The cost/variety issues of forecast-based form postponement.
A number of new variety & customization drivers has nowadays been changing the traditional objective of individualizing goods and services, i.e. to attain increased revenue by the ability to charge premium prices derived from the added value of a solution meeting the specific needs of a customer (Porter, 1980). Market deregulations have increased the number of markets the companies are serving. Accordingly, the number of companies operating in each market has increased. With a worldwide availability of information technologies, customers' awareness on their needs as well as on available product characteristics has increased as well. Also, product differentiation requirements set by retailers and distributors are tougher (Forza, 2007).
Companies responding to the above variety & customization demands are facing problems related to an increased variety in their production processes. Product variability can be considered as a cause of a number of inefficiencies in the value chain and deficiencies in the company's operational performance. In case the variety of parts and production cycles managed within the company increases, more changeovers, more tools, more stock-keeping units, etc. are required. Changeover operations consume resources (workforce, materials, power, tools, measurement instruments, production capacity) but, do not add any value to the products, thus reducing efficiency. Reduced average lot size leads to longer delivery lead times and higher processing costs. As the number of product configurations created over time increases, a number of different items in Bills of Materials increases as well. Non-standardized parts are then purchased or produced in lower volumes, thus preventing economies of scale and learning.
As product variety increases, it becomes difficult for sales personnel to communicate the wide range of alternatives offered by the company, to evaluate whether the customer's specifications are valid, complete and compatible, or to determine a profitable price for the requested product variant. The customer's complexity of choice among a number of product variants is increasing as well, often to the point when the customer's choice-related costs outweigh the advantages of an increased customization.
Mass Customization as a Possible Answer to Variety Issues
The present competitive situation is changing because buyers demand relatively high standards of quality, service, variety or functionality even when the sales price is favorable or, vice versa, suppliers have to meet additional requirements in pricing when a product is marketed differentiated (Reichwald et al., 2000).
Thus, in a number of industries and geographic regions, neither the traditional mass production nor the small batch production may any longer lead to a sustainable economic growth. This is where the concept of mass customization takes place. Mass customization can be defined as "the technologies and systems to deliver goods and services that meet individual customers' needs with near mass production efficiency" (Tseng and Jiao, 2001). This definition implies that the goal is to detect customers' needs first and then to fulfil these needs with efficiency that almost equals that of mass production. Often this definition is supplemented by the requirement that the individualized goods do not carry the price premiums connected traditionally with (craft) customization (Tseng and Piller, 2003).
Stan Davis, who coined the term in 1987, refers to mass customization when >>the same large number of customers can be reached as in mass markets of the industrial economy, and simultaneously they can be treated individually as in the customized markets of pre-industrial economies<< (Davis, 1987).
Mass customization goal is that of developing, producing, marketing and delivering affordable goods and services with enough variety and customization that nearly everyone finds exactly what s/he wants. Accordingly, the successful pursuit of mass customization requires three essential conditions (Trentin et al., 2007). A company seeking to achieve mass customization has to be able to understand what the idiosyncratic needs of its customers are. Second, it must be able to offer to its customers what they want, ideally without cost, time, or quality penalties. And third, the company must be able to support each customer in identifying his or her own solution while minimizing the choice complexity for the customer.
To offer greater variety in a cost efficient way, various supply chain structures have been explored. Many of them involve either delaying the delivery of the product until after the customer order arrives or delaying the differentiation of the product until later stages of the supply chain (Su et al., 2005). Hewlett-Packard, for example, adds country-specific manuals and power supplies to their products after being shipped to the distribution centers, thus delaying its customization to the last stages of their distribution chain (Feitzinger and Lee, 1997).
Form postponement means deferring the time at which the products assume their unique identities along the manufacturing and distribution process of a product family. Thus, it requires one or more activities specializing the work-in-progress into specific end-items (e.g., painting a car in different colors) be deferred at a later point along the manufacturing and distribution process (Trentin et al., 2007).
Form postponement can be referred to as process standardization. When a company delays the customization to as late in the process as possible, it can make use of many benefits of process standardization (Selladurai, 2004).
Four different types of form postponement can be distinguished based on the relative timing of the product differentiation activity and customer order entry or product delivery.
