Processes and Operations Management Strategies (P&O) & Mass Customization Scenarios (MCS)

Transcription

1 Processes and Operations Management Strategies (P&O) & Mass Customization Scenarios (MCS) Raquel Sanchis 1, Raúl Poler 1, Eduardo Saiz 2, Eduardo Castellano 2 and Jone Uribetxeberria 2 1 Centro de Investigación en Gestión e Ingeniería de Producción (CIGIP). Universidad Politécnica de Valencia. Plaza Ferrándiz y Carbonell, Alcoy Alicante. Spain. 2 Ikerlan IK4. Centro de Investigaciones Tecnológicas. Paseo JM Arizmendiarrieta, Arrasate Mondragón. 1. Introduction The shortening of product life cycles and expanding industrial competition has led to the breakdown of many mass industries, increasing the need for production strategies focused on individual customers (Da Silveira et al., 2001). In order to implement a mass customization (MC) strategy, the companies have to redesign their processes and operations management strategies (P&O) to achieve a successful implementation. This means not merely making operational adjustments for specific orders but defining a strategy and developing a process which can supply very numerous customer chosen variations (Ahlström and Westbrook, 1999). Firstly, it is important to understand the concept of MC and what it covers. The visionary concept of MC was first coined by Davis (1989) and then it was popularized by Pine (1993). Zipkin (2001) declared that the concept of MC seems a contradiction in terms. He explained that mass production implies uniform products, whereas customization connotes small scale crafts. Selladurai (2003) agreed with integrating these concepts together as mass customization seems to be the practice of the present with the strong likelihood that it would be a continued trend of the future. There are many definitions of the MC term in the literature. Table 1 shows a summary of such definitions: Table 1: Summary of MC definitions Definition The ability to provide individually designed products and services to every customer through high process agility, flexibility and integration. A process in which all aspects within the organization from people, processes, organizational structures, and technology are geared to provide customers specifically what they need and want. A system that uses information technology, flexible processes, and organizational structures to deliver a wide range of products and services that meet specific needs of individual customers (often defined by a series of options), at a cost near that of mass produced items. The ability to provide numerous customer chosen variations on every order with little lead time or cost penalty. The capability, realized by a few companies, to offer individually tailored products or services on a large scale. The ability to quickly produce customized products in large volumes and with a cost, quality, and delivery comparable to that achieved by mass production. Author(s) Davis (1989) Pine (1993) Kay (1993) Ahlström and Westbrook (1999) Zipkin, (2001) MacCarthy et al. (2003) 1/13

2 The definition of Davis (1989) was addressed to implement high process agility, flexibility and integration to achieve MC. The description of processes and operations management strategies is vitally important in order that companies offer consumer customized goods that cover their needs. Pine (1993) introduced in his definition the organization of all the company resources; people, processes, organizational structures, and technology; to fulfil MC objectives. On the other hand, Kay (1993) stated that the individual customer needs are often defined by a series of options. With this statement, he has already introduced the modularization strategy in his definition. Ahlström and Westbrook (1999) linked the MC activities with an order. In their definition, they established the concept of order penetration point (OPP), which is defined as the stage in the manufacturing value chain where a particular product is linked to a specific customer order (Brun and Zorzini, 2009). This concept is also known as customer order decoupling point (CODP) information decoupling point. Zipkin (2001) stated that only a few companies have the MC capability. Huang et al. (2008) explained that the existing literature offers little insight regarding the development or implementation of MC solutions, which many companies have found difficult to apply. Finally, MacCarthy et al. (2003) compared the MC concept with the term of mass production in their definition. Selladurai (2003) explained that a traditional mass production company is bureaucratic, hierarchical, and highly standardized. Workers operate under close supervision and perform highly routine, standardized, and repetitive tasks. This type of a traditional production process leads to the manufacture of low cost, standard goods and services whereas the MC process leads to the manufacture of low cost, high quality, customized goods and services produced on a large scale to a mass market. 2. MCS literature research problems The analysis of the literature provides generic problems related to the P&O management strategies addressed to MC Scenarios. The following sections show a brief overview of such problems P&O & MCS research problem 1: What kind of strategies should implement the supply chains in MCS? MC systems implementation requires an elaborate system for eliciting customers' wants and needs (Zipkin, 2001). The problem of understanding what the customer wants has been also found in an empirical study developed by Ahlstrom and Westbrook (1999), in which this is the first difficulty (in order of importance) the companies find when they wish to adopt MC strategies. P&O management strategies addressed to MC Scenarios requires a strong direct tocustomer logistics system (Zipkin, 2001). The problem related to distribution channels also appeared in Ahlstrom and Westbrook s study (1999). One of the most important problems is related to the readiness of the value and supply chain. Da Silveira et al. (2001) explain that MC is a value chain based concept and the success of implementing P&O management strategies addressed to MC Scenarios depends on the readiness of all the actors of the supply chain. Ahlstrom (1999) also pointed out to this problem in his empirical study. 2/13

