second world conference on pom and pom conference, cancun ...€¦ · view that one size does not...
TRANSCRIPT
Paper submission for:
Second World Conference on POM and POM Conference, Cancun, Mexico,
April 30-May 3, 2004
Title Mass Customisation – A Tool for Aligning Marketing & Supply
Chain Strategy?
No. Words
Author’s names Janet Godsell
Current Address Centre for Logistics and Supply Chain Management,
Cranfield School of Management,
Cranfield,
Bedford,
England MK43 0AL
E-mail [email protected]
Telephone +44 (0) 1234 751122
Fax +44 (0) 1234 751712
Mass-customisation: A Tool for Aligning Marketing and Supply
Chain Strategy
Abstract
There is increasing momentum behind a movement that believes that in this age of the ‘new
consumer’, organisations need to be customer responsive to survive. This has implications for
supply chain management suggesting that different supply chain strategies are required to
meet the needs of different buying behaviours. Through the empirical study of supply chain
strategy in DCo (a UK manufacturer of vacuum cleaners in the late 1990s) the potential for
using mass customisation as a means of improving customer responsiveness was considered.
The Lampel and Mintzberg (1996) standardisation: customisation continuum was used as a
theoretical framework to explore different supply chain options. The study supported the
view that one size does not fit all, and to effectively respond to different buying behaviours a
contingent approach to supply chain strategy needs to be employed; encompassing the
breadth of the customisation: standardisation continuum.
Keywords: case/field study, marketing/operations interface, operations strategy
1. Introduction
Whether we are in the age of the ‘new consumer’, the experience economy(Pine II, et al.,
1999) or the era of post-modernism, there is no doubt that there has been a significant shift in
consumer needs. Fuelled by increasing market fragmentation, the desire to consume
‘experiences’ and increased market literacy consumers are becoming increasingly discerning.
Worse still consumers are chameleons that change their buying behaviour depending on the
context. A low-cost airline suitable for a weekend get-away one week may not be the
preferred option for business travel the next. It would be nice to think that this is a marketing
problem, something that the marketers have to deal with, but in reality such a fundamental
shift in consumer behaviour and demand creation can only be addressed by a fundamental
shift in the way that organisations respond and fulfil demand. This has significant
implications for operations management (OM). Gone are the days when prescriptive models
are the answer, where the latest model or approach seeks to be the ‘holy grail’, usurping its
predecessors. Now is the time for a more integrated approach to OM strategy (Aitken, et al.,
2002; Godsell, et al., 2002; Hines, et al., 2002a; Hines, et al., 2002b). For encompassing,
umbrella concepts that have the ability to be context specific and accommodate the best
approach for the given circumstance, whatever label it may have. But above all, now is the
time to understand the market, to understand the needs of the consumer and to align OM
strategy behind the consumers that it serves. Call it market orientation (Dawes, 2000; Kohli,
et al., 1990; Narver, et al., 1990), demand change management (Heikkila, 2002) marketing
logistics (Christopher, 1997) or customer responsiveness (Godsell, et al., 2002). The name
does not matter as long as an irrevocable alignment is achieved between the demand creation
and fulfilment processes.
2. From Evolution to Revoultion?
2.1 An Evolution
Since the seminal work of Hayes and Wheelwright in the late 1970’s the strategic choice
debate has evolved, with the emphasis changing from one of product: manufacturing process
choice (Boynton, et al., 1991; Hayes, et al., 1979; Pine II, 1993) through product: supply
chain choice.
The work of Hayes & Wheelwright (1979), developed from a lifecycle view of products and
processes to one of volume and variety by Slack et al (1998), suggests a diagonal along
which a certain kind of product structure is matched with its natural process structure,
ranging from job shop to continuous flow. From an OM strategy perspective the objective is
therefore one of developing manufacturing processes that ‘match’ the characteristics of the
products they make. For instance, the production of made to order custom built sports cars
has a relatively low volume of production but has the potential for near infinite variety. The
best type of manufacturing process for this type of product is a jobbing process.
Alternatively for the production of the Ford Model T where the volume was high but there
was only one model type a mass process was the preferred option. However, this continuum
is not exclusive and companies may seek a position ‘off the diagonal’ to their competitive
advantage though little or no competitive advantage is achieved in extreme positions off the
continuum (Hayes, et al., 1979; Slack, et al., 1998). The key is to understand the positioning
of product: process combinations and not allow them to strategically drift as a product
matures. In this way the optimal manufacturing strategy for a particular product is assured.
The late 1980’s, early 1990’s were characterised by an increase in market turbulence (Pine II,
1993) as markets fragmented and demand became more uncertain in terms of time, form and
place (Bowerscox, et al., 1996). As a result the concept of ‘matching’ product and process
types was developed to deal with this increasingly dynamic environment. Boynton and
Victor (1991) coined the term ‘dynamic stability’ to describe the new challenge that
organisations faced arguing that the key to success in this environment was for organisations
to become ‘dynamically stable’; ‘Firms designed to serve the widest range of customers and
changing product demands (‘dynamic’) while building on existing process capabilities,
experience and knowledge (‘stable’)’. Based on this concept a product: process change
matrix was developed (Boynton, et al., 1991; Pine II, 1993) . Rather than suggesting a
continuum of options the new model suggested a range of different manufacturing strategies
depending on the circumstances and stage of the product lifecycle. A typical lifecycle path
would include the introduction of a new product with an ‘invention’ strategy. As and when
sales of the product grew to sufficient volume the organisation may reduce costs and increase
efficiency through ‘mass production’. As the product matures and the market fragments the
organisation may meet these needs through a number of iterations of ‘continuous
improvement’ en route to a strategy of ‘mass customisation’.