To-Forecast/To-Order form postponement applies to a product differentiation activity initially performed in advance of customer order and results in the performance of that activity upon order entry. Consequently, the variety of items stored at the decoupling point is reduced, so that a lower safety stock is required. However, longer delivery lead times and higher processing costs are assumed. This type of form postponement is also labeled as time postponement (Zinn and Bowersox, 1988).
[FIGURE 1 OMITTED]
To-Forecast/To-Forecast form postponement applies to a product differentiation activity initially performed in advance of customer order and results in the performance of that activity still on a to-forecast basis, but closer to the time of order entry. Thus the uncertainty concerning what and how much of the product variants the market is going to absorb is reduced. It does not negatively affect delivery lead times and processing costs.
[FIGURE 2 OMITTED]
To-Order/To-Order form postponement applies to a product differentiation activity initially performed to-order and results in the performance of that activity still on a to-order basis but closer to the time of product delivery. It reduces delivery lead times, provided that the activity being postponed is engineered-to-order, since technical office input as for the product differentiating features added by that activity is needed later along the order fulfilment process.
[FIGURE 3 OMITTED]
Self-customization refers to the instances in which the activity being postponed is carried out outside the boundaries of the company, by either end customers or retailers, with no effects on operational performance.
[FIGURE 4 OMITTED]
As shown above, the main distinguishing factor among the four different models/approaches to form postponement is the position of their decoupling points, i.e. a relative timing of the product differentiation activity in relation to the customer order entry or product delivery. Among them, three have initially been performed on a to-forecast basis (we will refer to them as forecast-based form postponement).
We define the research question as follows:
What is the relationship between a selected model of forecast-based form postponement and either cost reduction or increase of external variety (i.e. level of variety as perceived by the customers)? In other words: which/if any forecast-based form postponement types have a predominant effect either to increase of variety or reduction of costs?
Case studies presented in this paper examine the implementation of mass customization concept--more specifically forecast-based form postponement--in three manufacturing firms. In the study, hermeneutic paradigm was used. The analysis is based on empirical data collected in observations by the researchers, semi-structured interviews and documents study. Two researchers were involved in each case study, one internal and one external.
Research validity has been assured by the triangulation of the three research methods and by peer examination carried out by two additional external researchers.
Company D is the largest national producer in the food sector. The parent company has a total of 939 employees (3577 including the associated companies); its sales in 2006 reached 337,5 millions [euro]. H&S, one of the company's brands with the most ample assortment of different products, comprises a range of herbs and spices packaged in various types of containers (pre-packaged bags of different sizes, plastic containers and glass bottles) for consumer market as well as spice mixtures made to order for industrial customers.
The "bottles" segment of the H&S production program comprises about 50 different herbs and spices in 230ml glass bottles each labeled with a marking label. According to the prevailing organoleptic properties of the spices, the products are grouped in 4 product groups with the packaging in various colors--aromatic herbs (green packaging), piquant aromatic herbs (orange), mild aromatic herbs (yellow), and salts (blue).
The fully automated packaging line fills and closes the bottle; then applies the pre-printed label; wraps 10 bottles into a thermoshrinkable foil and loads the packets onto a pallet.
Sales are concentrated on the western part of the Balkans; with a 10-20% market share in all target markets. Each product is sold in six markets on average. That means 4 language combinations of bottle marking labels (Swedish and English; Slovenian; Croatian and Bosnian; Serbian, Montenegrin and Macedonian). The label size is too small to hold more than two languages per label, since the law of each particular country prescribes the specific content (declaration and other markings, e.g. the EAN (bar) code) and the size of typography, and the customer needs an aesthetic graphic solution.
As a result, besides a large variety of spices, the national requirements quadruplicate the range of products to a total of ca. 200. Moreover, the market demands continuously adding up new spices to the current production program (the recent trend is spice mixtures, ready for use e.g. for grilled meat, salads, etc.--potential combinations are numberless).
The production of such a wide range of products in a relatively small market (population of ca. 20 million) is actually a small-batch production. How to compete with large European manufacturers in cost effectiveness? How to streamline the production, inventory and logistical processes without affecting the quality of supply and the level of customer satisfaction, and retain the spectrum of the sales program?
From the view of the production planning and the productionprocess, a variety of products means a complexity of production program, a demanding order planning process for the packaging with the external supplier, monitoring the supplies and time scheduling for the production.
For the control department, that means continual checking the conformity of labels in the production process, comparing the product in the process against the approved specimen (time-consuming comparison and error finding in foreign languages or even alphabets--Cyrillic characters, for example).