3 2.2. P&O & MCS research problem 2: What kind of technology is necessary to implement P&O management strategies in MCS? The implementation of P&O management strategies addressed to MC Scenarios requires a highly flexible production technology (Zipkin, 2001). Da Silveira et al. (2001) state that it is necessary the implementation of manufacturing and communication technologies in MC scenarios P&O & MCS research problem 3: How to manage the business strategies in MCS? The business strategies should be addressed in MCS to the creation, distribution and sharing of knowledge. P&O management strategies to implement MC should be dynamic in order to achieve a culture that emphasizes knowledge creation and distribution across the value chain (Da Silveira et al., 2001). In addition, culture, organisation and business processes change. It should be necessary an efficient, well integrated organizational system that facilitated the MC process (Selladurai, 2004). Finally, it is important to highlight that sometimes products and processes remain as not customizable. Da Silveira (2001) state that successful MC products must be modularized, versatile, and constantly renewed; and MC processes also need rapid product development and innovation capabilities due to typical short life cycles presented by MC products. 3. PF & MCS literature research approaches This section reviews the main approaches existing in the literature that try to solve the most important problems related to P&O management strategies and MCS. Some approaches are theoretical and only describe taxonomies and classifications where allocate the different problems. However, this analysis will provide a general overview of the research lines that have been developed so far. Taking into account these approaches, the present project will be able to search solutions that fit with customers specific needs. It is essential that management strategies focus on how to design and operate manufacturing systems to quickly produce a variety of products to meet specific customer needs while improving quality, maintaining high volume production, and keeping prices low (Tu et al., 2001) P&O & MCS research approach to problem 1 Supply chain strategies cover a network of interconnected businesses, including of course, the customers and it is essentially important to know and understand their needs and wants. This issue is linked to the MC levels. Da Silveira et al. (2001) made a literature review of such levels. They state that from a purist point of view, MC is only achieved when products reflect all the requests made by individual clients, whereas from a pragmatic point of view MC is simply about delivering products following customer options, independent of the number of options actually offered. Based on the studies of Lampel and Mintzberg (1996); Spira (1996); Gilmore and Pine (1997) and Amaro et al. (1999); Da Silveira et al. (2001) define eight generic levels of MC, from pure customization to pure standardization: Level 8: Design. It refers to collaborative project, manufacturing and delivery of products according to individual customer preferences. 3/13

4 Level 7: Fabrication. It refers to manufacturing of customer tailored products following basic, predefined designs. Level 6: Assembly. It deals with the arranging of modular components into different configurations according to customer orders. Levels 5 and 4. Additional custom work/service. MC is achieved by simply adding custom work or services (to standard products, often at the point of delivery. Level 3. Package and distribution. MC is provided by distributing or packaging similar products in different ways using, according to specific market segments Level 2. Usage. MC occurs only after delivery, through products that can be adapted to different functions or situations Level 1. Standardization. It refers to pure standardization, a strategy that can still be useful in many industrial segments. The analysis of customers needs will determine in which level the different organizations should be located to adopt the most suitable strategy. Moreover, there are also other authors that developed MC levels classifications such as Ross (1996) who described five different levels through products examples and Alford et al. (2000) who established three MC levels in the automotive sector. All the previous generic MC levels are linked to a value chain perspective. Duray et al. (2000) proposed a MC model based on two critical identifiers: The point of customer involvement in the design process, is used to operationalize the degree of customization. Modularity restricts the range of choice, decreasing the possible variety of components and thus allowing for repetitive manufacturer. Taking together both concepts, Duray (2002) suggests four MC approaches: Modularity type Point of Customer Involvement Design Fabrication Group 1 Fabricators Group 2 Involvers Assembly Use Group 3 Modularizers Group 4 Assemblers Figure 1. Operationalized configurational model (Duray et al., 2000). 4/13