In the late 1990’s as supply chain management gained more momentum and competition was
no longer deemed to be between individual companies but between supply chains
(Christopher, 1998) the question of strategic choice accordingly was extended from a
product: process choice to one of product: supply chain (Fisher, 1997). Fisher (1997)
suggests a match between efficient supply chains and functional products and responsive
supply chains and innovative products. Other supply chain, product combinations are
deemed a mismatch. Whilst the innovative: responsive ‘match’ could be considered to an
‘agile’ supply chain strategy and the functional: efficient ‘match’ akin to ‘lean’ (Harrison, et
al., 1999) this ‘match: mismatch’ approach to supply chain strategy is rather restrictive and
potentially dangerous as no two products – and hence their supply chains are the same.
Furthermore, early indications from a quantitative study (Selldin, et al., 2002) have shown
that firms with a good ‘match’ between product and supply chain do not necessarily
outperform firms with a ‘mismatch’.
2.2 The Dawning of the Revolution
And so as we enter the 21st century the evolutionary process is coming to a natural
conclusion and a revolution is dawning. Whilst we have moved from a position of matching
products with processes to one of matching supply chains with processes, we are still left
with a series of ‘ideal’ types, which in reality do not exist. Furthermore, we are in a position
where there is a fierce academic debate between the ‘lean’ and ‘agile’ paradigms not satisfied
with models that suggest their equitable co-existence and with a desire to declare supremacy.
With the complexity and turbulence of markets continuing to increase and the advent of the
‘new consumer’ there has been a corresponding increased recognition that the supremacy of
the ‘lean’ or ‘agile’ paradigms is not the issue. That the long term survival of many
organisations lie in their ability to deal with this complexity through the adoption of a more
integrated approach (Aitken, et al., 2002; Hines, et al., 2002a; Hines, et al., 2002b). And so
the back-stabbing and in-fighting, the search for theoretical supremacy is replaced by a desire
to be inclusive, to find a place for the good theory that exists, and to structure it in such a way
that it is accessible to OM practioners; to help them to make the tough process choices that
will ensure the long term survival of their organisations. The revolution has dawned.
An important aspect of this new approach is the customer or market-led approach to supply
chain strategy formulation. A model that encapsulated this crucial feature, all be it at a meta-
level is the strategic alignment model (Gattorna, et al., 1996). The model depicts two key
supply chain processes: the formulation and execution of strategy. The effective formulation
of supply chain strategy begins with understanding the market, and the identification of
behavioural customer segments. Strategic responses are then developed to meet the
requirements of each of the behavioural segments. For the identified strategies to be
successfully executed, there must be alignment between the proposed supply chain strategies
and the cultural capabilities to implement the strategy. When such alignment is achieved then
value is created throughout the supply chain (Christopher, 1997; Gattorna, 1998).
A central tenet of this theoretical framework is the ability to segment the market, an issue that
has been challenging marketeers for a number of years and is reflected in the disproportionate
amount of models, methods and techniques used in explanation. Indeed it is argued by Piercy
(2002) that market segmentation (the understanding of the structure of the market) is
ultimately the real logic for how a whole company is structured. However it is somewhat
paradoxical that the historic approaches to market segmentation have been based on
predominantly quantitative tools and techniques and complex step by step processes
(McDonald, et al., 1998) when in reality ‘segmentation is an art rather than a science’ (Doyle,
2002). One of the difficulties with these mechanistic approaches to segmentation is that they
cause confusion by trying to link two types of variables: customer needs and profilers
(measurable customer characteristics) (Doyle, 2002; McDonald, 1999; McDonald, et al.,
1998). Whilst this appears imminently sensible in theory, in practice it is often very difficult
as the links between the two types of variables can be tenuous and not a true representation of
the market. This is a view shared by Piercy (2002) who argues that ‘the only problem with
the ‘conventional’ approach is that it largely misses the point. It is only concerned with the
operational aspects of marketing. It ignores the strategic issues almost entirely’. Piercy
(2002) advocates a less mechanistic approach that is based on the philosophy that ‘at the
strategic level , segmentation is really only about thing – the customer benefit from the
product or service’ or in other words what matters most to the customer. Depending on the
context different approaches to segmentation can be employed such segmenting by customer
loyalty type or customer relationship seeking characteristics. Furthermore, the requirements
or ‘benefits’ sought by a particular customer may also change depending on the context
(Baker, 2001; Gattorna, 1998; Gattorna, et al., 1996), hence the same customer may seek
different benefits in different situations. Whatever the means, the key to this more
contemporary approach to segmentation is that it extends the traditional approaches to
segmentation that have focused at a managerial or operational level and introduces a more
strategic dimension (Piercy, 2002). Furthermore, it supports the view advocated by the
strategic alignment model (Gattorna, 1998; Gattorna, et al., 1996) that strategy can only be
successfully implemented if the appropriate internal capabilities can be developed to support
the strategy.
