Professional Documents
Culture Documents
Postponement
Author: A. K. Dey, Professor, Birla Institute of Management Technology, Plot No. 5,
Knowledge Park II, Greater Noida, UP – 201306, India
E mail: ak.dey@bimtech.ac.in
Web: www.bimtech.ac.in
ABSTRACT
Rapid technological changes and shortening product life cycles are fundamentally
altering the nature of competition in many industries by diffusing competitive advantage. The
dominant paradigm, 'mass-production', is being challenged by the emerging paradigm, 'mass
customization'. Mass customization (MC) means production of goods and services for a
(relatively) large market which exactly meets the needs of every individual customer with
regard to certain product characteristics (differentiation option) at costs roughly
corresponding to those of standard mass produced goods. Mass customization enhances
profitability through a synergy of increasing customer-perceived value and reducing the costs
of production and logistics.
Within the knowledge domain of mass customization, this paper focuses on three
interrelated strategies: co-creation, modularization and postponement. Also outlined is a road
map for building competitive advantage through mass customization based on involvement of
customers during early stages of product development and application of postponement by
building block identification and product platform development.
INTRODUCTION
Mass customization denotes the ability to provide customized products and services at
a comparable price and speed of equivalent standardized offerings, even when the demand is
very high. It helps a firm to overcome the trade-off between ‘customization’ and ‘volume’.
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In a highly competitive, flat (equal opportunities for all) and global market product
manufacturers compete not only on prices but also on flexibility to quickly bringing out new
products that meet customer requirements. Product and technology lifecycles are shortening
and brand loyalty is on the decline. Product proliferation is therefore inevitable. A wide
product and component variety adds forecasting inaccuracies, manufacturing and supply
chain complexity and inventory costs (Rudi, 2001).
Such environs pose a tough challenge to the marketer in terms of ‘cross category
competition’. During sales season like Diwali, the marketing manager of watches would have
to protect the consumer base from poaching by not only competing watch brands but also
various manufacturers of books/DVD, gift items, confectionery and sweet brands and many
others.
For a firm offering customized solution, as the demand grows, the cost increases and
time to respond also increases. This can be mitigated by incorporating mass customization.
MC takes advantage of both economies of scale and of scope. It saves cost by manufacturing
a large variety of products in large quantity.
REVIEW OF LITERATURE
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One sharp-eyed observer who spotted the coming of mass customization long ago is
perhaps United States' best known futurist, Alvin Toffler (Toffler, 1970). As far back as
1970, Toffler wrote in Future Shock about "destandarized" goods and services that he
forecast the United States would produce in "great variety." Stan Davis the famous business
visionary, prominent author, consultant and public speaker was the first to coin the term
“Mass Customization” in his bestseller Future Perfect in 1987 (Davis, 1987). Companies
around the world have embraced mass customization in an attempt to avoid those pitfalls of
trying to meet every customer's need (Gilmore and Pine, 1997; Martin, 1997; Schonfeld,
1998; Knowles, 1997).
The path breaking series of contributions of Pine with other researchers gave
directions and set the course of future researches in the area of concept formulation and
implementation of mass customization. (Pine, 1993; Pine, Victor and Boynton, 1993; Pine,
Peppers and Rogers, 1995; Gilmore and Pine 1997; Pine and Gilmore, 2000). They have also
suggested that readily available information technology and flexible processes permit firms to
customize goods or services for individual customers in high volumes and at a relatively low
cost (Gilmore and Pine, 1997). In one study satisfying customer preferences via mass
customization and mass production were probed (Jiang, Lee, and Seifert, 2006).
Victor and Boynton (1998) have investigated the application of mass customization in
service delivery situations. Many researches have identified benefits of applying a common
product platform (Collier, 1981; van Donselaar and Wijngaard, 1987; Meyer and Lehnerd,
1997; D’Souza and Simpson, 2003; Venkatesh and Swaminathan, 2003). Zinn and Bowersox
(1988) have studied different types of postponement that could be implemented. Article by
Nambiar (2009) summarizes the developments in mass customization till recent time and
suggests future course of research.
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1. The visionary definition: The ability to provide customers with anything they
want profitably, any time they want it, anywhere they want it, any way they want it.