5 1. Fabricators: Fabricators involve the customers early in the process when unique designs can be realized or major revisions can be made in the products. Fabricators closely resemble a pure customization strategy, but employ modularity to gain commonality of components. 2. Involvers: With involvers, customers are involved early in the process although no new modules are fabricated for this customer. Perhaps the early involvement of the customer imbues the customer with a greater sense of customization or ownership of the product design, although no customized components are fabricated. 3. Modularizers: It brings both customer involvement and modularity to bear in the assembly and use stages. Assemblers provide mass customization by using modular components to present a wide range of choices to the customer. Assemble to order manufacturers can be considered mass customizers if customers specify products from a pre determined set of features. 4. Assemblers: Involve the customer during assembly and delivery but incorporate modularity earlier in the production cycle in the design and fabrication stages. Modularizers incorporate modularity earlier in the manufacturing process than used for customization and may not gain maximum customization advantages from modularity. Modularizers incorporate both customizable modularity in the later stages of the value chain and non customizable modularity in the design and fabrication stages of the value chain. This last approach shows a value chain perspective and takes into account the degree of customer involvement. Both approaches do not solve specifically the problem of understanding the customers needs, however they are addressed to classify the organizations in different MC types depending on such customers needs. Besides the approaches addressed to customers needs and wants, there are approaches in the literature focused on strategies to implement different supply chain structures related to MCS. Ernst and Kamrad (2000) developed a classification to characterize different supply chain structures. They combined different levels of modularization and postponement to define their model that consists of four different supply chain structures: High P M P OUTBOUND POSTPONEMENT Low M A P M A P P M P POSTPONED FLEXIBLE M M A P M A P M RIGID MODULARIZED Low High INBOUND MODULARIZATION Figure 2. Framework for supply chain structures M: manufacturing, A: assembly, P: packing (Ernst and Kamrad, 2000). 5/13

6 Rigid structure: it represents the classical vertically integrated supply chain where the main goal is to exploit economies of scale in production of large runs by maintaining large inventories of finished products. Flexible structure: where many subcontractors are used to make the different components and the assembly of the final product is in response to a specific demand. Modularized structure: which has multiple sources for the components but the output of the assembly process is the finished product. Postponed structure: it exploits economies of scale in the making of components but customizes the finished product to satisfy specific customer or market demand. Following this classification, Brun and Zorzini (2009) propose an interpretative framework based on: Supply chain structures / customization strategies. Two main contextual factors: Degree of product/process customization: It concerns the opportunity for customizing the product and the ease with which this can be undertaken along the supply chain to meet customers requirements. Level of product/process complexity: The latter factor refers to the ease with which product design, manufacturing, assembly and commercial distribution are managed along the supply chain. Level of complexity Product / Process Rigid Low complexity Degree of customization Low High customization customization High complexity Degree of customization Low High customization customization Customization Strategies Postponed Modularized Flexible Figure 3. Interpretative framework (Brun and Zorzini, 2009). As aforementioned, the MC systems require a strong direct to customer logistics system. And in addition, the success of implementing MC systems depends on the willingness of all the entities of the supply chain. Both frameworks identify strategies to define supply chain structures addressed to MC in order to minimize the supply chain strategies problems. Finally, some authors state that one of the key elements of supply chain in MCS is to choose the right product delivery strategy. Order fulfilment strategies encompass the material processing activities concerned with complying with customer instructions and the control of these activities (Brabazon and MacCarthy, 2005). It is important to define at this stage, the concept of order penetration point (OPP), that is the stage in the manufacturing value chain, 6/13