Once an understanding of the market has been achieved, it is then necessary to develop
supply chain strategies to meet the needs of the different segments. Hill (2000) has
developed a 5-step approach for linking marketing and OM strategy. Whilst the steps in this
process provide an excellent link between a physical product and its market, the process is
more limited in developing the link with the ‘extended’ or ‘augmented’ (Christopher, et al.,
1995) product offering which is increasingly service related. Indeed in Hill’s own
terminology, more and more ‘order winners’ (the factors that provide differentiation and win
orders) are becoming service related. Extending the process to include the supply chain
rather than just manufacturing is an effective way of overcoming these limitations and an
approach that academics are increasingly beginning to advocate (Christopher, 1997; Doyle,
2002; Harrison, et al., 2002). However, to date this work has been predominantly theoretical
and there is little empirical evidence to support the link between marketing and supply chain
strategy. This is where this paper endeavours to make a contribution.
Whilst the steps in this process provide an excellent link between a physical product and its
market, the process is more limited in developing the link with the ‘extended’ or ‘augmented’
(Christopher, et al., 1995) product offering which is increasingly service related. Indeed in
Hill’s own terminology, more and more ‘order winners’ (the factors that provide
differentiation and win orders) are becoming service related. Extending the process to
include the supply chain rather than just manufacturing is an effective way of overcoming
these limitations and an approach that academics are increasingly beginning to advocate
(Christopher, 1997; Doyle, 2002; Harrison, et al., 2002). However, to date this work has
been predominantly theoretical and there is little empirical evidence to support the link
between marketing and supply chain strategy. This is where this paper endeavours to make a
contribution.
2.3 Customer Responsiveness
There are many names that could be used to describe this customer or market-led approach to
supply chain strategy formulation, but the authors preferred terminology is customer
responsiveness. Building on the foundations of the strategic alignment model (Gattorna,
1998; Gattorna, et al., 1996) customer responsiveness is defined as ‘The identification and
delivery of an appropriate supply chain strategy to meet the needs of the market that it
serves. This is driven not by products, channels or markets, but by behavioural market
segments and is achieved by matching the desired strategy with the capabilities of the supply
chain to deliver’ (Godsell, et al., 2002). By pursuing a strategy of customer responsiveness
value is created by developing customer driven supply chain strategies to meet the needs of
different customer buying behaviours; behavioural segmentation (Doyle, 2002; Gattorna, et
al., 1996; Piercy, 2002). However different customers have different buying behaviours or
seek different benefits, depending on the context (Baker, 2001; Gattorna, 1998; Gattorna, et
al., 1996; Piercy, 2002). Therefore in practice this means for an organisation to be customer
responsive it may need more than one supply chain strategy to meet the needs of the different
behavioural segments or customer benefits (Gattorna, 1998; Gattorna, et al., 1996), but little
evidence of this exists in practice. In turn, this argument translates into the following research
objective:
‘What is the potential for increased ‘customer responsiveness’, through the development of a
market-led, differentiated approach to supply chain strategy formulation?’
This is a fairly broad research objective with a near infinite number of options for
exploration. However it is important that whatever instrument is used for exploration, it has
the ability to integrate the marketing and supply chain disciplines; an objective that the
concept of mass customisation has the potential to address.
2.4 Mass Customisation: An Integrative Concept
Customisation is about presenting the customer with variety, with the rationale that the
greater the number of options a customer is presented with the greater the probability of a
match. There are two elements that contribute to perceived variety, the number of acceptable
options and the amount of desirable diversity amongst those items. If consumers see little or
no differences among items in a product class, then the perceived variety will also be quite
low (Kahn, 1998). It is clear that being able to customise services and respond quickly to
customer demands is important. However, being customer responsive is a true competitive
advantage only as long as profitability is not sacrificed (Vickery, et al., 1999).
Many companies are now seeking to construct supply chains to enable them to support a
marketing strategy of mass customisation. The idea behind this is that in many mass markets,
companies are facing a predicament. On the one hand customers are demanding their orders
be fulfilled more quickly. On the other hand, they are demanding highly customised goods
and services (Feitzinger, et al., 1997). The challenge is to find ways of achieving this
marketing goal without increasing finished goods inventory and without incurring the higher
cost of production normally associated with make-to-order (Christopher, 1998). Hewlett-
Packard has confronted these pressures, proving that companies indeed can deliver
customised products quickly and at low cost. Its success was focused around three
organisational design principles - modular product design, modular process design and agile
supply networks. - which together formed the basis of their mass customisation program
(Feitzinger, et al., 1997).
Instead of focusing on homogeneous markets and average offerings, mass customisers have
identified the dimensions along which their customers differ in their needs. These points of
common uniqueness reveal where every customer is not the same. And it is these points that
traditional offerings, designed for average requirements, create customer sacrifice gaps; the
difference between a company’s offering and what each customer truly desires. To be
effective mass customisers must let the nature of these ‘sacrifice gaps’ drive their individual
approaches to customisation (Gilmore, et al., 1997). Customisation is not only limited to the
design and physical attributes of the product. It has many forms and changing the wider
product features such as packaging, marketing materials, distribution, terms and condition
and product name.
