different available products are useful for his needs. When the first-generation microwave oven was introduced, consumers were primarily concerned with exploring what it could do. As experience in its use accumulated, the overall market became more segmented into different customer clusters: those who required very basic uses of the oven for warming pre-cooked food or defrosting; those who wanted it to warm with a thermal heating function for a “crisp” effect; those who wanted to combine the function of a microwave with that of a traditional electric oven for full food cooking; and on and on. Business Horizons / July-August 2002
Distributor power and needs The changing nature of distribution channels is often an overlooked driver of mass customization. For many manufacturing companies, despite much hype about Netbased direct distribution, the importance of distributors and retailers has not lessened. Like customers, such firms are healthy and appear to be growing stronger. The trend, in fact, seems to be toward consolidating distributors into larger companies capable of affecting a broad base of final consumers. With size comes bargaining power. Distributors and retailers are consequently able to demand price concessions from suppliers, while forcing suppliers to provide differentiated products for which they have exclusive distribution rights. Many mobile phone service providers, such as Sprint PCS and Nextel, are able to ask cell phone suppliers, including Nokia and Motorola, to provide variants of the same basic phones that vary in some features, such as packaging, software, decals, and colors. However, even in the case of fragmented distributors and retailers characterized by low bargaining power, firms are still motivated to differentiate their products from those offered by competitors. By doing so, they greatly reduce the customers’ ability to directly compare competing products. In the fragmented Italian home appliance retail business, the availability of product variants that would allow a store to offer products slightly different from those offered nearby is a key factor in decisions about the assortment of brands the store carries.
Setting the stage for mass customization
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f one or more of its drivers discussed so far are already present or are emerging within a given business, then mass customization, to some extent, is an inevitable challenge that has to be addressed. Under these conditions, the question is no longer whether or not it should be pursued, but how to pursue it. Before we can begin to address the “how” challenge, however, two important issues must be raised and clarified: What products are going to be mass customized? And what is the desired level of customization to be allowed for these products?
Product family To pursue mass customizing, states Pine (1993), a company has to address the necessity of providing a stream of products to meet the differentiated requirements of a large customer base while maintaining the cost and time performances typical of mass production via a repetitive production process. To do this, it must constrain a priori the market requirements it is going to serve with a set of product variants that are obtained by the same repetitive
How to mass customize: Product architectures, sourcing configurations
production process. More precisely, to pursue mass customization a firm begins by strategizing at the level of the product family—a set of final products offered by a firm that are at least partially substitutable on demand, possess underlying functional similarities, and share the same common technology and production process.
Variety and volume considerations From an operational standpoint, irrespective of the specific business and product family considered, mass customization requires some level of product variety to be processed on the shop floor. Conventional wisdom tells
To pursue mass customization a firm begins by strategizing at the level of the product family. us that variety typically gives managers a difficult time: inventory levels tend to rise, set-up costs and times tend to deteriorate, material planning and shop floor control tend to become more complex, and so on. However, the magnitude of problems associated with managing for product variety when mass customization is pursued is not always the same. To truly appreciate the operational severity of proliferating product variants in a given product family, a firm must understand and be able to accurately assess two factors, according to Hayes & Wheelwright (1984): 1. the number of different product variants in a specified product family to be manufactured in the given unit of time (How much variety does the market want?) 2. the overall production volume that can be absorbed by the market in the given unit of time (What is the overall market potential of the product family?) What really matters, then, once market customization requirements have been identified, is to determine both the number of product variants to be handled within the same production unit and the required volume for these variants. By applying and extending this understanding of the relative importance of production volume and product variety to mass customization, we can ideally distinguish between two “extreme” possible situations, one in which product variety requirements are (relatively) low and production volume is high, and one in which product variety requirements are high and production volume is (relatively) low. As a company migrates from the first extreme to the second, it necessarily moves further and further away from a mass production environment and simultaneously experiences more severe customization problems. 63
We refer to the first extreme as “soft” mass customization (SMC). The ratio of product variants to production volume in this case is in the range of thousandths or smaller (for example, 100 product variants and 100,000 pieces per year). Conversely, we label the other extreme “hard” mass customization (HMC). In this case, the ratio lies in the range of tenths or higher (1,000 product variants, 10,000 pieces per year). The terms “soft” and “hard” are used opportunistically, for lack of better adjectives, to simply connote the level of difficulty in pursuing mass customization.
Mass customization design
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he two extremes of soft and hard mass customization have implications for how the product family architecture should be designed to support each case. Product family architecture, as used here, refers to the way customer-required features are allocated to product components and the way product components can be arranged and combined to obtain different required configurations. In both cases, acting at the level of product design in order to effectively pursue mass customization should enable firms to pre-design the required product variants to satisfy market-driven customization while enabling the variants to be produced in a relatively high-volume production environment. When potential marketdriven customization requirements are anticipated and embedded into the product design phase, there is less need to involve design engineers in the latter stages of acquisition, processing, and fulfillment.
Moreover, considering product variety and production volume requirements during the design phase allows a firm to maintain some degree of component commonality within a family as well as across families. This, in turn, should provide the opportunity to increase repetitiveness in manufacturing operations and seek economies of scale from high-production volumes of common components. Consider the extreme of SMC, for which the number of product variants is low relative to the overall product family production volume. In this case, it would be more convenient to restrict the features a customer can specify, thereby limiting the portion of product components that would be allowed to vary. This assumes that the market is willing to accept this limitation. Most product components can, therefore, be standardized throughout the product family. From a design perspective, SMC can be described as implementing into its product family architecture a component swapping modularity, allowing product variants to be obtained by swapping components from a component family while maintaining a basic product body (see Figure 1). As overall product family production volume increases, the scale economies from having a common product body should increase, making this solution even more attractive. By constraining the impact of market heterogeneity to a relatively small portion of the overall product structure, component swapping modularity thus allows firms to serve a large market efficiently. For HMC, in contrast, the required number of product variants for a given family is high relative to overall family production volume. So restricting the part of the product
Figure 1 Product family architectures for soft and hard mass customization
SOFT MASS CUSTOMIZATION
HARD MASS CUSTOMIZATION
PRODUCT FAMILY:
PRODUCT FAMILY:
Variety = LOW Volume = HIGH
Variety = HIGH Volume = LOW
Product variants differ on a limited number of attributes
Product variants differ on most attributes Product architecture = COMBINATORIAL MODULARITY
Product architecture = COMPONENT SWAPPING MODULARITY BASIC BODY COMPONENTS
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SWAPPABLE COMPONENT FAMILY
COMPONENT FAMILIES
Business Horizons / July-August 2002
affected by customer specifications may not be as effective from a marketing standpoint. Offering a car, say, in 1,000 different exterior colors does not give customers the same value and (perhaps) satisfaction as allowing them to choose from ten exterior colors, four engines, five interior colors, and five sets of air bags—with all possible combinations yielding 1,000 car variants (10 x 4 x 5 x 5).
combining components from different families, provided the interfaces and other compatibility constraints are satisfied (again, see Figure 1).