7 where a particular product is linked to a specific customer order (Olhager, 2003). Brabazon and MacCarthy, (2005) reviewed the literature and identified four structural forms which may be useful to choose the right product delivery strategy: A) Fulfilment from stock Make to stock (MTS) is a build ahead production approach in which production plans are based on information of historical demand, along with sales forecast information. MTS is considered good for high volume products where the demand is either seasonal or easily predicted, or both. B) Fulfilment from a single fixed decoupling point This structural form includes a set of fixed decoupling point structures: Engineer to order (ETO): Products are manufactured to meet a specific customer s needs and so require unique engineering design or significant customisation. Thus, each customer order results in a unique set of part numbers, bill of material, and routing (Amaro et al., 1999). Make to order (MTO): Most or all the operations necessary to manufacture each specific product are only done after the receipt of a customer order. In some situations even materials and component parts may have to be procured on the receipt of a particular order. The capability for product customisation is greater than in ATO producers (Amaro et al., 1999). Assemble to order (ATO): The final products offered to customers, although presenting some degree of customisation, are produced with (common) standardised parts, which can be assembled in a number of different options. The receipt of an order initiates the assembly of the particular finished product that meets customer requirements. The component parts used in the assembly or finishing process, whether purchased or fabricated internally, are planned and stocked in anticipation of future customer orders (Amaro et al., 1999). Hill (1993) also considered: Design to order: New product response where companies design and manufacture a product to meet the specific needs of a customer. Make to print: Produce a product in line with a given drawing. In such markets, leadtimes only include raw materials purchase/supply and manufacturing. They do not include design, but some customer induced redesign during the process will often be induced Recently, the category of configure to order (CTO) has been distinguished as a special case of assemble to order (Song & Zipkin 2003), in which components are partitioned into subsets from which customers make selections. C) Fulfilment from one of several fixed decoupling points These structures have more than one decoupling point, i.e. there are two or more distinct stock holding locations among the production and delivery processes from which raw materials or part finished products can be taken, allocated to a customer, finished and delivered. A customer need not be aware of which decoupling point is being used for their order. 7/13

8 D) Fulfilment from several locations with floating decoupling points. The key feature of order fulfilment systems with this structure is that products can be allocated to orders at any point along the process, hence the coining of the term floating decoupling point. This structure includes Build to forecast (BTF) schedule in which they forecast end product mix, create a master schedule of end products and then release production orders before specific customer orders are received. There is also another form of order fulfilment system that is virtual build to order (VBTO) in which the producer has the ability to search across the entire pipeline of finished stock, products in production, and those in the production plan, in order to find the best product for a customer P&O & MCS research approach to problem 2 Such problem is classified in the technological field. Zipkin (2001) states, that MC systems have three key capabilities that will be explained in more detail below. He explains that the second key capability is related to production technology: Elicitation: a mechanism for interacting with the customer and obtaining specific information. There are four kinds of elicited information: identification, such as name and address; customers' selections from menus of alternatives; physical measurements; and reactions to prototypes Process flexibility: production technology that fabricates the product according to the information. Flexibility enhancing innovations range from modular design and lean operations to the increasing use of digital information technology for controlling manufacturing equipment Logistics: subsequent processing stages and distribution that are able to maintain the identity of each item and to deliver the right one to the right customer. In addition, from the Information and Communication Technologies (ICTs) point of view, Zipkin (2001) stated that those elements should be connected by powerful communications links and thereby integrated into a seamless whole. For this reason, not only production technologies are enablers of MC systems, but the implementation of ICTs is vitally important in MC systems. Da Silveira et al. (2001) states that the main enabling technologies that support MC are advanced manufacturing technologies and the use of communications and networks based on information technology. Selladurai (2004) explains that the growth of the internet has given the manufacturers a platform for taking orders online from a mass market audience for customized products. Finally, Helms et al., (2008) states that MC requires business to consumer e commerce and business to business e commerce channels be simultaneously engaged. Moreover, she states that Web 2.0 and knowledge management frameworks can also be combined to promote MC P&O & MCS research approach to problem 3 Knowledge management is very important in MCS as a business strategy to implement MC systems. 8/13