For the warehouse, that means not only a large variety of finished products, but above all, a large quantity of raw materials and packaging in stock (about 300 items only in the warehouse of packaging). An additional problem is fast aging of the packaging in stock (each change of text--e.g. the change of telephone number of the importer, or any other information on the label required by law (in particular in recent years owing to the gradual alignment process of the western Balkans national legislations to the EU Directives)) brings with it that the particular packaging and sometimes even the finished products can no longer be utilized.
From the viewpoint of internal transport, it has to feed the production line not only with raw materials (spices), containers (bottles), caps and the packing foil, but also with an array of various labels (normally, products of the same kind and for various markets are prepared in sequence, so the only difference is the label type).
The solution devised
In this case the solution was developed by the form postponement concept. That is based on a deferred/postponed differentiation of packaging (labels) until they are applied to a filled container (bottle). Instead of having the labels printed and supplied from the printer's, the declaration is printed directly on the labeller just before being applied to the container.
Instead of nearly 200 labels used previously, only 5 basic label templates have been designed now, partly pre-printed, of different colors (green, yellow, orange, red and blue). Only the common graphic elements are pre-printed, such as the logotype of the brand, photograph, etc. Other elements (product name, use, net weight, EAN code, address of importer ...) are printed subsequently with an industrial printer similar to a computer ribbon printer, just before the application of labels to bottles.
The printing-labelling segment of a bottling line was introduced for test production in the autumn 2005. It replaced the previous electric and mechanical labelling segment whose function was only applying the adhesive on the label and the label on the product. The new computer-aided process no longer includes the application of adhesive (labels are self-adhesive). The operator selects the required label type (content) on the computer that is linked to the database; the latter is updated by the production planning department under the instructions of the spice technologist.
As shown above, the company still attaches the labels to the finished product before receiving the customer orders, that is on a "to forecast" basis (production type >>To forecast--to forecast"). However, due to a higher responsiveness of the production, the differentiation (in terms of label contents) is now postponed to the latest possible time. So the uncertainty of the product-mix forecast (as regards the procurement of the packaging) is reduced. Previous forecasting method required knowing the local markets' needs well in advance (at least 2 months) to be able to check label data validity, order labels, receive them from printing and apply them to bottles. It happened very often that the bottles already labeled remained on stock due to bad forecast (a missing customer order). In food industry, this is an additional problem because normally when more than 2/3 of the declared "expiry date" is over the shops don't accept the item for sale any more. All these problems are now eliminated or at least essentially reduced.
Further effects of the form postponement on operational performance:
* Reduction of the number of packaging items kept in the warehouse by 80% in this production program.
* Elimination of transport of labels to the production (one roll of labels in each of the 5 colors is now kept in the production department).
* Simplified order planning for packaging according to suppliers.
* Economy of scale in ordering the labels means lower purchase prices.
* Labels always contain the latest valid declaration, therefore no further packaging due to change of regulations, etc.
* Autonomy from external contractors (designers, printers), which brings essentially shorter response/lead times.
* A quick response to the needs for commercial samples for new markets.
Company A is one of the major national footwear producers, manufacturing cross-country and downhill boots, fashion and trekking shoes.
Fit and comfort are identified as the essential criteria in the consumer's buying decision regarding shoes (Piller, 2002). Thus, Company A focused its new product development activities into the fit and comfort segment. Thus, in the beginning of the present decade, the company purchased an optical measuring device and started systematically investigating differences in its customers' feet sizes (anthropometric measurements). The 3D scanner of the foot, yielding a three-dimensional outline of the consumer's foot after more than one hundred basic measurements, specifies the best fitting shoe for the left and right foot separately.
Upon more accurate data on feet measures, the company redesigned their existing lasts (as a feature which defines the internal boot shape thus yielding the footwear appropriate fit and comfort). A new series of lasts has been modified in the width of toes and heel and in the instep height, so they better fit to the actual shape of the human foot. Thus, the shoes and boots manufactured upon new lasts should assure of a more comfortable and safer walk and exclude possible side effects of a shoe that is too broad or too tight (e.g. blisters, difficulties to take off). The feedback information and new measurements can be taken into account in further re-shaping of the lasts and designing new models.