Ideally, of course, customers can be given full flexibility in affecting the entire product architecture, making each product variant essentially a unique product. In other words, increasing the range of product features that market heterogeneity can affect in the face of relatively low family production volumes makes it difficult to seek economies of scale from component standardization. But to give customers a greater set of product features over which they can choose while minimizing the operational severity of customer choice flexibility, firms would likely have to implement into the family architecture a type of product modularity we label combinatorial modularity.
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Sourcing configurations for soft and hard customizing
Combinatorial modularity refers to a product architecture in which: (1) all components making up a product variant belong to component families, meaning that each component itself is a variant; (2) each component family interfaces with a subset of other component families, with the interface being standardized by family pairings; and (3) the interface between two component families is dependent on the specific family coupling but independent of the specific component variants selected from the two families that need to be combined. With combinatorial modularity, product variants can therefore be obtained by
esides identifying a product family architecture that best fits market and production requirements, a firm must decide how to deliver product variants to customers in a timely and highly responsive manner using repetitive manufacturing operations. With the current focus on core competence, firms are likely to have outsourced or to be outsourcing component manufacturing. To deliver competitively priced product variants on time, then, a firm must ensure the timely receipt of outsourced components at a reasonable cost. The different product architectures associated with soft versus hard mass customization, in this respect, would have different implications for sourcing configurations, specifically in terms of selecting and managing suppliers.
Soft configuration In the SMC product family architecture, the duality between basic product body components and swappable components allows for dual approaches to supplier selection and firm/supplier interaction. This is especially true because suppliers’ key operational capabilities vary depending on whether they supply swappable components or basic product body components (see Figure 2). Be-
Figure 2 Sourcing configuration for SMC SWAPPABLE COMPONENT SUPPLIER(S): • Easily controllable
Component family A
, ,
• Located in close proximity to the firm
Final product variants
Product body component #1 BASIC PRODUCT BODY COMPONENT SUPPLIERS:
,
,
,...
Product body component #2
• High volume, reliable processes
Product body component #3
• Long term purchasing agreement
Product body component #4
(1) competitive price and reliable delivery (2) fast delivery
How to mass customize: Product architectures, sourcing configurations
Final assembly lead time and cost low if conditions (1) and (2) hold
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Figure 3 Sourcing configuration for HMC Component family A
BOTTLENECK SUPPLIER: Prioritize action for easing component variants generation and delivery
, ,
Supplier #1
Component family B
Final product configurations
, ,
Supplier #2
Component family C
,
, ,
Supplier #3
,
,
Component family D
, , Supplier #4
Sourcing lead times NEED FOR COOPERATION WITH SUPPLIERS IN COMPONENT FAMILY DESIGN
Component inventory
LOW IF : - component families are modularized
cause they are not affected by the uncertainty of marketdriven customization requirements, basic product body components can be produced and supplied in large volumes that allow suppliers to mass produce while improving the firm’s bargaining power with those suppliers. Both conditions can lower the sourcing costs for the components. Moreover, as long as overall market demand remains known or relatively stable, the firm can come to a long-term agreement on quantity and delivery timing with the suppliers of basic product body components. Swappable components, on the other hand, are directly affected by the uncertainty of market-driven customization requirements; thus, forecasting them is highly unpredictable. What becomes important in this case is whether or not the swappable component suppliers are able to deliver quickly on short notice. This is not a trivial concern when one realizes that these suppliers, unlike those for basic product body components, do not have the highvolume incentive to deliver small volumes of swappable components on time and at a competitive price. The firm clearly is at a bargaining disadvantage here. Yet because of the impact on delivery time to meet the demand for product variants, it has to find ways to shorten the sourcing lead time. For this reason, a firm facing an SMC situation should purposely try to select and manage swappable component suppliers to counterbalance the loss of volume-leveraged bargaining power. A possible strategy to obtain timely delivery is to select potential suppliers over which the firm can exert greater 66
Final assembly lead time SHORT IF : - relatively low number of large component families - standardized interfaces
control. Ideal candidates are those that are smaller in size or that dedicate a large portion of their business to the firm. In fact, the more the supplier’s capacity is absorbed by the firm, the more likely it is that the firm can “force” the supplier to be fast and price-competitive. If such suppliers are not readily identifiable, a firm can perhaps help develop certain suppliers over which it can exert control. If none of these strategies is viable, the firm may consider the alternative of acquiring swappable component suppliers; timeliness in delivery would then become an order rather than a bargaining issue. An SMC firm might also find it beneficial to coax swappable component suppliers to collocate. This way, at the very least, the sourcing lead time can be reduced in direct proportion to the decrease in transportation times. This would, in turn, increase the firm’s reactivity to uncertainties from market-driven customization requirements. Of course, if the firm could exert greater control over swappable component suppliers located nearby, the benefits would be even greater. Given that requirements differ for the two kinds of suppliers, and given the constraints imposed by the characteristics of available suppliers, firms should realize that product architecture and sourcing configuration decisions are interdependent rather than sequential. Decisions as to which components to standardize and which to vary within a product family are interrelated and require crucial understanding of both the market power of potential first-tier suppliers and location considerations. Without Business Horizons / July-August 2002
such understanding, a firm may end up taking a wrong turn, offering multiple options of a product feature that may seem reasonable from a marketing standpoint but that pose unfavorable sourcing conditions, driving up costs and reducing delivery lead-time competitiveness.
