Intelligent Non-hierarchical Manufacturing Networks

Luis Maia Carneiro, Thomas Jasinski, Marc Zolghadri, Paolo Pedrazzoli, Raul Poler, Luis Maia Carneiro, Thomas Jasinski, Marc Zolghadri, Paolo Pedrazzoli, Raul Poler

• Publisher: Wiley-ISTE
• Year: 2013
• Print ISBN: 9781848214811
• eBook ISBN: 9781118607121
• Edition: 1
• Topic: Biological Sciences
• Subtopic: System Theory
• Index: Biological Sciences

This book provides the latest models, methods and guidelines for networked enterprises to enhance their competitiveness and move towards innovative high performance and agile industrial systems.

In the new global market, competitiveness and economic growth rely greatly on the move toward innovative high performance industrial systems and agile networked enterprises through the creation and consolidation of non-hierarchical manufacturing networks of multi-national SMEs as opposed to networks based on powerful large-scale companies. Network performance can be significantly improved through more harmonious and equitable peer-to-peer inter-enterprise relationships, conforming decentralized and collaborative decision-making models.

Traditional hierarchical manufacturing networks are based on centralized models, where some of the actors involved must adapt themselves to the constraints defined by those who are most dominant. Real-world experiences of such models have revealed some major problems due to the centralized vision of the supply chain and the sub-optimal performance of centralized decision-making. For the current highly dynamic markets, this generates major inefficiencies in operation throughout the supply chain.

This book collects the latest research regarding non-hierarchical manufacturing networks and provides enterprises with valuable models, methods and guidelines to improve their competitiveness.

PART 1

Strategic

Chapter 1

Mass Customization as an Enabler of Network Resilience

Chapter written by Frank T. PILLER and Frank STEINER.

1.1. Introduction

In 1954 Drucker stated that “[i]t is the customer who determines what a business is” [DRU 54, p. 37]. As this statement clearly shows, the competitiveness of many companies depends strongly on the firm’s ability to manage its supply chains in accordance with the customers’ preferences. In times of globalization, today’s industry often encounters an uninterrupted trend toward heterogeneity of customer demand. This trend has many causes a changing demographic structure, a growing number of single-households, an orientation toward design and a new awareness of quality and functionality that demands durable and reliable products corresponding exactly to the specific needs of the purchaser [ZUB 03, AND 07, FRA 09]. Owing to this heterogeneity in customer demand, manufacturers are forced to create product portfolios with an ever increasing number of product variants, but with rather low lot sizes at the same time.

Besides these changes in customer demands, the manufacturers themselves and their production processes have changed dramatically over time. Manufacturers today often serve customers all around the globe and thus have established global distribution networks to reach new customers. Furthermore, they tend to focus on their core competencies and outsource other production steps to their suppliers [PRA 90]. Particularly in today’s highly competitive business environment, activities for serving customers within the production network have to be performed both efficiently and effectively – they have to be organized around a customercentric supply and demand chain. Yet despite all the technological advances, this is by no means a straightforward task.

Since the early 1990s, mass customization has emerged as one leading idea for achieving precisely this objective. Mass customization is defined as “developing, producing, marketing, and delivering affordable goods and services with enough variety and customization that nearly everyone finds exactly what they want” [PIN 93a, p. 44]. In other words, the goal is to provide customers what they want and when they want it. Hence, companies offering mass customization are becoming customer-centric enterprises [TSE 03b], organizing all of their value creation activities during interaction with individual customers. In consequence, mass customization has to be regarded as a business paradigm that has the potential to add value by directly addressing customer needs and in the meantime utilizing resources efficiently without incurring excessive cost. This is particularly important at a time where competition is no longer just based on price and the conformance of dimensional quality.

However, the implementation of such a mass customization strategy is quite complex, as it requires customer centricity in all stages of the value chain. Companies need to gain specific, strategic capabilities in order to implement mass customization successfully. This chapter will describe how the concept of mass customization could be applied across global supply networks in order to enable network resilience.

1.2. The increasing importance of customer-centric manufacturing networks

The idea of a customer-centric enterprise and customer-centric supply chains is to focus all company and supply chain operations on serving customers and delivering unique value by treating customers as individuals [SHE 00, TSE 03b, PIL 06]. To offer a better understanding of the specifics of customer centricity, this section will briefly review the role of customer centricity in supply chains and manufacturing networks.