9 Huang et al. (2008) propose a knowledge creation framework based on the knowledgebased view and explains how learning routines facilitate knowledge creation and result in tacit knowledge embedded in the process capability, which in turn leads to superior MC capability. They suggest a knowledge based strategy based on empirical tests and posited that internal and external learning are two knowledge generating routines that can translate knowledge into manufacturing processes and lead to effective process implementation. Effective process implementation as a valuable knowledge based capability in turn improves a manufacturer s MC capability. Internal Learning H1a H3a External Learning H1b Efective Process Implamentation H2 Mass Customization Capability H3b H1a: Greater internal learning leads to more effective process implementation. H1b Greater external learning leads to more effective process implementation. H2. Greater effective process implementation leads to higher mass customization capability. H3a. Effective process implementation mediates the positive relationship between internal learning and mass customization capability. H3b. Effective process implementation mediates the positive relationship between external learning and mass customization capability. Figure 4. Impact of learning on effective process implementation and MC capability (Huang et al., 2008). Besides the knowledge management field, Selladurai (2004) points out that in order to implement MC effectively companies need to manage particular organizational strategies such as: 1. Modifying organizational structure, in order to fit the progression from standardization toward mass customization; 2. Operationalizing mass customization; that include material processing, increased range of stock, and assembly of core modules through (Ahlstrom and Westbrook, 1999); 3. Type and nature of product that determine the degree of mass customization; 4. Effective and rapid integration; since the whole process of mass customization from initial order receiving to final product delivery should be smoothly coordinated and integrated with very little friction to be effectively implemented; 5. Minimizing operations costs; beyond initial investment to create the mass customized operations factory, the whole production system must add as little as possible to the cost of production of the product or service; 6. Modularity in product, defined as the design and production of products based on the appropriate combination of different components or subassemblies, called modules; 7. Modularity in process, which causes a product to go through a specific set of operations and enables the storage of inventory in semi finished form; and products differ from one another based on the types of operations that were used in the production line; and 8. Automating technology to enhance standardization, in order to automate as many tasks as possible to make use of the benefits of automation and standardization. 9/13

10 4. P&O & MCS conclusions The previous approaches offer methods, taxonomies, classifications and frameworks related to the following areas: Supply chain strategy (customer involvement, product design and order fulfilment strategy). Technology. Business strategy (Knowledge management and organizational strategies). These areas are well known by the operations management researchers, however there are few approaches addressed to MC scenarios. MC levels, modularization and customer concern are critical issues for the areas of customer involvement and product design. From a supply chain (SC) management point of view, the combination of different levels of modularization and postponement provide four different supply chain structures. In addition, the connexion of such SC structures with contextual factors, such as the degree of product/process customization and the level of product/process complexity, provides a framework to classify MC SC. The critical issues that should be taken into account to choose the right product delivery strategy are: Make to stock (MTS), Engineer to order (ETO), Make to order (MTO), Assemble to order (ATO), Design to order, Make to print, Configure to order (CTO), Build to forecast (BTF) and virtual build to order (VBTO). Depending on different factors, MC systems will apply the order fulfilment strategy that better fit its needs. Regarding the area of technology, the Information and Communication Technologies (ICTs), advanced manufacturing technologies, e commerce channels and the Web 2.0 should be combined to achieve MC systems. In the knowledge management area addressed to MCS, the business strategy in MCS should manage particular organizational strategies such as modifying organizational structure, operationalizing mass customization, type and nature of product, effective and rapid integration, minimizing operations costs, modularity in product and process, automating technology to enhance standardization. Moreover, internal and external learning routines may be considered as critical issues to translate knowledge into manufacturing processes and lead to effective process implementation, which as a valuable knowledge based capability, improves a manufacturer s MC capability. The previous approaches have the advantage that they give a general and theoretical overview of some MC lines that have been developed so far. These approaches may be used as a basis to develop the product families structures processes and operations management strategies supply network structures (PF P&O SN) alignment model for mass customization scenarios. These approaches have to be linked to product families structures and supply networks structures in order to constitute a useful and integrated alignment model. On the other hand, the conjectural nature of them, may be considered as a disadvantage since there is no evidence of implementation. For this reason, the PF P&O SN alignment model should be validated in real implementations. 10/13

11 The SoA shows theoretical approaches in order to achieve MC systems however the existing literature offers little insight regarding the development or implementation of MC solutions, which many companies have found difficult to apply. The literature review also offers a large amount of examples and study cases of MC systems, but without an in depth knowledge of its implementation and operation. Huang et al. (2008) already stated that the existing MC literature is largely conceptual and case based. 11/13