Hard configuration In the case of HMC, the heterogeneity of market requirements, as previously noted, is addressed through combinatorial modularity by allowing virtually all components to change within the product family architecture while standardizing the interfaces between paired component families. That way, the impact of market-driven customization is directly transferred to all, instead of just a few, component family suppliers. This makes the sourcing configuration for HMC different from that of SMC, as shown in Figure 3. HMC also involves its own set of issues, such as the growing complexity of managing relations with component suppliers, the growing complexity of planning and controlling flows for multiple components within the final assembly plant, the rising levels of safety stocks for these components, and so on. For these reasons, an HMC firm would have an incentive to try to reduce the total number of component families from which to build the final product. More specifically, it would be advantageous to obtain final product variants by combining bigger, more complex “chunks” that essentially represent a consolidation of multiple interfacing components (see Figure 4). Of course, to avoid the potential loss in product variety when the set of combinable component families is made smaller, component family suppliers would have to agree to provide these “chunks” in multiple variants.
24 final product variants to customers, x must now deal with six possible “X+Y” variants instead of the original two X variants. By doing this, the manufacturer has effectively transferred to x some assembly activities for which it was previously responsible. In exchange for this greater complexity, x would likely charge a price higher than the sum of the prices of purchasing components X and Y separately. The challenge, therefore, is to determine how to reduce the magnitude of this price increase so as to not offset the benefit of transferring a portion of the complex final assembly to x. One way is to help suppliers responsible for large product chunks to modularize the chunks themselves. Consequently, the HMC firm should not only be concerned about partitioning its product architecture into a set of easily assembled product chunks to create different final product configurations, it should also consider how the chunks can be efficiently assembled, either through component swapping or combinatorial modularity. Resolving the issue of modularizing them as part of designing the overall product family architecture should make it more attractive for potential suppliers to take on responsibility for these product chunks. Of course, as the portion of value-added controlled by a supplier increases, the supplier’s bargaining power also increases, regardless of product variety issues. So in addition to giving suppliers responsibility for larger chunks of the final product architecture, the firm might benefit by shifting interactions with the supplier from a unilateral approach (as for swappable component suppliers in SMC) to a more collaborative relationship, particularly in the product design phase.
The criticality of close interaction between an HMC firm Suppose a manufacturer has three original components— and its suppliers during product development can be unX, Y, and Z—that can be generated in two, three, and four derstood by considering two contrasting situations. In the variants, respectively, to allow 24 possible final product first case, the firm controls the design of the final product variants. And suppose that X, Y, and Z were originally alloarchitecture—namely, all component families and intercated to three different suppliers—x, y, and z, respectively. To simplify the management of Figure 4 three suppliers and the assemRedesign of final assembly for hard customization bly of many parts, the manufacturer decides to have a single supplier, say x, be responsible REDUCTION IN THE NUMBER for the “X+Y chunk” while conOF COMPONENTS BROUGHT TOGETHER IN FINAL ASSEMBLY tinuing to have supplier z send Z components in four potential variants. (Note that the “X+Y chunk” is still a component; the • Simpler material flow in final word “chunk” is used to emassembly phasize the fact that it has been • Lower component inventory obtained by consolidating two • Reduced administrative costs of supplier management previously separate components.) To still be able to offer
How to mass customize: Product architectures, sourcing configurations
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for varied reasons (such as technical constraints), have relatively long sourcing lead times. In other words, location becomes a critical issue for the bottleneck supplier.
faces. In this scenario, it would need to collaborate with selected suppliers to exchange information and knowledge, thereby allowing both sides to better understand a number of important issues. What impact, for example, would different component family variants likely have on supplier cost? On a supplier’s capability of manufacturing the required component family variants? On the eventual investments, if any, to enhance the manufacturing capability of the selected supplier? In the second case, selected component family suppliers take responsibility for the design of component families (that is, they are black-box suppliers). Collaboration with different selected suppliers would still be necessary, since the HMC firm would have to ensure that the interfaces needed for combining the different component families (and their variants) could be standardized. This need for interface standardization is important because the interactions and interdependencies among different component families depend on the desired final product configuration.
For HMC, as for SMC, sourcing configuration decisions should not be viewed as if they are subsequent to product architecture decisions. Rather, they should be considered as simultaneously as possible. For example, the extent to which a component family supplier should be responsible for integrating a set of more basic components depends on the variety level for the component family. If the number of variants in a given product chunk is too high to make its production attractive to a supplier, it may be reasonable to accept fewer final product variants to obtain the needed cut in the number of component variants. Supply-side constraints, in this case, would force the firm to limit the product variety it offers to a lower level than that required by heterogeneous market requirements.
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As for the issue of geographic proximity, in principle, the nearer the component family suppliers are to the HMC firm, the easier it is for them to support objectives of quick and responsive delivery of final product variants. Pragmatically, however, the usefulness and necessity of proximity is most relevant for selected component family suppliers that,
Figure 5 The mass customization roadmap
o address the challenge of mass customization, then, firms have at least two different alternative paths to traverse. Captured in the roadmap in Figure 5, these two paths denote specific product family architecture and sourcing configurations.
(a) (b)
COMPONENT SWAPPING MODULARITY
SUPPLIER NEAR TO FINAL ASSEMBLY PLANT ”UNILATERAL” RELATION WITH SUPPLIERS
+
LOW VARIETY, HIGH VOLUMES: SOFT MASS CUSTOMIZATION
Conditions (a) and/or (b) not met
-
COMBINATORIAL MODULARITY
LOW OPERATIONAL EFFECTIVENESS
COMPONENT SWAPPING MODULARITY
-
HIGH VARIETY, LOW VOLUMES: HARD MASS CUSTOMIZATION
Conditions (c) and/or (d) and/or (e) not met COMBINATORIAL MODULARITY:
(c) (d) (e)
What are the product variety and the production volume requirements within the product family ?
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HIGH OPERATIONAL EFFECTIVENESS
What is the appropriate product architecture for the product family?
LOW NUMBER OF COMPONENT FAMILIES MODULARIZED COMPONENT FAMILIES
+ HIGH OPERATIONAL EFFECTIVENESS
COLLABORATION WITH SUPPLIERS IN NPD
How can component manufacturing activities be efficiently and effectively allocated to suppliers?