In the area of supplier relations and business-to-business-transactions, we can today discern that the dominating form of organization for carrying out value creation processes is represented by networks The supplier networks in today’s automobile industry are a suitable example for this trend. In order to differentiate themselves more efficiently from their competitors, many companies today concentrate on their core competencies – or, the areas in which they have a high level of competence in fulfilling customer needs [PRA 90]. However, this also means that all activities not belonging to a company’s core competencies are outsourced to external suppliers, who can deliver using the advantages of specialization (production based upon economies of scale and scope). Vertical partnerships along the supply chain (integration of suppliers in manufacturing processes), as well as horizontal partnerships in distribution (e.g. sales cooperation) result. These topics have been comprehensively discussed in literature [FRO 01, GHO 95, HAY 84, PIC 94, PIC 03, ZAH 02].

Customer centricity combines the organizational perspective of customer orientation with the individual perspective of relationship management [TSE 03b, PIL 06]. It also extends the responsibility of dealing with customers from solely the marketing function to the entire organization. Customer centricity means that the organization as a whole is committed to meeting the needs of all relevant customers. At the strategic level, this translates to the orientation and mindset of a firm toward sharing interdependencies and values with customers over the long term. At the operational level, companies have to align their processes with the customers’ convenience, instead of focusing on the convenience of operations. Of course, sufficient infrastructural systems and leadership structures have to be implemented to achieve this state. These changes include a customer-centric organizational structure. Traditionally, separated functions such as sales, marketing (communications) and customer service will be integrated into one customer-centered activity [SHE 00]. Further, customer centricity is switching the marketing perspective from the demand side to the supply side [PIL 05]. Marketing management has traditionally been viewed as demand management. The focus has been on the product or the market, and marketing has had to stimulate demand for an offering through promotional activities such as incentives or pricing policies. The customer-centric enterprise is switching its focus to the individual customer as the starting point for all activities. Instead of creating and stabilizing demand, that is trying to influence people in terms of what to buy, when to buy and how much to buy, firms should try to adjust their capabilities including product design, production, sales and supply chain design to respond to customer demand.

Mass customization can be seen as a way of thinking for companies to achieve these goals of customer centricity, both with regard to marketing and sales as well as to operations and supply chain management. Therefore, the following chapter will briefly introduce the concept of mass customization and describe a set of organizational capabilities that are necessary for a successful implementation of mass customization within a manufacturing network.

1.3. Mass customization: providing an organizational structure for resilient manufacturing networks

From a strategic management perspective, mass customization is a differentiation strategy. Referring to Chamberlin’s [CHA 62] theory of monopolistic competition, customers gain the increment of utility of a customized good that better fits their needs than the best standardized product attainable would. The larger the heterogeneity of all customers’ preferences, the larger is the gain in utility [KAP 07].

Davis, who initially 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 […] be treated individually as in the customized markets of pre-industrial economies” [DAV 87, p. 169]. Pine defined mass customization as “developing, producing, marketing and delivering affordable goods and services with enough variety and customization that nearly everyone finds exactly what they want” [PIN 93a, p. 44]. This definition clearly highlights the idea of customization. Every individual customer should be able to find products and services that exactly fit his needs. This concept is based on the idea that every customer envisions an “ideal product”, which will be used as a benchmark for all products that are available on the market. In consequence, customers will most likely choose the one product that is closest to their “ideal product”. Research has shown that this “distance” between an available product and the respective ideal product can be regarded as an indicator for the value that a customer perceives in a product; the better a product fits the customer’s needs, the higher will be the willingness of this customer to pay [FRA 04, PIL 04]. Subsequently, customizing a product to the needs of individual customers might lead to increased revenues.

However, companies can only benefit from this increase in revenues, if the cost of providing the customized goods does not increase even more than the revenues. This notion is captured better in the definition by Tseng et al. [TSE 96]. They define mass customization as a business strategy that “[…] aims at best satisfying customers’ individual needs with near mass production efficiency” [ZHA 07]. The definition clarifies that companies can only benefit from mass customization, if they provide their customized products in an efficient manner. This aspect is crucial for the idea of mass customization, as the process of delivering products that fit individual customers’ needs can be described with the word “customization” only.