However, based on the foot scans, a further conclusion was drawn; namely that one single shoe size fits only two thirds of customers. The remaining one third should actually wear two different sizes; for left and right foot separately. Compared to the French scale (37, 38, 39 .) with the span between two sizes of 6.66 mm, for the British scale (4, 4 1/2, 5, 5 1/2 ...) the span is even larger (Fatur and Novak, 2008). So, in this case, the number of customers constrained to opt between two poorly-fitting sizes further increases. As regards the differences in foot width, they are less common than in length; however, 16% of customers are still forced to make compromises.
The solution devised
The company's market research has confirmed the results of previous studies (Piller, 2002) that as much as 84% of customers consider shoe comfort as the first criterion when purchasing shoes. Upon these data the company came to a decision of upgrading their existing sales program in terms of mass customized footwear--branded ACS. In short, for 6 different shoe models (2 fashion shoes, 2 trekking shoes and 2 ski boots), each size was extended by a wider and a narrower option. So, an assortment of three different shoe widths was designed; and each offered for left and right foot separately.
Order fulfillment is one of the major Critical-to-Customer requirements for a supply chain (Amer et al., 2007). To deal with this issue, optical scanners have been set up in six major company's outlets. Before buying a pair of ACS shoes/boots, the measurements are taken to determine the customer's feet measures. The customer is then asked to enter a desired footwear type and the configuration software proposes its optimal length and width. Every shop has one sample of the entire assortment of ACS footwear on stock, so the customer may physically test the selected combination. S/he is offered to test the second closest pair as well, in spite of the fact that normally the suggested one proves to fit best. After his final decision, the sales personnel put an order to the central warehouse and the customer receives his pair in one week time.
In the manufacturing and distribution process, a form postponement concept has been applied. Up to now, the finished products (a packed pair of shoes) were manufactured to stock, on the basis of sales plans that often lack reliability. With the new approach, only semi-manufactures (individual shoes) are produced according to the sales forecast. It is only after receiving the specification of the customer's order that the final assembly of such a left and right boot combination (length, width) that best fits the customer is done.
As opposed to the option of two different shoe lengths which has added variety only to the customers' choice, not to the manufacturing system, the customization in terms of different shoe widths increases variety of semi-finished items on stock and thus leads to reduction of production batches. Therefore, part standardization issues in the process of product design needed to be carefully considered. An overly dispersed production of small batches would have rapidly increased the manufacturing costs. Thus, the company focused on standardization of components used in manufacturing process. For trekking and fashion shoes, a decision was made to produce the upper part and the heel of the same size for every shoe width. Only the internal part and the sole are made separately for every width. Since most of the products chosen for ACS were previously available as standard mass production products, it was necessary to develop only a wider and a narrower internal part and sole (up- and downscaling of the existing CAD-model). Here, product modularity has been introduced, as another mass customization concept. A different approach to standardization has been chosen for ski boots. In this case, manufacturing costs related to redesign of tooling for plastic moulding were avoided by standardization of the entire boot shell. A standard boot is customized by introduction of differently shaped foam inserts only.
Accordingly, as regards additional costs that have emerged in customization, the highest cost sticks in lasts redesign, given that every width requires its own last. Since the shoe sole and internal parts are produced individually for each width, additional tool development costs resulted here as well.
The manufacturing process has undergone a major change--the transition from "To forecast" to "To order", where the decoupling point is set in advance of the final assembly (pairing of two shoes), which is followed by the application of foam inserts in case of ski boots. If the basic unit of the finished product previously used to be a pair of shoes / boots packed in a box, now each shoe stands for one module. By combining these modules, an essentially wider range of products can be produced than before. A further consequence of this reflection led the company managers to split the unique product code for a box of 2 shoes into 2 codes for each shoe separately. To illustrate the increase in customer choice and the resulting increase of variety of semi-finished items on stock (single boots), let us discuss a slightly simplified case, disregarding various volume variants in each particular size of the X8 ski-boot. So, the 11 different sizes remain (39-49), which is 22 different semi-manufactures in total. In the conventional way, these can be combined into 11 pairs. If we combine two different sizes and presume that these two sizes may not differ by more than one size (which would only rarely be the case), we get 20 additional combinations. So, by combining two sizes together, we can offer 31 combinations instead of 11. As the final assembly is completed to order, the volume of inventories has not changed. From the viewpoint of assembling the finished product, the procedure has remained unchanged (pairing the shoes and final packaging is done manually, as before), and so has the components manufacturing process. The production costs have remained roughly the same, but the range of products (a variety of costumer choice), has tripled. Therefore, combining form postponement and product modularity enabled the company a considerable increase in product mix, without increasing stock level and keeping delivery times acceptable (Fatur and Dolinsek, 2008).