As with OM strategy process decision-making frameworks a number of different frameworks
for customisation have also been developed (Gilmore, et al., 1997; Lampel, et al., 1996;
Vickery, et al., 1999). However, the preferred framework for exploring the customer
responsiveness nature of supply chain management is the Lampel and Mintzbergs (1996)
continuum of customisation and standardisation. Customisation and standardisation do not
define alternative models of strategic action but, rather, poles of a continuum of real-world
strategies. It is necessary to develop an objective understanding of customers’ real service
needs based upon systematic analysis of customers, their response patterns, and market
characteristics (Sabbath, 1978). Managers can then locate their strategies along the
continuum. The advantage of this model is that allows the true positioning of strategic
options and not a forced fix into a non-existent ideal type. At the one extreme is
standardisation, which is based on the logic of aggregation. The goal is to reduce the impact
of customers’ variability on internal operations, by identifying general product and customer
categories and simplifying and streamlining interactions with the customer. At the other
extreme is customisation, where the logic of individualisation is pervasive and the orientation
is toward the management of each transaction. In this case marketing seeks to develop a
direct relationship with the individual customer by offering products that are ‘made to order’
or ‘tailor made’. This in turn means that research and development is less isolated from the
market place. The value chain standardisation begins upstream, with fundamental design,
and then progressively embraces fabrication, assembly and distribution. Customisation, in
contrast, begins with the downstream activities, closest to the market place, and may then
spread upstream. These two approaches give rise to the continuum of strategies based on
standardisation and customisation, summarised in figure 1.
Stage in Continuum Key Characteristics Pure standardisation • Dominant design
• Targeted to largest possible group buyers • ‘Push’ – from design through to market place • Example: Ford Model T
Segmented standardisation • Basic design modified and multiplied to cover various product dimensions • Firms respond to meet the needs of ‘clusters’ • Buyers have no direct influence • Example: Breakfast cereal
Customised standardisation • Products that are made to order from standardised components • Assembly is customised, fabrication is standardised • Buyers can choose their own configuration • Example: Dell computers
Tailored customisation • Adapts a prototype to meet the buyers needs • Customisation works backwards to fabrication • Example: Made to Measure Suit
Pure customisation • Customers wishes penetrate design process • Made to specific customer order • Genuine partners – both sides involved in the decision making process • Example: NASA Space Shuttle
Figure 1: The Standardisation: Customisation Continuum (Lampel, et al., 1996)
And so the two strands of the research agenda are drawn together with Lampel et al.(1996)
customisation: standardisation continuum identified as a suitable lens through which
‘customer responsiveness’ can be empirically studied.
3. Methodology
Yin (1994) defines case study research as ‘an empirical inquiry of a contemporary
phenomenon in a real life context, especially when the boundaries between the phenomenon
and context are not clearly evident’. The empirical study of the contemporary phenomenon
of customer responsive supply chain supply strategy formulation, a phenomenon that is
difficult to define and distinguish from its organisational context - the supply chain - is
therefore a good fit with a case study methodology. Furthermore supply chains operate in
truly complex contexts as they span organisation boundaries both internally and externally -
demanding the management of flows of physical product, information and cash (Christopher,
1998; Coyle, et al., ; Fredenhall, et al., 2001; Harrison, et al., 2002) This complexity,
coupled with the paucity of theory, lack of well-supported definitions and metrics adds
further support to a case research methodology (Eisenhardt, 1989; Harrison, 2002; Stuart, et
al., 2002).
3.1 Case Selection & Background
The study is focused on a single ‘instrumental case’- the DCo supply chain - where the case
facilitates the understanding of some general issues (Stake, 1998).
DCo is an innovative UK manufacturer of floor care products, which enjoyed unprecedented
success in the1990’s. However, by 1999 DCo’s position in the UK Floor care market was
maturing and entering the profit maximising stage of the product lifecycle, putting cost
pressures on a business not accustomed to these constraints. The pressure was exacerbated by
the threat of off shore low cost competition. Major growth in vacuum cleaner sales was
therefore targeted through expansion into new markets. However, the historic DCo format of
a highly stylised product had led to rapid product proliferation, and a seemingly infinite
number of colour, motor, packaging and labelling permutations.
DCo were facing an interesting paradox - to meet both the manufacturing challenges of cost
reduction and range rationalisation whilst meeting the marketing requirements for market
expansion and product proliferation.