Business Horizons / July-August 2002
The roadmap is by no means exhaustive in its depiction of all the decisions that can or must be made in pursuing mass customization with respect to a product family. Rather, it pinpoints how certain key decisions on product variety, production volume, product family architecture, and sourcing configuration are interrelated and should be considered together in executing strategy. Although Figure 5 depicts the characteristics of these two paths in a sequential manner, decisions about product architecture and sourcing, as emphasized previously, should be made in as systematic and parallel a mode as possible. This implies that the firm should take a pragmatic approach to fulfilling the need for customization by considering market requirements and supply chain constraints and opportunities together. The roadmap does highlight a valuable and critical point: When decisions in pursuit of mass customizing a product family deviate from the two suggested paths—when a firm takes the wrong turn—the risk of suboptimal operational performance increases. Managers should be warned that the roadmap does not imply that they have to follow the embedded prescriptions. For example, product-specific constraints, such as the absolute need to offer variants that differ merely by a single component provided by a monopolistic supplier, may force a firm to violate the prescription that the swappable components should be sourced from easily controllable suppliers. Similarly, the longest lead time component in a product family architecture based on combinatorial modularity may be sourced from a supplier that is part of the same firm and is located far away from the final assembly plant, thus hampering delivery time or raising inventory cost. In the real world, firms may very well face a set of constraints that can impair the effectiveness of their pursuit of mass customization. Nevertheless, the roadmap should be a useful assessment tool for evaluating the impact of various constraints on a firm’s capability, vis-à-vis its competitors, to successfully pursue mass customization. Moreover, constraints that are evident in the short term might be removable in the long term. What the roadmap provides, therefore, is a series of critical questions to help firms figure out which constraints to remove or which opportunities to catch, if any, in mass customizing a product family. The prescriptions of our roadmap are strictly related to the decision to pursue mass customization. As such, they
How to mass customize: Product architectures, sourcing configurations
have to be integrated with other considerations that typically take place in strategy implementation. For example, the prescription that swappable component suppliers (in SMC) or the bottleneck supplier (in HMC) should be located near the plant has to complement considerations on other advantages of local versus global sourcing. The focus of our discussion here has been on how firms can pursue mass customization. The question of whether to pursue it has been accepted as given. However, in the presence of these mass customization drivers, this question needs to be seriously addressed before pushing forward in applying the roadmap. ❍
References and selected bibliography Ålström, P., and R. Westbrook. 1999. Implications of mass customization for operations management: An exploratory survey. International Journal of Operations and Production Management 19/3-4 (March): 262-274. Fine, C.H. 1998. Clockspeed: Winning industry control in the age of temporary advantage. Reading, MA: Perseus Books. Gupta, S., and V. Krishnan. 1998. Product family-based assembly sequence design methodology. IIE Transactions 30/10 (October): 933-945. Hayes, R., and S.C. Wheelwright. 1984. Restoring our competitive edge: Competing through manufacturing. New York: Wiley. Henderson, R.M., and K.B. Clark. 1990. Architectural innovation: The reconfiguration of existing product technologies. Administrative Science Quarterly 35/1 (March): 9-30. Lampel, J., and H. Mintzberg. 1996. Customizing customization. Sloan Management Review 38/1 (Fall): 21-30. McCutcheon, D.M., A.S. Raturi, and J.R. Meredith. 1994. The customization-responsiveness squeeze. Sloan Management Review 35/2 (Winter): 89-99. Meyer, M.H., and R. Selinger. 1998. Product platforms in software development. Sloan Management Review 40/1 (Fall): 61-74. Meyer, M.H., P. Tertzakian, and J.M. Utterback. 1997. Metrics for managing research and development in the context of the product family. Management Science 43/1: 88-111. Pine, B.Joseph. 1993. Mass customization: The new frontier in business competition. Boston: Harvard Business School Press. Ulrich, K. 1995. The role of product architecture in the manufacturing firm. Research Policy (May): 419-440. ———, and K. Tung. 1991. Fundamentals of product modularity. Proceedings of the ASME winter annual meeting symposium on issues in design/manufacturing integration, Atlanta, Georgia: 73-80. Zipkin, P. 2001. The limits of mass customization. Sloan Management Review 42/3 (Spring): 81-87.
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Cipriano Forza Associate Professor, University of Padova, Vicenza, Italy
Manus Rungtusanatham Associate Professor, Arizona State University, Tempe, Arizona
The interdependencies of product, process, and supply chain design need to be carefully considered if the goal of mass customization is to be met. But suggested solutions for addressing this problem seem oversimplified, or univocal. A mass customization strategy can be pursued with differing “intensity” as competitive environment and company aspects change. Building on this idea, the findings presented here highlight how production volume and product variety are key variables in strategy implementation. More specifically, this multiple case study shows how, based on the joint behavior of these variables, a firm can define two options—“soft” and “hard”—for implementing strategy and decide on product architecture and first-tier supply chain configuration.
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ow can a company effectively pursue mass customization, offering a readily available and competitively priced product that best fits the increasingly heterogeneous needs of a large customer base? Moreover, given the tendency to allocate a large portion of component manufacturing activities to suppliers, how can the supply chain respond to this need for fast, efficient mass customization? These questions reflect a heightened awareness of a key competitive issue. The bad news is that practical answers are not easily identifiable. Despite ten years of active research on mass customization, the official management wisdom appears to offer only a few widely accepted general prescriptions that are difficult to translate into operational strategies. We know, for instance, that in discrete manufacturing a firm may need a modular product structure that can allow it to postpone customization activities. And we know that to achieve an efficient, customer-oriented flow of goods, a firm must perform product modularization and design in tandem with process and supply chain design. But beyond such difficult-to-refute wisdom, an overarching framework capable of tying together these related ideas in the context of mass customization has yet to be articulated. What advice can we give a manager thinking about mass customizing, say, a new family of microwave ovens? Is it the same advice we would give to the manager envisioning the mass customization of a new generation of heavy trucks? Pragmatically, differences in product complexity, product variety, production volumes, and so on may require different firms to implement mass customization in different ways. This particular insight is based on a detailed study of six product families designed, manufactured, and marketed by six highly successful European firms. To avoid the risk of deriving industry-specific messages, we selected the six companies from three different industries: telecommunication equipment, transportation equipment, and food processing equipment. Moreover, within each industry the selected pair of product families differed in terms of the ratio of product variety to production volume.
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The growing importance of mass customization
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ow relevant is the mass customization imperative in your industry? Although we cannot claim that the phenomenon is sweeping away the remains of mass production everywhere, there are clear signs that it is becoming more and more a widespread concern. A number of key drivers are already present in some form or another in many industries. Recognizing these drivers and their persistence is crucial to understanding and assessing the potential of mass customization in in order to help a firm gain a long-term competitive advantage.