According to Hart (1995), the goal in the first definition will rarely be achieved by an
organization. The goal in the second definition is more practical. In essence, mass
customization is a hybrid technique by which a company churns out products in typical
assembly-line fashion yet can add unique features to individual orders (Martin, 1997;
Falkenberg, 1998). This requires a flexible manufacturing system that anticipates a wide
range of options. However, due to the vast differences in customer preferences, mass
customization, too, can produce unnecessary cost and complexity. Therefore, it is crucial that
managers must examine thoroughly what kind of customization their customers would value
before they adopt this new strategy.
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2. Adaptive customization. Adaptive customizers offer one standard, but
customizable, product that is designed so that users can alter it themselves. This approach is
appropriate for businesses whose customers want the product to perform in different ways on
different occasions, and available technology makes it possible for them to customize the
product easily on their own. Microsoft Office suit is customized by individual users to their
requirements.
Internet has given a big boost to mass customization efforts. The Net makes it easy for
companies to move data from an online order form to the factory floor. The Net makes it easy
for manufacturing types to communicate with marketers. Most of all, the Net makes it easy
for a company to conduct an ongoing, one-to-one dialogue with each of its customers, to
learn about and respond to their exact preferences. Conversely, the Net is also often the best
way for a customer to learn which company has the most to offer him--if he's not happy with
one company's wares; nearly perfect information about a competitor's is just a mouse click
away. Combine that with mass customization, and the nature of a company's relationship with
its customers is forever changed. Much of the leverage that once belonged to companies now
belongs to customers. Internet has enabled shift of power from sellers to buyers.
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MASS CUSTOMIZATION EXAMPLES
Within couple of decades, many companies have ventured on the road to mass
customization. From lipsticks to cars, from dolls to chinos, a growing number of products can
be customized to customer’s individual taste. Hewlett-Packard has effectively used
postponement to realize mass customization in their printer and PC businesses (Feitzinger
and Lee 1997). Reebok and Nike postponed the process of printing to later period to mass
customize NFL jerseys. Levi Strauss launched the mass customization initiative to tailor
women’s jeans individually, based on a body scan, for a mass consumer group (Bailey 2000).
The mass customization project at Adidas- Salomon AG, “miAdidas”, has gone through its
successful pilot phase involving well over 100 retailers across Europe (Seifert 2002). At
miAdidas, customers get a shoe manufactured to their needs with regard to fit
(measurements), performance (custom cushioning), and design (colour options). Shoes sell
for a premium of about 30 percent and are produced within two weeks in China
(www.miadidas.com). The phenomenon of mass customization is also becoming more
prevalent in service industries, and individually customized financial, insurance and utility
services are proliferating (Victor and Boynton 1998).
Sears has become one of the leading players in the customization and personalization
business in the U.S. Its affiliate company Land’s End was one of the first companies to offer
mass customization of garments online and in large quantities.
At Nike’s site, one can choose from a handful of ‘uppers’ and a handful of ‘soles’ to
make own personal combination. Even the name (or any other word you want) of the buyer
can be embroidered on the back of each sneaker.
At the more independent site customatix shoes can be designed using up to three billion
trillion combinations of colours, graphics, logos and materials.
In Paris, Luc Besnier’s Reflex agency plans to market the DUCATIREFLEX FFWD, the first
custom-made motorcycle sold direct on line. On this site one can see, try and buy this unique
design.
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Global Customization Services Limited created IDtown in 1999 to let consumers
choose from a large variety of wristwatches without having to "flip through thousands of
pages before making a decision." The site now offers more than 300 billion choices of
guaranteed watches, a whole range that you can shape yourself to achieve the perfect fit of
comfort, appearance, and price.
The ewatchfactory not only has customizable watches, but offers their services to
incorporate customization on a third party’s web-site, with their own branding.
Time121 produces Swiss-made watches with almost infinite customization options. The
company offers one of the best online configuration toolkits available today and enables its
customers to become real co-designers of the watch. In addition, it takes advantage of a well
designed modular pricing approach. Different components are differently priced, and by
creating a product that matches each customer’s personal willingness-to-pay, the economist’s
dream of individual price discrimination is fulfilled (www.factory121.com).