Company G is one of the major European producers of large household appliances. Its key products include refrigerators, freezers and cooling equipment, washing and drying machines, electric cookers, gas cookers and ovens. Its 3 production plants employ approx. 10,500 employees. With its export of more than 90% of sales, the company brand is spread throughout Europe as well as in several markets outside Europe, contributing to the total sales of 3.4 million household appliances per year and more than 1 billion Euro of yearly net revenues from sales.
Despite being one of major European players in this branch of industry, the company only has a 4% market share in the world. The corporation's annual output of large household appliances amounts to 3.4 millions, which is a threshold volume for mass production. However, the spectrum of the product range is crucial for the global market. For instance, the company is making refrigerators in 8 different colors; together with the model range (and the sales in more than 60 countries) this means nearly 50 different casing types. And casing is only one of the components of the refrigerator. The range of finished products is even larger. Only in domestic market, there are 95 various models of the company refrigerators for sale.
With its core business, the company is operating in a branch that is mature and globalized, with low growth rates prevailing, or even declining trends. In awareness of this, attention is focused on continual improvement of competitiveness. How to remain competitive in an industry with a stagnating market, which is surrounded by low-cost manufacturers from the Middle and Far East preying for their opportunity?
Alternative one is the move to products demanding a high-tech production procedure. More complex technologies with a high share of built-in knowledge are still in the domain of the European manufacturers rather than in their Asian competitors. However, the technology of refrigerators is relatively simple. It has not changed essentially for decades. In refrigerators, the technological process comprises for example the transformation of sheet metal for the casing and door in several stages (bending, punching), surface treatment, deep drawing of polymer plates for the refrigerator cell (interior), forming the cell (vacuum drawing of polymer plates), partly automated assembly, etc.). The technologically more demanding parts (e.g. compressor) are normally purchased from specialized manufacturers.
The remaining alternative is product customization. That causes a rise of production cost, because of lower batches. However, efficient operation is only possible by keeping the production cost on the level of mass production. That makes the introduction of mass customization concepts indispensable.
In Europe, the trend of low growth rates and even negative rates of demand for household appliances has continued for several years, most distinctive in the West and Central part. Numerous markets have matured. Everyone already owns a refrigerator or video-recorder today, and the dealers can only count on the buyers that will decide to replace their old products for new appliances, either because their old ones became defective or rather for additional functionalities (features) that are only available in new products, or newly developed technologies that emerged in the market.
According to the survey by the international market research agency GfK Group for the year 2004, the sales of big household appliances in 13 west-European markets saw only a 3.7% growth in terms of quantity, but only 2.3% growth rate in terms of value when compared with the year ago. That clearly points to the tendency of falling prices for household appliances in Europe; the worst hit will be the area of refrigerating technique and dish-washers. Current forecasts do not leave any hope for improvement of the general situation.
The slashing of the sales prices for these products can be attributed to overcapacities of European manufacturers, the more aggressive approach of the Asian suppliers or manufacturers, and the competitive struggle of large global traders. All the major manufacturers of household appliances are still increasing their production capacities, mainly in the countries that are important for building up their position, and in those with low-cost labor or operations. Due to further adverse price trends in the area of energy sources and raw materials, the pressure on prices of input materials is on-going.
The response to tougher operating conditions comprises adjusting to new situation and the changing environment, enhanced marketing activities, and focusing on East Europe. Manufacturers of household appliances are implementing the measures for streamlining their operations; the most common and the effective impact is the continuation of the production transfer to the East Europe and Asia. The aggregate of these activities were affected in Russia, Poland, Romania and Bulgaria. However, a new threat appears. Lately, a very aggressive movement of Asian manufacturers has been seen in the entire European market, in particular in refrigerating and freezing appliances.
Modular production as an mass customization concept has a long tradition in the company. Each refrigerator is made of modules that are combined in the assembly of finished products. Such modules are e.g. the basic cell, the door, handles, decorative strips/trims, displays, shelves, covers, compressors, etc. In the development of new production line (under the principle of platform-based product development), the company systematically includes the modules that have been already developed and the production is thereby rationalized; for the consumer, the additional customization of the product is provided by the range of modules that can be purchased subsequently at choice.