3.2 Research Design
A two-stage research design was adopted. The first stage included a broad overview or
‘situation analysis’ of the current DCo supply chain. DCo provided the focal point for a
supply chain study that transcended the boundaries of both its supply and customer base. For
this reason a process-orientated unit of analysis was used based on the Supply Chain
Operations Reference (SCOR) modeli, that considers the conversion of demand into supply
across the supply chain – through the main supply chain activities of plan, source, make and
deliver. As is common with case study research, ‘there can be many more variables of
interest than data points, and a result relies on multiple sources of evidence, with data
needing to converge in a triangulating fashion’ (Yin, 1994) which led to a research design
that included a range of quantitative and qualitative methods. The quantitative were initially
selected to provide a comprehensive overview of the current supply chain. The qualitative
methods are focused on process mapping and Pareto analysis, and there is little variation in
the method regardless of the point in the supply chain. With the qualitative methods a more
differentiated approach was adopted. With the supply base a broad but impersonal approach
is adopted in the form of a postal survey. This was initially targeted at the suppliers who
accounted for 95% of DCos manufacturing purchasing budget. Internally, a broad but
personal approach was preferred in the form of 8 focus groups. The groups were based
around functions (for manufacturing) and products (for Research & Development). The
approach was to collect views on DCos current supply chain performance in SOFT
(Strengths, Opportunities, Failures & Threats) format. For the customer base a narrow but
personal approach was favoured. This involved interviewing 6 customers (2 from each major
route to market) in person.
Quantitative Methods Qualitative Methods Process mapping • Planning process (Plan) • Component stock policy (Source) • Manufacturing process (Make) • Routes to market (Deliver) Pareto Analysis • Suppliers (Source) • Products (Make) • Customers (Deliver) Stock Cover Demand Amplification NPI Activity Location Analysis
Supplier postal survey • Sent to 28 suppliers (19 responses) Internal SOFT analysis • 8 departments/project teams Customer interviews • 6 customers
Figure 2: Research Methods for Situation Analysis
This initial phase of research was conducted over a 3 month time period by two researchers –
one a DCo employee who had been assigned specifically to this research task as part of their
MBA thesis, supported by an MBA student from another business school. Neither researcher
had any line management responsibilities or alliances with a department or project team. It
was an independent study supported by the DCo board. The output of the first stage of the
research was a situation analysis report that provided a summary of the raw data and key
findings from the study. This was validated with the DCo main board.
The second stage of the research was then to focus on specific issues raised by the situation
analysis. With SKU proliferation a major issue, a careful balance was required between
operational efficiency gains attainable through standardisation and market requirements for
customisation. Postponement to facilitate mass customisation has the potential to provide a
cost-effective solution that balanced both these needs and was the focus for the second stage
of the research. In addition to the data collected as part of the situation analysis, quantitative
data relating to assembly method and Bill of Materials (BOM) was also collected with the
specific purpose of identifying if postponement was technically and economically feasible.
Due to differences in BOM complexity for upright and cylinder vacuum cleaners, data was
collected for both types of product. The data was subsequently analysed from the
perspective of the Lampel and Mintzberg (1996) Standardisation: Customisation continuum
whereby various options were considered with the associated advantages and disadvantages
to the DCo supply chain.
4. Results
4.1 Technical & Economic Feasibility of Postponement
The upright vacuum cleaner had 89 bought in parts in total, though a number of these were
subassemblies. The product had a very modular design pre-disposed to a 2-stage
manufacturing strategy. A potential solution would be for the primary manufacturing process
to focus on the assembly of the full machine with the exception of the handle, plug, graphics
and packaging as illustrated in figure 3.
0
5
10
15
20
25
30
35
No.
Par
ts
Secondary BOM 1 11 3 1
Primary BOM 1 17 2 1 0 2 9 1 31 9
Brushbar Clutch Electrical Filter Graphics Hose Mechanical Motor Packaging Plastics Rubber
Figure 3: Upright UK Standard BOM Analysis to Support Separation
To support this approach both the motor and switch within the machine would need to be
standardised to suit all worldwide voltages. This would be a form of ‘adaptive’
customisation as the customer would be unaware of the changes that had been made. The
secondary stage of manufactures would then focus on customising the machine to the
customer’s requirements by adding the appropriate plug, graphics, and packaging. The
handle would also be added at this stage, as it was not fitted to the machine for shipping.
In contrast the cylinder model had 76 bought in parts, and similarly to the upright model had
a modular design that would support postponement. The primary manufacturing process
again would focus on the manufacture on the machine itself (refer to figure 4), with the
secondary process customising the machine with the appropriate plug, graphics and
packaging, and also adding the hose, extension tube and floor tool, parts which are not
suitable to add to the machine for shipping.
0
5
10
15
20
25
No.
Par
ts
Secondary BOM 1 2 14 2 6
Primary BOM 3 0 3 8 0 0 5 1 0 21 10
Electrical Ext. Tube Filters Floor Tool Graphics Hose Mechanical Motor Packaging Plastics Rubber
Figure 4: Cylinder model UK Standard BOM Analysis to Support Separation
Due to the additional number of parts that need to be added at the packaging stage, there
would be comparatively more parts involved at the secondary assembly stage than with the
upright model. The secondary stage for the upright model would account for 18% of the
BOM by part count and 13.3% by value, but for the cylinder machine this increases to 32.9%
by part count and 30.3% by value. The motor and switch standardisation requirements would
also be a prerequisite for the cylinder machine as they are for the upright.
4.2 Application of the Lampel & Mintzberg Standardisation: Customisation Continuum
A Move to Pure Standardisation
The strategy employed by DCo was historically one of segmented standardisation, whereby a
basic design was multiplied to cover a number of product dimensions, responding to the
needs of ‘clusters’. There was a view within the current UK sales team that this had been
overdone, and the range of products had become too diverse, confusing customers and
destroying value. Therefore a move back towards pure standardisation is advocated, through
the rationalisation of the UK product range. Once rationalised a one in one out policy could
be adopted to maintain a constant range size. The advantages and disadvantages of this
option are summarised in figure 5.