Market deregulation Many major markets, once strictly regulated by national laws, are rapidly being deregulated. This presents an opportunity—and a challenge—for firms wishing to operate in more than one major market. While a standardized, socalled “global product” would be quite attractive and advantageous for such firms, the presence of environmentspecific factors often mandates that a company tailor its product offerings specifically to the new market(s) it is trying to penetrate. Besides issuing an invitation to other firms to compete in a given market once dominated by a handful of firms, market liberalization is often seen as a mechanism to lower prices,
Although we cannot claim that mass customization is sweeping away the remains of mass production in every industry, there are clear signs that it is becoming more and more a widespread concern. improve delivery times, and so on. Consequently, firms and their suppliers that once operated in strictly regulated markets are now being “encouraged” to engage in product differentiation in order to escape the trap of perfect competition. After the deregulation in the European telecommunication services industry, telecom equipment suppliers had to respond to the demands for greater customization from their customers, the service providers. Forced by greater competitive pressure to cut overhead costs, the providers decided to reduce in-house technical staff. This decision ul62
timately impaired their ability to adapt pieces of equipment to the characteristics of their specific telecom network, obligating them instead to transfer these customization activities to the equipment suppliers.
Product regulations Cross-national agencies and regulatory bodies that promote standardization (such as the International Standards Organization or the European Commission) encourage firms to sell the same product across national markets. Yet the reality is that products sold in different countries still have to comply with different regulations and countryspecific constraints. For example, power transformers sold in the US and in the EU differ not only on voltage and frequency related to the specifications of electric power distribution, but also on many aspects related to insulation, materials, and so forth. These differences impede the ability to offer the same product in both markets. To make matters worse, we are also witnessing a proliferation of new country-specific (regional-specific, city-specific) regulations that mandate compliance to emerging environmental and safety concerns. Consider the stringent emission requirements imposed on cars that are titled and licensed in the state of California, or the safety requirements imposed on Scandinavian vehicles.
Customer needs and experience Final customers themselves are also demanding more choices over product features. The abundance of readily available product information has given them the opportunity to better assess the fit of a product to their specific needs. At the same time, being more aware of the multiple available alternatives, they are less willing to buy a product that does not satisfy their constraints perfectly. For example, many customers are now aware that they can ask for refrigerators matching the color and style of their kitchen; as a result, they are less willing to accept a “standard” white refrigerator. Moreover, customer experience gained through product use further drives customization. In making product replacement decisions, each customer can use his accumulated knowledge about products and their functions to gauge whether the features of different available products are useful for his needs. When the first-generation microwave oven was introduced, consumers were primarily concerned with exploring what it could do. As experience in its use accumulated, the overall market became more segmented into different customer clusters: those who required very basic uses of the oven for warming pre-cooked food or defrosting; those who wanted it to warm with a thermal heating function for a “crisp” effect; those who wanted to combine the function of a microwave with that of a traditional electric oven for full food cooking; and on and on. Business Horizons / July-August 2002
Distributor power and needs The changing nature of distribution channels is often an overlooked driver of mass customization. For many manufacturing companies, despite much hype about Netbased direct distribution, the importance of distributors and retailers has not lessened. Like customers, such firms are healthy and appear to be growing stronger. The trend, in fact, seems to be toward consolidating distributors into larger companies capable of affecting a broad base of final consumers. With size comes bargaining power. Distributors and retailers are consequently able to demand price concessions from suppliers, while forcing suppliers to provide differentiated products for which they have exclusive distribution rights. Many mobile phone service providers, such as Sprint PCS and Nextel, are able to ask cell phone suppliers, including Nokia and Motorola, to provide variants of the same basic phones that vary in some features, such as packaging, software, decals, and colors. However, even in the case of fragmented distributors and retailers characterized by low bargaining power, firms are still motivated to differentiate their products from those offered by competitors. By doing so, they greatly reduce the customers’ ability to directly compare competing products. In the fragmented Italian home appliance retail business, the availability of product variants that would allow a store to offer products slightly different from those offered nearby is a key factor in decisions about the assortment of brands the store carries.
Setting the stage for mass customization
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f one or more of its drivers discussed so far are already present or are emerging within a given business, then mass customization, to some extent, is an inevitable challenge that has to be addressed. Under these conditions, the question is no longer whether or not it should be pursued, but how to pursue it. Before we can begin to address the “how” challenge, however, two important issues must be raised and clarified: What products are going to be mass customized? And what is the desired level of customization to be allowed for these products?
Product family To pursue mass customizing, states Pine (1993), a company has to address the necessity of providing a stream of products to meet the differentiated requirements of a large customer base while maintaining the cost and time performances typical of mass production via a repetitive production process. To do this, it must constrain a priori the market requirements it is going to serve with a set of product variants that are obtained by the same repetitive
How to mass customize: Product architectures, sourcing configurations
production process. More precisely, to pursue mass customization a firm begins by strategizing at the level of the product family—a set of final products offered by a firm that are at least partially substitutable on demand, possess underlying functional similarities, and share the same common technology and production process.
Variety and volume considerations From an operational standpoint, irrespective of the specific business and product family considered, mass customization requires some level of product variety to be processed on the shop floor. Conventional wisdom tells
To pursue mass customization a firm begins by strategizing at the level of the product family. us that variety typically gives managers a difficult time: inventory levels tend to rise, set-up costs and times tend to deteriorate, material planning and shop floor control tend to become more complex, and so on. However, the magnitude of problems associated with managing for product variety when mass customization is pursued is not always the same. To truly appreciate the operational severity of proliferating product variants in a given product family, a firm must understand and be able to accurately assess two factors, according to Hayes & Wheelwright (1984): 1. the number of different product variants in a specified product family to be manufactured in the given unit of time (How much variety does the market want?) 2. the overall production volume that can be absorbed by the market in the given unit of time (What is the overall market potential of the product family?) What really matters, then, once market customization requirements have been identified, is to determine both the number of product variants to be handled within the same production unit and the required volume for these variants. By applying and extending this understanding of the relative importance of production volume and product variety to mass customization, we can ideally distinguish between two “extreme” possible situations, one in which product variety requirements are (relatively) low and production volume is high, and one in which product variety requirements are high and production volume is (relatively) low. As a company migrates from the first extreme to the second, it necessarily moves further and further away from a mass production environment and simultaneously experiences more severe customization problems. 63
We refer to the first extreme as “soft” mass customization (SMC). The ratio of product variants to production volume in this case is in the range of thousandths or smaller (for example, 100 product variants and 100,000 pieces per year). Conversely, we label the other extreme “hard” mass customization (HMC). In this case, the ratio lies in the range of tenths or higher (1,000 product variants, 10,000 pieces per year). The terms “soft” and “hard” are used opportunistically, for lack of better adjectives, to simply connote the level of difficulty in pursuing mass customization.