McGraw-Hills Primis Online allows faculty members to combine material from any
source in a customized book; the content can be deleted and rearranged in any order;
teacher’s original content can be included. It permits a faculty to search and select out of a
huge inventory of chapter contents, figures, cases, exercises and numerical problems. A
faculty can customize a book EXACTLY as desired for a course.
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PRINCIPLES OF MASS CUSTOMIZATION
Speed. Getting to market as quickly as possible is critical for the mass customizer to
remain both competitive and current. Placement of inventory (the form and the quantity)
across a long global supply chain so that replenishment of inventory can take place within the
expected wait period for a customer.
Co-creation. The Internet has radically altered the proposition that listening to your
customers can help you improve your products and services. Customers are now able to be so
intimately involved in the development and usage of what you have to sell that they can
become co-creators of value. Co-creation adds a new dynamic to the producer/customer
relationship by engaging customers directly in the production or distribution of value.
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Customers, in other words, can get involved at just about any stage of the value chain. Some
managers liken the transformation to turning customers into "employees." Consequently,
managers must learn new techniques to motivate customers to co-create value as well as ways
to successfully monitor and manage the process along the way.
In many cases the firm along with its resellers controls the movement and
customization of product or services. Asian Paints for a particular brand provides customized
colour choices at its outlets. They have broken the paint, otherwise an integral product, into
modules of base paint with pastel shade and colour tubes and postponed the process of
mixing colour to the last link of the supply chain enabling the consumer to choose the exact
colour that she needs. Except expressing her choice; a customer does not participate in value
creation. In contrast to this, IKEA, the famous furniture maker, involves its customers in
generating the assembly service (creating ‘value’) which IKEA should have done.
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Involving customers in the innovation process can add value to new product designs.
One company that understands this is the networking giant Cisco Systems Inc. Cisco had
several highly sophisticated customers who weren’t satisfied with “solutions”; they wanted to
see and understand the thought process behind the company’s proposals. Instead of simply
“selling” customers on a complete design, they now conduct collaborative meetings in which
prospects literally see and play out the architectural implications of their network priorities.
To achieve MC, companies can start from its product designs by introducing a
common platform. Platform-based approach enables a number of product variants to be
developed from a common platform, which can largely reduce the time and cost of new
product development. Platform commonality means to standardize and share components
among products. The manufacturing steps that result in the differentiation of products are
postponed as late as possible. As a result, manufacturers produce a generic product and
become more flexible and responsive to customer demand.
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Product postponement often requires standardizing some key components, or introducing parts
commonality in the product structure.
Zinn and Bowersox (1988) describe different types of postponement that could be
implemented. These included labelling postponement, packaging postponement,
assembly postponement, manufacturing postponement and time
postponement. Labelling postponement is a situation where a standard product is stocked
and labelled differently based on the realized demand. In packaging postponement products
are not packaged into individual packs until final orders are received. Assembly and
manufacturing postponement refer to situations where additional assembly or manufacturing
may be performed at the assembly facility or at a warehouse before shipping the product to
the customer after demand is realized. Finally, time postponement refers to the concept that
products are not shipped to the retail warehouses but are held at a central warehouse and are
shipped to customers directly.
Postponement in the form of platform design has been a standard in the automotive
industry since the early 1990s when GM and Volkswagen (VW) both introduced their
platform strategy in an effort cut development time as well as design, engineering, and
manufacturing costs. VW reduced the number of platforms from 14 to just four in eight years
and increased platform use among its models from 70 percent in 46 1996 to near 100 by
2001.
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production. Before postponement was used, there were always too many garments in colors
customers did not want, whereas colours in demand were always sold out. The new strategy
allows Benetton to be extremely responsive to rapid changes in customer demand for
different colors in clothing. It also permits higher customer service levels. Benetton’s market-
oriented supply chain management is illustrated through the ability to adapt internal processes
to create superior customer value based on information about customer demand generated at
the store level.
It is believed that organizations, which are well prepared for customization, will be
rewarded in customer loyalty, market leadership, productivity, and profitability.
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