The Solution Devised
Recently, the company has decided for an entirely new approach to modules. It concerns the product modularity concept, combined with the form postponement. The underlying question for this issue is what the customer expects from the refrigerator. According to the market research carried out by the Company, this expectation comprises, apart from the basic functions--cooling and keeping the foodstuffs at constant temperature, also the fulfillment of specific requirements of the customer's individual life-style and taste. That leads to imperative expanding of the range of products, in two directions: Firstly, adding new features /functions--from the viewpoint of technology improvement and practical use; Secondly, personal design customization.
Two approaches were taken towards personal design customization (personalization). Top designers (Pininfarina, Swarovski) were engaged for the development of top-class products. For the medium and low-priced products, the program Cameleon was introduced.
What is the underlying philosophy of Cameleon? Refrigerators can be independent or built-in. The independent appliances are positioned as a part of the furniture series. The best fit solution to the design problem can be provided by the customization of the front side of the refrigerator. For this purpose, the company developed the digitally printed magnetic foil that can be attached to the front side of the refrigerator at the customer's choice. Once the customer has selected his/her preference out of the three standard refrigerator types, produced as a mass production, s/he selects the foil in desired dimension from the dedicated web site, and the motif that can be designed by the customer himself/herself, or s/he loads his/her own photo instead. In a few days, the customer receives the foil, printed as s/he has desired. Digital printing allows for cost efficiency, and from a standard pool of three refrigerator types we get a practically unlimited spectrum of refrigerators and a variety of designs, for a negligible additional cost only. If we look from the viewpoint of mass customization, Cameleon utilizes the form postponement of the fourth type--the customization is transferred to the end consumer (self-customization).
In order to achieve mass customization it was necessary to introduce some changes to the product and process. To introduce the 'Cameleon' concept the company had firstly to supplement and upgrade its sales and distribution process. It further introduced the electronic ordering system via the dedicated web site that completes the 'conventional' e-commerce (in operation for several years). This web site is dedicated to younger buyers who are in fact the target group of the Cameleon program. From the viewpoint of production, there were no additional measures required; however, the company counts on the increased volume for the production of the basic refrigerator types, and accordingly, with the rise in the economy of scale, the cost effectiveness of the production will follow. New technology and an additional production process--digital printing on foil--were introduced. No further changes in the sales logistics were needed: distribution of basic products is channeled through the sales network or door-to-door delivery, respectively, and the distribution of foils is done by regular mail.
First, let's take a look at the attributes the three companies focus on in their product differentiation activities. In case D, the Personalization attribute is the focus of product differentiation. The Company D is changing the external appearance of their spice bottles as requested by different markets, keeping the core product (the contents of the packaging) unaltered. In case A, the company's differentiation activities focus to the Fit attribute--Company A aims to provide customers a better fit of their ski boots. In case G, it is the Style attribute which is focused upon.
Introduction of mass customization in the companies under study has affected several phases in their value chains (Fig.5). In every case, both the product and process needed to be adjusted to some extent in order to introduce form postponement. Since product and process design are not performed on a regular daily basis in the manufacturing of a particular product, we will disregard them at this point. Major differences among the three approaches appear in the subsequent phases of the value chain; they will further be analyzed in detail.
[FIGURE 5 OMITTED]
Each of the three companies under consideration has introduced one of the three forecast-based form (= attribute) postponement options. In Company D, TF>TF (closer to the time of order entry) has been introduced. Company A case refers to TF>TO option, while Company G used the TF>TF (with self-customization).
As shown in Fig.5, TF>TF (closer to the time of order entry) predominantly refers to the redesign of in-plant (internal) processes, TF>TO to both the redesign of internal and external processes, while TF>TF (with self-customization) mostly affects the external processes. What activities needed to be carried out differently as before in order to introduce form postponement? In case D, only the internal activities have been redesigned. In the RM procurement, new blank labels are being ordered. In the RM/parts processing stage, blank labels are equipped with the appropriate contents. The final assembly process has not been radically changed, however, internal logistics serving the assembly line has changed essentially. All the following (external) processes remained intact.