Mass customization design
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he two extremes of soft and hard mass customization have implications for how the product family architecture should be designed to support each case. Product family architecture, as used here, refers to the way customer-required features are allocated to product components and the way product components can be arranged and combined to obtain different required configurations. In both cases, acting at the level of product design in order to effectively pursue mass customization should enable firms to pre-design the required product variants to satisfy market-driven customization while enabling the variants to be produced in a relatively high-volume production environment. When potential marketdriven customization requirements are anticipated and embedded into the product design phase, there is less need to involve design engineers in the latter stages of acquisition, processing, and fulfillment.
Moreover, considering product variety and production volume requirements during the design phase allows a firm to maintain some degree of component commonality within a family as well as across families. This, in turn, should provide the opportunity to increase repetitiveness in manufacturing operations and seek economies of scale from high-production volumes of common components. Consider the extreme of SMC, for which the number of product variants is low relative to the overall product family production volume. In this case, it would be more convenient to restrict the features a customer can specify, thereby limiting the portion of product components that would be allowed to vary. This assumes that the market is willing to accept this limitation. Most product components can, therefore, be standardized throughout the product family. From a design perspective, SMC can be described as implementing into its product family architecture a component swapping modularity, allowing product variants to be obtained by swapping components from a component family while maintaining a basic product body (see Figure 1). As overall product family production volume increases, the scale economies from having a common product body should increase, making this solution even more attractive. By constraining the impact of market heterogeneity to a relatively small portion of the overall product structure, component swapping modularity thus allows firms to serve a large market efficiently. For HMC, in contrast, the required number of product variants for a given family is high relative to overall family production volume. So restricting the part of the product
Figure 1 Product family architectures for soft and hard mass customization
SOFT MASS CUSTOMIZATION
HARD MASS CUSTOMIZATION
PRODUCT FAMILY:
PRODUCT FAMILY:
Variety = LOW Volume = HIGH
Variety = HIGH Volume = LOW
Product variants differ on a limited number of attributes
Product variants differ on most attributes Product architecture = COMBINATORIAL MODULARITY
Product architecture = COMPONENT SWAPPING MODULARITY BASIC BODY COMPONENTS
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SWAPPABLE COMPONENT FAMILY
COMPONENT FAMILIES
Business Horizons / July-August 2002
affected by customer specifications may not be as effective from a marketing standpoint. Offering a car, say, in 1,000 different exterior colors does not give customers the same value and (perhaps) satisfaction as allowing them to choose from ten exterior colors, four engines, five interior colors, and five sets of air bags—with all possible combinations yielding 1,000 car variants (10 x 4 x 5 x 5).
combining components from different families, provided the interfaces and other compatibility constraints are satisfied (again, see Figure 1).
Ideally, of course, customers can be given full flexibility in affecting the entire product architecture, making each product variant essentially a unique product. In other words, increasing the range of product features that market heterogeneity can affect in the face of relatively low family production volumes makes it difficult to seek economies of scale from component standardization. But to give customers a greater set of product features over which they can choose while minimizing the operational severity of customer choice flexibility, firms would likely have to implement into the family architecture a type of product modularity we label combinatorial modularity.
B
Sourcing configurations for soft and hard customizing
Combinatorial modularity refers to a product architecture in which: (1) all components making up a product variant belong to component families, meaning that each component itself is a variant; (2) each component family interfaces with a subset of other component families, with the interface being standardized by family pairings; and (3) the interface between two component families is dependent on the specific family coupling but independent of the specific component variants selected from the two families that need to be combined. With combinatorial modularity, product variants can therefore be obtained by
esides identifying a product family architecture that best fits market and production requirements, a firm must decide how to deliver product variants to customers in a timely and highly responsive manner using repetitive manufacturing operations. With the current focus on core competence, firms are likely to have outsourced or to be outsourcing component manufacturing. To deliver competitively priced product variants on time, then, a firm must ensure the timely receipt of outsourced components at a reasonable cost. The different product architectures associated with soft versus hard mass customization, in this respect, would have different implications for sourcing configurations, specifically in terms of selecting and managing suppliers.
Soft configuration In the SMC product family architecture, the duality between basic product body components and swappable components allows for dual approaches to supplier selection and firm/supplier interaction. This is especially true because suppliers’ key operational capabilities vary depending on whether they supply swappable components or basic product body components (see Figure 2). Be-
Figure 2 Sourcing configuration for SMC SWAPPABLE COMPONENT SUPPLIER(S): • Easily controllable
Component family A
, ,
• Located in close proximity to the firm
Final product variants
Product body component #1 BASIC PRODUCT BODY COMPONENT SUPPLIERS:
,
,
,...