Advantages Disadvantages
• Reduction in consumer confusion
• Reduction in SKU complexity
• Opportunity to replace vacuum cleaner floor space with
alternative product information / accessories
• Reduction in store floor space
• Doesn’t address marketing: supply chain strategy
alignment
Figure 5: Pure Standardisation – Advantages & Disadvantages
Consolidated Segmented Standardisation
With over 150 SKUs and still increasing, there was evidence to suggest that the historic
approach to segmented standardisation was not effective, and the basis upon which the
clusters were formed urgently required review. This may mean some alterations to format so
that it can meet the requirements of multiple ‘clusters’ but presents the opportunity for a
considerable reduction in the number of SKUs. There are four main opportunities for
consolidation:
1. The standardisation of UK Retail and Mail Order (MO) variants into variants that can
serve both channels. Currently the only difference between them is the box. If this can be
standardised it has the potential to eliminate 21 SKUs with a potential cost saving in
excess of £600k if the standard MO box adopted.
2. There is potential to eliminate 12 SKUs if the Irish product variants could be standardised
with the UK. The only difference is the Helpline sticker, which has the country specific
Helpline number printed on it. There is potential to either print both Helpline numbers on
the sticker, standardise the Helpline numbers or provide both stickers for the customer to
select from.
3. The generation of a standard European variant for each model. Currently produce
country specific models for France, Holland, Belgium, Germany, Spain and Switzerland.
Although the packaging is generic, the Helpline sticker and other graphics are country
specific. There is potential for the Helpline number to be standardised across Europe and
for multi-lingual graphics to be used, eliminating 29 SKUs.
4. A similar opportunity exists for the standardisation of Australian/New Zealand variants.
Currently the only difference is the Helpline number and standardisation would result in
the elimination of 13 SKUs.
These options are independent and could be implemented in part or total. The advantages
and disadvantages of consolidation are summarised in figure 6.
Advantages Disadvantages
• Reduction in FG stock
• Reduction in the number of SKUs
• Improved customer service
• Need to develop graphics/box solutions
• Need to develop Helpline solutions
• Doesn’t address marketing: supply chain strategy
alignment
Figure 6: Focused Segmented Standardisation – Advantages & Disadvantages
Enhanced Segmented Standardisation using Separation
Rather than moving towards the pure standardisation end of the spectrum, opportunities also
exist towards pure customisation. On the borderline between segmented and customised
standardisation, opportunity exists to produce a global product that is customised to a
regional market on despatch by the addition of appropriate graphics, plug, and packaging.
Economies of scale would be achieved at the primary production stage, as only 19 base
models would need to be manufactured and stored, significantly simplifying the planning
process and replacing the requirement for FG stock with substantially lower levels of
intermediate stock. A prerequisite is a motor and switch that can attain the required
performance levels with an input voltage that varies between 100 – 240 volts.
Secondary manufacture would focus on customising the product to customer order, through
the addition of plug, graphics and packaging. This could be achieved in the conventional
way of holding stock of all the relevant component parts, or further benefits of postponement
could be achieved by producing the required parts as required. For instance the appropriate
plug could be over moulded onto the cable and graphics/packaging could be downloaded and
printed to order on standardised templates. This would significantly reduce secondary
component stock, as they would only be held at the generic part level too.
The greatest benefits for this type of approach would be derived from the cylinder models, as
this is the product, which is most popular in the International market place. Not only will it
provide the opportunity for reduced lead times and improved customer service, but it also
provides a much more cost-effective means for launching a product in a new market.
Potentially the only product on-cost is re-programming the graphics printer to print graphics
in a different language. The advantages and disadvantages of this option are summarised in
figure 7.
Advantages Disadvantages
• Significant reduction in FG stock
• Significant reduction in secondary stage component
stock
• Significant reduction in number SKUs
• Dramatically improved flexibility and response time
• Cost effective means of NPI to in new territories
• Does address the marketing: manufacturing paradox
• Need to develop a variable input voltage motor solution
• Need to identify a suitable switch
• Need to develop a method for delayed plug
customisation
• Need to develop a method for delayed graphics
customisation
Figure 7: Enhanced Segmented Standardisation -Advantages & Disadvantages
Customised Standardisation
The final option moves into the customised standardisation stage in the continuum, where by
products are made to order from standardised components. For DCo this could mean that
consumers design a machine from standardised components to meet their individual
requirements on interactive screens in-store or over the Internet, the order is down loaded to
DCo, the machine is made to order and despatched direct to home within 72 hours. This
solution would require a fundamental re-evaluation of the current supply chains, having a
major impact on all key operational areas. It is a more sophisticated solution, which has a
direct impact on the customer and at this moment in time there is no evidence to suggest that
this is what the customer actually wants. Just because this type of strategy works for Dell in
the personal computer market, does not mean that it will work for DCo in the Floor care
market. Detailed market research would be required to identify what the customer
requirements really are, and whether or not this solution satisfies them. DCo do have an
advantage over their competitors in this respect, as the modular design of the DCo product
would lend itself well to customised standardisation where as the majority of other
competitors designs currently would not. Advantages and disadvantages of this option are
summarised in figure 8.