As regards the case A, both internal and external processes have changed. The process of customer choice has changed radically. The assembly is now triggered by the customer order, so only semi-manufactured products remain on stock. The distribution consists of small batches (or even single pieces) of pre-ordered pairs sent daily by mail.
In case G, the internal processes remained predominantly intact. Within the product line in consideration, the company offers a basic selection of three different sizes of refrigerators. Neither the sales / distribution of a refrigerator has changed. Only after purchase, the customer may order an individualized front panel; his order is than dealt with by the customer service. Finally, what are the effects of product differentiation activities in the three cases?
In case D, the company is still serving the same customers, offering them the same variety as before. Therefore, from the viewpoint of the attribute Personalization which was the focus of product differentiation in this case, the customer perceives no difference in variety offered (price is subject to negotiations of course). However, the manufacturer's procurement and inventory holding costs have decreased. So, the effect of form postponement here is cost reduction.
In Company G, the manufacturer's costs remained unchanged, since the manufacturing and distribution processes remained unaltered. However, the customer if now offered an immense variety of designs. From the viewpoint of the attribute Style, the situation "before" in now perceived by the customer only as an intermediate phase in the assembly of its desired product. The effect of form postponement in case G is increase in variety.
In the case A, both internal and external processes have been affected. From the viewpoint of the attribute Fit, the situation "before" is now perceived differently by two groups of customers. Those needing both ski boots of the same size perceive no difference in variety offered, as in case D. Those requesting different sizes may perceive the situation "before" only as an intermediate phase in the assembly of their custom-fit product (as in case G). As regards variety, it has increased for a group of "two-sizes" customers and remained the same for the other group. As regards costs, they have decreased (no inventory of final products in the distribution chain), with a moderate increase in transportation costs (no economy of scale in shop replenishment).
In this article, we aimed to verify the relationship among different approaches to forecast-based form postponement and their effect to either cost reduction or increase of external (final products') variety. The three cases have shown that each form postponement type refers to a redesign of a different set of activities in the value creation chain. The TF>TF (closer to the time of order entry) focuses on redesign of internal (in-plant) activities, the TF>TO option requires redesigning both internal and external activities, while TF>TF (with self-customization) deals with a redesign of external (out-of-plant) activities only.
In the first case, the effect of form postponement is cost reduction. In the second case, both costs and variety are affected. In the third case, increase in variety is a main result.
Thus, we may suggest the following conclusions:
(1) Form postponement focus: Each of the three approaches to forecast-based form postponement requires a redesign of a different segment of the value creation chain. In general, as we progress from one form postponement option to another, we pass from the redesign of internal to the redesign of external activities.
(2) Form postponement effect: Each of the three approaches to forecast-based form postponement leads to a different effect regarding variety/cost balance. As we progress from the internally-focused form postponement options to the externally-focused, the effect moves from cost reduction towards variety increase.
Some limitations of our research can also be established. A complex field of form postponement with its variety of aspects can only hardly be investigated in detail only by means of qualitative methods. Thus, further investigation may lead into a quantitative evaluation of the process inputs and outcomes, based upon a larger sample of organizations, possibly in different industries and sizes. Thus, a cluster analysis based on company size and industry is a possible extension to this research.
Other possible extensions to this research may lead in three directions: firstly, towards the longitudinal qualitative investigation of form postponement issues in each of the three companies; secondly, towards the development of a methodology for a quick evaluation on the randomly selected sample of organizations; and thirdly, towards an extended comparative research of forecast-based form postponement in different business environments with different entrepreneurial and technological culture.
The concept of mass customization has become one of the key issues in the operations management theory and practice in recent years. By renouncing the traditional business models companies can make a better use of their resources, develop skills and provide employment stability, while countries retain their industrial history and their know-how on product development and manufacturing process. Due to the rapid development of the concept, being a mass customizer in many sectors is increasingly becoming not a competitive advantage, but a requirement for a company willing to retain its today's market positions.
Form postponement as one of the basic mass customization approaches proves to be an adequate answer to the cost issues the companies are dealing with when extending variety of their products. However, as we have shown in the present article, not every form postponement model results in equal effect to cost reduction and increase in variety as perceived by the customers. Thus, selecting an appropriate model of form postponement has to be dealt with at the strategic level.
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Peter Fatur can be contacted at: firstname.lastname@example.org
University of Primorska, Slovenia
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|Publication:||Global Business and Management Research: An International Journal|
|Date:||Jan 1, 2010|
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