Product body component #2
• High volume, reliable processes
Product body component #3
• Long term purchasing agreement
Product body component #4
(1) competitive price and reliable delivery (2) fast delivery
How to mass customize: Product architectures, sourcing configurations
Final assembly lead time and cost low if conditions (1) and (2) hold
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Figure 3 Sourcing configuration for HMC Component family A
BOTTLENECK SUPPLIER: Prioritize action for easing component variants generation and delivery
, ,
Supplier #1
Component family B
Final product configurations
, ,
Supplier #2
Component family C
,
, ,
Supplier #3
,
,
Component family D
, , Supplier #4
Sourcing lead times NEED FOR COOPERATION WITH SUPPLIERS IN COMPONENT FAMILY DESIGN
Component inventory
LOW IF : - component families are modularized
cause they are not affected by the uncertainty of marketdriven customization requirements, basic product body components can be produced and supplied in large volumes that allow suppliers to mass produce while improving the firm’s bargaining power with those suppliers. Both conditions can lower the sourcing costs for the components. Moreover, as long as overall market demand remains known or relatively stable, the firm can come to a long-term agreement on quantity and delivery timing with the suppliers of basic product body components. Swappable components, on the other hand, are directly affected by the uncertainty of market-driven customization requirements; thus, forecasting them is highly unpredictable. What becomes important in this case is whether or not the swappable component suppliers are able to deliver quickly on short notice. This is not a trivial concern when one realizes that these suppliers, unlike those for basic product body components, do not have the highvolume incentive to deliver small volumes of swappable components on time and at a competitive price. The firm clearly is at a bargaining disadvantage here. Yet because of the impact on delivery time to meet the demand for product variants, it has to find ways to shorten the sourcing lead time. For this reason, a firm facing an SMC situation should purposely try to select and manage swappable component suppliers to counterbalance the loss of volume-leveraged bargaining power. A possible strategy to obtain timely delivery is to select potential suppliers over which the firm can exert greater 66
Final assembly lead time SHORT IF : - relatively low number of large component families - standardized interfaces
control. Ideal candidates are those that are smaller in size or that dedicate a large portion of their business to the firm. In fact, the more the supplier’s capacity is absorbed by the firm, the more likely it is that the firm can “force” the supplier to be fast and price-competitive. If such suppliers are not readily identifiable, a firm can perhaps help develop certain suppliers over which it can exert control. If none of these strategies is viable, the firm may consider the alternative of acquiring swappable component suppliers; timeliness in delivery would then become an order rather than a bargaining issue. An SMC firm might also find it beneficial to coax swappable component suppliers to collocate. This way, at the very least, the sourcing lead time can be reduced in direct proportion to the decrease in transportation times. This would, in turn, increase the firm’s reactivity to uncertainties from market-driven customization requirements. Of course, if the firm could exert greater control over swappable component suppliers located nearby, the benefits would be even greater. Given that requirements differ for the two kinds of suppliers, and given the constraints imposed by the characteristics of available suppliers, firms should realize that product architecture and sourcing configuration decisions are interdependent rather than sequential. Decisions as to which components to standardize and which to vary within a product family are interrelated and require crucial understanding of both the market power of potential first-tier suppliers and location considerations. Without Business Horizons / July-August 2002
such understanding, a firm may end up taking a wrong turn, offering multiple options of a product feature that may seem reasonable from a marketing standpoint but that pose unfavorable sourcing conditions, driving up costs and reducing delivery lead-time competitiveness.
Hard configuration In the case of HMC, the heterogeneity of market requirements, as previously noted, is addressed through combinatorial modularity by allowing virtually all components to change within the product family architecture while standardizing the interfaces between paired component families. That way, the impact of market-driven customization is directly transferred to all, instead of just a few, component family suppliers. This makes the sourcing configuration for HMC different from that of SMC, as shown in Figure 3. HMC also involves its own set of issues, such as the growing complexity of managing relations with component suppliers, the growing complexity of planning and controlling flows for multiple components within the final assembly plant, the rising levels of safety stocks for these components, and so on. For these reasons, an HMC firm would have an incentive to try to reduce the total number of component families from which to build the final product. More specifically, it would be advantageous to obtain final product variants by combining bigger, more complex “chunks” that essentially represent a consolidation of multiple interfacing components (see Figure 4). Of course, to avoid the potential loss in product variety when the set of combinable component families is made smaller, component family suppliers would have to agree to provide these “chunks” in multiple variants.
24 final product variants to customers, x must now deal with six possible “X+Y” variants instead of the original two X variants. By doing this, the manufacturer has effectively transferred to x some assembly activities for which it was previously responsible. In exchange for this greater complexity, x would likely charge a price higher than the sum of the prices of purchasing components X and Y separately. The challenge, therefore, is to determine how to reduce the magnitude of this price increase so as to not offset the benefit of transferring a portion of the complex final assembly to x. One way is to help suppliers responsible for large product chunks to modularize the chunks themselves. Consequently, the HMC firm should not only be concerned about partitioning its product architecture into a set of easily assembled product chunks to create different final product configurations, it should also consider how the chunks can be efficiently assembled, either through component swapping or combinatorial modularity. Resolving the issue of modularizing them as part of designing the overall product family architecture should make it more attractive for potential suppliers to take on responsibility for these product chunks. Of course, as the portion of value-added controlled by a supplier increases, the supplier’s bargaining power also increases, regardless of product variety issues. So in addition to giving suppliers responsibility for larger chunks of the final product architecture, the firm might benefit by shifting interactions with the supplier from a unilateral approach (as for swappable component suppliers in SMC) to a more collaborative relationship, particularly in the product design phase.
The criticality of close interaction between an HMC firm Suppose a manufacturer has three original components— and its suppliers during product development can be unX, Y, and Z—that can be generated in two, three, and four derstood by considering two contrasting situations. In the variants, respectively, to allow 24 possible final product first case, the firm controls the design of the final product variants. And suppose that X, Y, and Z were originally alloarchitecture—namely, all component families and intercated to three different suppliers—x, y, and z, respectively. To simplify the management of Figure 4 three suppliers and the assemRedesign of final assembly for hard customization bly of many parts, the manufacturer decides to have a single supplier, say x, be responsible REDUCTION IN THE NUMBER for the “X+Y chunk” while conOF COMPONENTS BROUGHT TOGETHER IN FINAL ASSEMBLY tinuing to have supplier z send Z components in four potential variants. (Note that the “X+Y chunk” is still a component; the • Simpler material flow in final word “chunk” is used to emassembly phasize the fact that it has been • Lower component inventory obtained by consolidating two • Reduced administrative costs of supplier management previously separate components.) To still be able to offer
How to mass customize: Product architectures, sourcing configurations
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for varied reasons (such as technical constraints), have relatively long sourcing lead times. In other words, location becomes a critical issue for the bottleneck supplier.
faces. In this scenario, it would need to collaborate with selected suppliers to exchange information and knowledge, thereby allowing both sides to better understand a number of important issues. What impact, for example, would different component family variants likely have on supplier cost? On a supplier’s capability of manufacturing the required component family variants? On the eventual investments, if any, to enhance the manufacturing capability of the selected supplier? In the second case, selected component family suppliers take responsibility for the design of component families (that is, they are black-box suppliers). Collaboration with different selected suppliers would still be necessary, since the HMC firm would have to ensure that the interfaces needed for combining the different component families (and their variants) could be standardized. This need for interface standardization is important because the interactions and interdependencies among different component families depend on the desired final product configuration.