Advantages Disadvantages
• Customised product
• Reduction in FG inventory – product make to order
• Reduction in product handling ratio – product delivered
direct from DCo to consumer
• Provides opportunity for DCo to deal direct on the
Internet
• Difficult for competitors to copy
• Requirement for extensive market research to ascertain if
there is a market for the product
• Increased complexity of supply chain – may lead to
increased component stock
• Require new manufacturing methodology
Figure 8: Customised Standardisation – Advantages & Disadvantages
5. Discussion
The analysis has shown that postponement does provide an opportunity for supply chain
improvement at DCo. In particular there is an opportunity for DCo to move further along the
Lampel and Mintzberg (1996) standardisation: customisation continuum. DCo is currently
in the segmented standardisation stage of the continuum and DCo could either move back
towards pure standardisation or forward into the realms of customised standardisation.
Paradoxically DCo needs to do both. DCo must firstly consolidate their existing
segmentation strategy, halving the existing product range with virtually no impact on the
customer. This in turn will significantly simplify the planning process, and improve product
availability. This will then provide a more stable platform internally, and increased supplier
and customer confidence from which to move on.
Postponement is an invaluable tool in aiding the alignment of marketing and supply chain
strategy and is key to the further development of DCos customer responsiveness. The
modular nature of the DCo product lends itself well a postponement strategy, enabling
primary assembly to focus on large economical runs of standard product whilst secondary
assembly is focused on configuring product to customer requirements. Whilst still in the
segmented standardisation stage, DCo could eliminate the 151 SKUs of FG stock that it
currently holds and replace it with 19 SKUs of generic intermediary product. As customer
orders are received the generic product can then have the appropriate plug, graphics and
packaging applied before being despatched direct to customer. This potentially simplifies the
planning process, increases productivity, reduces stock holding and improves product
availability. It also fits in well as part of a more global supply chain strategy. Potentially the
base units could be produced in a low cost offshore country and shipped to regional
warehouses in each of the key business territories to await order. When the order is received
the base units could be customised and despatched direct to the customer.
DCo is in the business of mass production and would therefore not wish to enter the realms of
pure or tailored customisation, however there is an opportunity for ‘DCo to do Dell’ and
compete with a strategy of customised standardisation. This would require a wholesale
redesign of the current supply chains, an activity not undertaken lightly. It also has a major
impact on the customer, redefining the current product offering. Before embarking on this
type of strategy it is crucial that DCo first ascertains the true ‘sacrifice gaps’ and determines
if a customised product is something that the consumer really wants. However, the potential
rewards are high as this is likely to be high margin territory that is difficult for cheap offshore
mass-produced products to penetrate.
DCos position in the UK market has historically been at the high end of the market. However,
with the entry of low-cost products produced offshore DCo are beginning to feel the ‘double
whammy’ of price erosion and lost sales. DCo could counteract this by adopting either of the
aforementioned strategies - segmented standardisation or customised standardisation – and
historically organisations would typically have chosen one or the other. However, by
adopting both strategies simultaneously – in a pincer type movement DCo could defend their
high margin business through the strategy of customised standardised and maintain possibly
increase market share in that segment, whilst using segmented standardisation to reduce their
cost base and maintain margin whilst reducing price to compete in the mid-range segment.
6. Conclusions
This paper has demonstrated that the Lampel & Mintzberg (1996) standardisation:
customisation continuum is a useful framework for improving the alignment between
marketing and supply chain strategy. For DCo it identified the need to first move towards the
standardisation end of the continuum, before using postponement as a tool to engineer a u-
turn towards segmented standardisation and ultimately customised standardisation. It
demonstrated that that ‘one size does not fit all’ and to effectively respond to a range of
different customer needs a number of different supply chain strategies ranging from one end
of the continuum to the other, would need to be employed.
References
Aitken, J., Christopher, M., Towill, D., 2002. "Understanding, Implementing and Exploiting Agility and Leanness." International Journal of Logistics: Research and Applications, vol. 5, no. 1, pp. 59-74.
Baker, S., 2001. 'New Consumer Marketing: Moving the Consumer up the Corporate Agenda', Cranfield School of Management - New Marketing Group Publication
Bowerscox, D.J., Closs, D.J., 1996. "Logistical Management: The Integrated Supply Chain Process." McGraw-Hill.
Boynton, A.C., Victor, B., 1991. "Beyond Flexibility: Building & Managing the Dynamically Stable Organisation." California Management Review, Fall, pp. 54.
Christopher, M., 1997. "Marketing Logistics." Butterworth-Heinemann. Christopher, M., 1998. "Logistics and Supply Chain Management: Strategies for Reducing
Cost & Improving Service." Financial Times Prentice Hall, London. Christopher, M., McDonald, M., 1995. "Marketing: An Introductory Text." Macmillan Press
Ltd, London. Coyle, Bardi, Langley. "The Management of Business Logistics."