However, to reap the benefits of mass customization, managers must not think of it as a stand-alone business strategy for replacing production and distribution processes, but as a set of organizational capabilities that can enrich the portfolio of capabilities of their organizations. Mass customization means to profit from the fact that all people are different, that is, turning heterogeneities in the customer domain into an opportunity to create value, rather than a problem to be minimized, challenging the “one-size-fits-all” assumption of traditional mass production.

Companies that master the proposition of mass customization successfully have built competences around a set of core capabilities. The key to profiting from mass customization is to regard it as a set of organizational capabilities that can supplement and enrich an existing system. While specific answers on the nature and characteristics of these capabilities are clearly dependent on industry context or product characteristics, research has shown that three fundamental groups of capabilities determine the ability of a firm to mass customize: solution space development, robust process design and choice navigation [SAL 08, SAL 09]. These capabilities are briefly introduced in the following:

– Solution space development: First, a company seeking to adopt mass customization has to be able to understand the idiosyncratic needs of its customers. This is in contrast to the approach of a mass producer, where the company focuses on identifying “central tendencies” among its customers’ needs, and targets them with a limited number of standard products. Conversely, a mass customizer has to identify the product attributes along which customer needs diverge the most. Once this is understood, the firm knows what is required to properly cover the needs of its customers. Consequently, it can draw up the so-called solution space, clearly defining what it is going to offer and what it is not.

– Robust process design: A second critical requirement for mass customization is related to the relative performance of the supply chain. Specifically, it is crucial that the increased variability in customers’ requirements does not lead to significant deterioration in the firm’s operations and supply chain [PIN 93b]. This demands a robust supply chain design – defined as the capability to reuse or recombine existing organizational and supply chain resources to fulfill differentiated customers’ needs. With robust process design, customized solutions can be delivered with near mass production efficiency and reliability.

– Choice navigation: Finally, the firm must be able to support customers in identifying their own problems and solutions, while minimizing complexity and burden of choice. When a customer is exposed to too many choices, the cognitive cost of evaluation can easily outweigh the increased utility from having more choices [HUF 98, PIL 05]. As such, offering more product choices can easily prompt customers to postpone or suspend their buying decisions. Therefore, the third requirement is the organizational capability to simplify the navigation of the company’s product assortment from the customers’ perspective.

In the following, the three fundamental capabilities of mass customization will be presented in greater detail.

1.3.1. Solution space development

A mass customizer must first identify the idiosyncratic needs of its customers, specifically, the product attributes along which customer needs diverge the most. This is in stark contrast to a mass producer, which must focus on serving universal needs, ideally shared by all the target customers. Once that information is known and understood, a business can define its “solution space”, clearly delineating what it will offer and what it will not. This space determines what universe of benefits an offer is intended to provide to customers and then within that universe what specific permutations of functionality can be provided [PIN 95].

1.3.1.1. Options for customization

From the perspective of product development, customization can create value via three design features of a product (or service), any of which can become the starting point for customization: the fit (measurements), the functionality and the form (style and esthetic design) of an offering [PIL 05]. These are generic dimensions that match the demand of a customer toward an offering. Along those dimensions, heterogeneities of demand from a customer perspective can be derived. The solution space should represent choice options for those dimensions where customer heterogeneities matter in a particular case.

– Fit and comfort (measurements): The traditional starting point for customization in consumer good markets is to fit a product according to the measurements provided by the client, for example body measurements or the dimensions of a room or other physical objects. Market research identifies a better fit as one of the strongest arguments in favor of mass customization [BOE 07]. Often, however, it is also one of the most difficult dimensions to achieve, demanding complex systems to gather the customers’ proportions exactly and to transfer them into a product that has to be based on a parametric design (for fulfilling the requirements of a stable solution space). This often calls for a total redesign of the product and the costly development of flexible product architectures with enough slack to accommodate all possible fitting demands of the customer base. In sales, expensive 3D scanners or other devices are needed, which in turn demands highly qualified sales staff for their operation [BER 05].

– Functionality: Functionality addresses issues such as speed selection, precision, power, cushioning, output devices, interfaces, connectivity, upgradeability or similar technical attributes of an offering according to the requirements of the client. This is the traditional starting point for customization in industrial markets, whe...

Table of contents

• Cover page
• Contents
• Title page
• Copyright page
• Preface
• PART 1: Strategic
• PART 2: Tactical
• PART 3: Operational
• List of Authors
• Index