For HMC, as for SMC, sourcing configuration decisions should not be viewed as if they are subsequent to product architecture decisions. Rather, they should be considered as simultaneously as possible. For example, the extent to which a component family supplier should be responsible for integrating a set of more basic components depends on the variety level for the component family. If the number of variants in a given product chunk is too high to make its production attractive to a supplier, it may be reasonable to accept fewer final product variants to obtain the needed cut in the number of component variants. Supply-side constraints, in this case, would force the firm to limit the product variety it offers to a lower level than that required by heterogeneous market requirements.
T
As for the issue of geographic proximity, in principle, the nearer the component family suppliers are to the HMC firm, the easier it is for them to support objectives of quick and responsive delivery of final product variants. Pragmatically, however, the usefulness and necessity of proximity is most relevant for selected component family suppliers that,
Figure 5 The mass customization roadmap
o address the challenge of mass customization, then, firms have at least two different alternative paths to traverse. Captured in the roadmap in Figure 5, these two paths denote specific product family architecture and sourcing configurations.
(a) (b)
COMPONENT SWAPPING MODULARITY
SUPPLIER NEAR TO FINAL ASSEMBLY PLANT ”UNILATERAL” RELATION WITH SUPPLIERS
+
LOW VARIETY, HIGH VOLUMES: SOFT MASS CUSTOMIZATION
Conditions (a) and/or (b) not met
-
COMBINATORIAL MODULARITY
LOW OPERATIONAL EFFECTIVENESS
COMPONENT SWAPPING MODULARITY
-
HIGH VARIETY, LOW VOLUMES: HARD MASS CUSTOMIZATION
Conditions (c) and/or (d) and/or (e) not met COMBINATORIAL MODULARITY:
(c) (d) (e)
What are the product variety and the production volume requirements within the product family ?
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HIGH OPERATIONAL EFFECTIVENESS
What is the appropriate product architecture for the product family?
LOW NUMBER OF COMPONENT FAMILIES MODULARIZED COMPONENT FAMILIES
+ HIGH OPERATIONAL EFFECTIVENESS
COLLABORATION WITH SUPPLIERS IN NPD
How can component manufacturing activities be efficiently and effectively allocated to suppliers?
Business Horizons / July-August 2002
The roadmap is by no means exhaustive in its depiction of all the decisions that can or must be made in pursuing mass customization with respect to a product family. Rather, it pinpoints how certain key decisions on product variety, production volume, product family architecture, and sourcing configuration are interrelated and should be considered together in executing strategy. Although Figure 5 depicts the characteristics of these two paths in a sequential manner, decisions about product architecture and sourcing, as emphasized previously, should be made in as systematic and parallel a mode as possible. This implies that the firm should take a pragmatic approach to fulfilling the need for customization by considering market requirements and supply chain constraints and opportunities together. The roadmap does highlight a valuable and critical point: When decisions in pursuit of mass customizing a product family deviate from the two suggested paths—when a firm takes the wrong turn—the risk of suboptimal operational performance increases. Managers should be warned that the roadmap does not imply that they have to follow the embedded prescriptions. For example, product-specific constraints, such as the absolute need to offer variants that differ merely by a single component provided by a monopolistic supplier, may force a firm to violate the prescription that the swappable components should be sourced from easily controllable suppliers. Similarly, the longest lead time component in a product family architecture based on combinatorial modularity may be sourced from a supplier that is part of the same firm and is located far away from the final assembly plant, thus hampering delivery time or raising inventory cost. In the real world, firms may very well face a set of constraints that can impair the effectiveness of their pursuit of mass customization. Nevertheless, the roadmap should be a useful assessment tool for evaluating the impact of various constraints on a firm’s capability, vis-à-vis its competitors, to successfully pursue mass customization. Moreover, constraints that are evident in the short term might be removable in the long term. What the roadmap provides, therefore, is a series of critical questions to help firms figure out which constraints to remove or which opportunities to catch, if any, in mass customizing a product family. The prescriptions of our roadmap are strictly related to the decision to pursue mass customization. As such, they
How to mass customize: Product architectures, sourcing configurations
have to be integrated with other considerations that typically take place in strategy implementation. For example, the prescription that swappable component suppliers (in SMC) or the bottleneck supplier (in HMC) should be located near the plant has to complement considerations on other advantages of local versus global sourcing. The focus of our discussion here has been on how firms can pursue mass customization. The question of whether to pursue it has been accepted as given. However, in the presence of these mass customization drivers, this question needs to be seriously addressed before pushing forward in applying the roadmap. ❍
References and selected bibliography Ålström, P., and R. Westbrook. 1999. Implications of mass customization for operations management: An exploratory survey. International Journal of Operations and Production Management 19/3-4 (March): 262-274. Fine, C.H. 1998. Clockspeed: Winning industry control in the age of temporary advantage. Reading, MA: Perseus Books. Gupta, S., and V. Krishnan. 1998. Product family-based assembly sequence design methodology. IIE Transactions 30/10 (October): 933-945. Hayes, R., and S.C. Wheelwright. 1984. Restoring our competitive edge: Competing through manufacturing. New York: Wiley. Henderson, R.M., and K.B. Clark. 1990. Architectural innovation: The reconfiguration of existing product technologies. Administrative Science Quarterly 35/1 (March): 9-30. Lampel, J., and H. Mintzberg. 1996. Customizing customization. Sloan Management Review 38/1 (Fall): 21-30. McCutcheon, D.M., A.S. Raturi, and J.R. Meredith. 1994. The customization-responsiveness squeeze. Sloan Management Review 35/2 (Winter): 89-99. Meyer, M.H., and R. Selinger. 1998. Product platforms in software development. Sloan Management Review 40/1 (Fall): 61-74. Meyer, M.H., P. Tertzakian, and J.M. Utterback. 1997. Metrics for managing research and development in the context of the product family. Management Science 43/1: 88-111. Pine, B.Joseph. 1993. Mass customization: The new frontier in business competition. Boston: Harvard Business School Press. Ulrich, K. 1995. The role of product architecture in the manufacturing firm. Research Policy (May): 419-440. ———, and K. Tung. 1991. Fundamentals of product modularity. Proceedings of the ASME winter annual meeting symposium on issues in design/manufacturing integration, Atlanta, Georgia: 73-80. Zipkin, P. 2001. The limits of mass customization. Sloan Management Review 42/3 (Spring): 81-87.
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