Dawes, J., 2000. "Market Orientation & Company Profitability: Further Evidence Incorporating Longitudinal Data." Australian Journal of Marketing, vol. 25, no. 2, pp. 173-200.
Doyle, P., 2002. "Marketing Management and Strategy." Pearson Education, Harlow. Eisenhardt, K.M., 1989. "Building Theories for Case Study Research." AMR, vol. 14, no. 4,
pp. 532-550. Feitzinger, E., Hau, L.L., 1997. "Mass Customisation at Hewlett Packard: The Power of
Postponement." Harvard Business Review, vol. 75, no. 1, Jan-Feb, pp. 116-121. Fisher, M.L., 1997. "What is the Right Supply Chain for your Product." Harvard Business
Review, vol. 75, March-April, pp. 105-116. Fredenhall, L.D., Hill, E., 2001. "Basics of Supply Chain Management." St. Lucie Press. Gattorna, J.L., (Ed.), 1998. "Strategic Supply Chain Alignment." Gower. Gattorna, J.L., Walters, D.W., 1996. "Managing the Supply Chain: A Strategic Perspective."
Palgrave. Gilmore, J.H., Pine II, B.J., 1997. "The Four Faces of Mass Customisation." Harvard
Business Review, vol. 75, Jan-Feb, pp. 91-101. Godsell, J., Harrison, A., 2002. "Customer Responsiveness: An Exploratory View of a
Supply Chain Strategy for the New Economy," 9th European Operations Management Association Conference, pp. 615-624, Copenhagen.
Harrison, A., 2002. "Case Study Research", In: Partington, (Ed.), Essential Skills for Management Research, Sage, London.
Harrison, A., Christopher, M., Van Hoek, R.I., 1999. 'Creating the Agile Supply Chain', Institute of Logistics & Transportation
Harrison, A., Van Hoek, R.I., 2002. "Logistics Management and Strategy." Pearson Education.
Hayes, R.H., Wheelwright, S.C., 1979. "Link Manufacturing Process & Product Lifecycles: Focusing on the Process gives a New Dimension to Strategy." Harvard Business Review, vol. 57, Jan-Feb, pp. 133-140.
Heikkila, J., 2002. "From Supply to Demand Chain Management: Efficiency and Customer Satisfaction." Journal of Operations Management, vol. 20, pp. 747-767.
Hill, T., 2000. "Manufacturing Strategy - Text and Cases." Palgrave. Hines, P., Holweg, M., Piercy, N., Rich, N., 2002a. "From Production Toolkit to Strategic
Value Creation - A Review of the Evolution of Contemporary Lean Thinking," Hines, P., Silvi, R., Bartolini, M., 2002b. "Demand Chain Management: An Integrated
Approach in Automotive Retailing." Journal of Operations Management, vol. 20, no. 3, pp. 707-728.
Kahn, B.E., 1998. "Dynamic Relationships with Customers: High Variety Strategies." Academy of Marketing Science, vol. 26, no. 1, Winter, pp. 45-53.
Kohli, A.K., Jaworski, B.J., 1990. "Market Orientation: The Construct, Research Propositions and Managerial Implications." Journal of Marketing, vol. 54, April, pp. 1-18.
Lampel, J., Mintzberg, H., 1996. "Customizing Customization." Sloan Management Review, vol. 38, no. 1, pp. 21-30.
McDonald, M., 1999. "Marketing Plans." Butterworth-Heinemann. McDonald, M., Dunbar, I., 1998. "Market Segmentation: How to do it; How to Profit from
it." Macmillan, London. Narver, J.C., Slater, S.F., 1990. "The Effect of Market Orientation on Business Profitability."
Journal of Marketing, vol. 53, July, pp. 21-35. Piercy, N.F., 2002. "Market-Led Strategic Change: A Guide to Transforming the Process of
Going to Market." Butterworth Heinemann.
Pine II, B.J., 1993. "Mass Customisation: The New Frontier in Business Competition." Harvard Business School Press.
Pine II, B.J., Gilmore, J.H., 1999. "The Experience Economy: Work is a Theatre and every Business a Stage." Harvard Business School Press.
Sabbath, R.E., 1978. "How Much Service to Customers Really Want?" Selldin, E., Olhager, J., 2002. "Testing the Fit between Products and Supply Chains," 9th
European Operations Management Association Conference, pp. 1305 - 1313, Copenhagen.
Slack, N., Chambers, C., Harland, C., Harrison, A., Johnston, R., 1998. "Operations Management." Financial Times Prentice Hall.
Stake, R., 1998. "Case Studies", In: Denzin, Lincoln, (Eds.), Strategies of Qualitative Inquiry, Sage, California, pp. 88-90.
Stuart, I., McCutcheon, R., McLachlin, R., Samson, D., 2002. "Effective Case Research in Operations Management: A Process Perspective." Journal of Operations Management, vol. 20, no. 3, pp. 419-433.
Vickery, S., Droge, C., Germain, R., 1999. "The Relationship Between Product Customisation and Organizational Structure." Journal of Operations Management, vol. 17, no. 4, pp. 377-391.
Yin, R.K., 1994. "Case Study research: Design & Methods." Sage.
i You can visit the Supply Chain Council website, and obtain information about the SCOR model on Hwww.supply-chain.orgH