Mass Customization: four approaches to deliver customized products and services with mass production efficiency

Enterprises in all branches of industry are being forced to react to the growing individualization of demand, yet, at the same time, increasing competitive pressure dictates that costs must also continue to decrease. Companies have to adopt strategies which embrace both cost efficiency and a closer reaction to customers’ needs. Mass customization meets this challenge by producing goods and services to meet individual customer’s needs with near mass production efficiency. The paper discusses four different approaches towards mass customization. Our focus is to show how product-servicebundles may be combined strategically to foster a mass customization strategy. I. INFORMATION-BASED PRODUCT-SERVICE BUNDLES FOR MASS CUSTOMIZATION The competitive advantage of mass customization is based on combining the efficiency of mass production with the differentiation possibilities of customization. Companies pursuing mass customization address three levels. While the differentiation level of mass customization means the production of goods and services for a (relatively) large market which exactly meet the needs of every individual customer with regard to certain product characteristics, the cost level demands that this can be done at total costs roughly corresponding to those of standard mass-produced goods. The information collected in the course of individualization serves to build up a lasting individual relationship with each customer (relationship level). Behind these options stands a fulfillment system based on some distinctive principles of mass customization [2], [5], [13], [22], [23], [29], [31], [33]. These principles hold some strong complementarities and synergies between each other. The most often quoted principles of mass customization are: • modularization of product architectures and use of product platforms (reusability, commonality) following the concept of reusability and a product family design approach, • limitation of customization possibilities reflecting the product family and technological constraints of the demand of stable processes, • made-to-order approach (value creating activities are performed to a specific extend only after the customer’s order is placed), • modularization of processes and stable fulfillment processes, • split of fulfillment system into standardized and customer specific part (decoupling or postponement point), • use of dedicated information systems for configuration, manufacturing planning, order tracking, and relationship management. Mass customization shall give an answer to “smart customers” demanding more and more individualized and personalized products [9]. Explanations may be found in the tendency towards an experience economy, the growing number of single households, an orientation towards design and, most importantly, a new awareness of quality and functionality which demands durable and reliable products corresponding exactly to the specific needs of the purchaser. Until today, mass customization is connected closely to the potential offered by new manufacturing technologies (CIM, flexible manufacturing systems) reducing the trade-off between variety and productivity [1]. But while the concept has already been discussed in the literature for more than a decade (e.g. [6], [23], [28]), increased practical implementation of this strategy can been found in business only in the last few years. This time lag may be explained by the fact that only since few years sufficient technologies exist to handle the information flows connected with mass customization. Especially as mass customization enters more and more consumer markets, new Internet technologies can be seen as its main enabler. The reason for this information intensity is twofold: Firstly, the direct interaction between customer and supplier for every single transaction. Every order implies a coordination about the customer specific product design. The costs arising from customization consist largely of information costs resulting from the transfer of the individual configurations to manufacturing, the increase in complexity in production planning and control, the coordination of external suppliers involved in individual prefabrication, and the individual distribution of the goods. All theses activities are characterized by a high information intensity compared to traditional mass production. Customerrelated value added of mass customization is produced on the information level. Therefore, mass customization can be seen closely related to etion can be seen closely related to e-business and the new possibilities connected with the Internet economy. Secondly, mass customization is not only based on flexible manufacturing technologies for feasible products, but also on developing offerings consisting of bundles of (material) products and customized services. Digitization offers plenty of new opportunities for designing these bundles. In the following, we will distinguish different possibilities to use modern information technology to create these bundles. Our research is based on the results of an exploratory study of more than 250 mass customizers (see [22] for a documentation). Section 2 will introduce two dimensions to systematize mass customized goods and services. Based on this systematization, four groups of mass customization products are presented. II. CUSTOMER INTEGRATION AND DEGREE OF DIGITIZABILITY Our research showed that companies pursuing mass customization successfully build an integrated information flow that not only covers one transaction but improves the knowledge base of the whole company by information gathered during the fulfillment of a customer-specific order. Companies successfully pursuing mass customization build an integrated knowledge flow – that not only covers one transaction but uses information gathered during the fulfillment of a customerspecific order to improve the knowledge base of the whole company [2], [22] , [33]. The representation of these processes in a knowledge loop model stresses the importance of an interconnected and integrated flow of knowledge (Fig. 1, adapted from [24]). The figure quotes the premier functions of a mass customization system. All these functionalities have to be delivered in an integrated, streamlined way, starting from the point of interaction where information required for individualization is surveyed, then on to processing this information for fulfillment and providing the customized offer, and finally activities that deepen the relationships and create customer loyalty. An distinctive feature of new Internet technologies is that they enable direct communications between customers and suppliers. Thus we will examine the influence of the extent of customer integration required for a specific product or service. As we will focus on e-business strategies, we will further consider the degree of digitizability of customized product or service components. This will allow us to separate four strategic fields, which are illustrated by some successful cases from our research in Fig. 2. The integration of the customer into the production process is a distinctive feature of customized production. One can look at the relation between the customer and supplier as a cooperation providing benefits for both sides, but demanding inputs of both participants, too. In mass customization processes, this integration of the customer is required primarily during configuration. The “costs” of this process from the customer’s point of view are an important success factor. Especially in consumer markets customers often do not have sufficient knowledge for the definition of the product specification, which corresponds to their needs. As a result the configuration process may last pretty long, and customers may experience an increasing uncertainty during the transaction process. Comparison processes are more difficult because of smaller transparency of supply compared to standardized goods or services. Uncertainty exists, too, about the behavior of the provider. Further, the cooperative character of the configuration results in an asymmetrical distribution of information − a typical principal agent constellation. Information gaps are increasing the newer and more complex individualization possibilities are. Without a clear reference point for the definition of an optimal performance it is also difficult to judge whether a case of warranty arose. While all mass customized products are characterized by a more or less intense integration of the customer, not all of them can be transferred to an „info sphere” where the customization of products and services can be delivered often very efficiently. The traditional mass producer reduced the information intensity of his products and production processes as far as possible to achieve a good cost position. However, today a fundamental enabler for an economical individualization of products and services is to increase their information intensity. New information technologies allow to substitute product functions by information activities [32]. Information richness is a strong indicator for the digitizability of goods and services. Digitizability describes the extent, in which functions, that are relevant to a customer, can be fulfilled by the use of information technology only. For fully digital products modern information technology is the only necessary instrument to deliver customization. These goods can be sold on electronic markets, customized, and distributed over computer networks relatively easily and without high additional costs. The degree of digitizability is based on the content of information based components in relation to the whole product or service. While products like newspapers or music can be digitalized totally others like apparel have an information content of zero. But also for this products new Internet technologies facilitate the collection and employment of numerous data concerning the individual customer by permitting interaction between economic units connected via electronic networks. configuration for new customers gathering information needed for individualization (tools for customer interaction) configuration for existing customers use of knowledge and feedback to streamline re-orders distribution and customer relationship management individual delivery; building long lasting customer relationships (learning relationships), customer knowledge basic design of solution space preliminary set of possible specifications; continuous improvement of capabilities based on user feedback and wishes