12 ACKNOWLEDGEMENT FP7 NMP Project Resilient Multi Plant Networks ( Grant agreement n NMP2 SL Deliverable D2.1: PF P&O SN alignment model for mass customization scenarios. REFERENCES Ahlström, P. and R. Westbrook (1999), Implications of mass customization for operations management: An exploratory survey, International Journal of Operations & Production Management, 19 (3), pp Alford, D., Sackett, P. and G. Nelder (2000) Mass customisation an automotive perspective, International Journal of Production Economics, vol. 65, pp Amaro, G., Hendry, L., and B. Kingsdam (1999) Competitive advantage, customisation and a new taxonomy for non make to stock companies, International Journal of Operations & Production Management, 19(4), pp Brabazon, P.G. and B.L. MacCarthy (2005) Review of order fulfilment models for Catalogue Mass Customization. Appears in: Mass Customization: concepts, tools, realization, Blecker, Th., Friedrich, H. (Eds). Proceedings of the International Mass Customization Meeting 2005 (IMCM 05) Brun, A. and M. Zorzini (2009) Evaluation of product customization strategies through modularization and postponement, International Journal of Production Economics, Vol. 120, No.1, pp Da Silveira, G., Borenstein, D. and F.S. Fogliatto (2001) Mass customization: Literature review and research directions, International Journal of Production Economics, Vol. 72, pp Davis, S. (1989) From future perfect: Mass customizing, Planning Review, 17 (2), pp Duray, R., Ward, P.T., Milligan, G.W. and W.L. Berry (2000) "Approaches to mass customization: configurations and empirical validation". Journal of Operations Management, vol. 18, No. 6, pp Duray, R. (2002) Mass customization origins: Mass or custom manufacturing?, International Journal of Operations and Production Management, 22 (3), pp Ernst, R. and B. Kamrad (2000) Evaluation of supply chain structures through modularization and Postponement, European Journal of Operational Research, vol. 124, pp Gilmore, J. and J. Pine II (1997) The four faces of mass customization, Harvard Business Review, 75 (1), pp /13

13 Helms, M.M., Ahmadi, M., Jih, W.J.K. and L.P. Ettkin (2008) Technologies in support of mass customization strategy: Exploring the linkages between e commerce and knowledge management, Computers in Industry, vol. 59, pp Hill, T. (1993) Manufacturing Strategy: The Strategic Management of the Manufacturing Function, The Macmillan Press, Basingstoke and New York, NY. Huang, X., Kristal, M.M. and R.G. Schroeder (2008) Linking learning and effective process implementation to mass customization capability, Journal of Operations Management, vol. 26, pp Kay, M. (1993) Making mass customization happen: Lessons for implementation, Planning Review, 21 (4), pp Lampel, J. and H. Mintzberg (1996) Customizing customization, Sloan Management Review, vol. 38, No. 1, pp MacCarthy, B., Brabazon, P.G. and J. Bramham (2003) Fundamental modes of operation for mass customization, International Journal of Production Economics, 85 (3), pp Olhager, J. (2003). Strategic positioning of the order penetration point. Int. J. Production Economics 85, pp (SoA Matrix Reference R86) Pine II, B.J. (1993) Mass Customization: The New Frontier in Business Competition, Harvard Business School Press, Boston, Massachusetts, USA. Ross, A. (1996) Selling uniqueness mass customisation: The new religion for manufacturers? Manufacturing Engineer, vol. 75, pp Selladurai, R.S. (2004) Mass customization in operations management: oxymoron or reality?, Omega, vol. 32, pp Song, J. S. and P. Zipkin (2003) Supply Chain Operations: Assemble to Order and Configureto Order Systems, In S. C. Graves & A. G. e Kok (Eds.) Handbooks in Operations Research and Management Science: Design and Analysis of Supply Chains Elsevier Science Publishers, (North Holland). Spira, J. (1996) Mass customization through training at Lutron Electronics, Computers in Industry, 30 (3), pp Tu, Q., Vonderembse, M.A. and T.S. Ragu Nathan (2001) The impact of time based manufacturing practices on mass customization and value to customer, Journal of Operations Management, 19 (2), pp Zipkin, P. (2001) The Limits of Mass Customization, MIT Sloan Management Review, 42(3). 13/13