Mass Customization

views updated

MASS CUSTOMIZATION

The prevalence of customized goods has waned since the industrial revolution in favor of mass-produced goods, and for good economic reasons. Since industrial technology allowed for the mass production of virtually identical goods, the input costs for each unit declined, allowing firms to allocate their resources more efficiently via mass production rather than paying the extra cost per unit involved in tailoring each item toward customized specifications. Thus, mass production allowed companies to achieve economies of scale, a key to keeping prices low and gaining an edge on their competitors.

Mass customization, however, uses advances in information technology (IT) and computerized manufacturing to reverse this trend and once again bring customized goods to the forefront. It signals a shift from a product-centered approach to manufacturing—where the customer buys whatever the company decides to make—to a customer-centered approach—where the company makes exactly what the customer wishes to buy. Mass customization in manufacturing combines build-to-order assembly, just-in-time inventory control, high-tech database marketing, and IT-enhanced order-fulfillment systems to enable firms to take advantage of mass production's economy of scale while creating a product to individual specifications. In other words, thanks chiefly to breakthroughs in IT, companies can make individualized products without substantially increasing their per-unit costs. This helps keep prices down and enables manufacturers to continue to reap profits while providing greater value to the customer.

Mass customization is a reversal of the manufacturing logic symbolized in the early 20th century by Henry Ford, whose moving assembly-line model revolutionized manufacturing, further severing it from the individualized processes and customization of previous years toward a more or less monolithic manufacturing process centered around the product, not the customer. This ethos was crystallized in Ford's classic quip, "People can have the Model T in any color—so long as it's black."

THE DEVELOPMENT OF MASS CUSTOMIZATION

One of the first companies to dive into mass customization was Dell Computer in the mid-1980s. The company allowed customers to pick and choose specifications, including design, computer power, and software, from a predetermined list of available options, after which the components, some already pre-assembled, would be assembled to build the finished product.

The Internet, however, ultimately proved the greatest means toward mass customization for a number of reasons. First, the Internet dramatically enhanced the ability of companies to compile detailed information on individual customers and create comprehensive customer profiles. These profiles enabled firms to reach customers with a degree of customization already in hand and provided an avenue toward appealing to the customer for greater customization. Relatedly, the Internet provides customers with a mechanism for easy, personalized communication with companies. Finally, the Internet and related IT systems afford companies the ability to integrate their customer-profiling, customer-outreach, order-handling, and inventory-control systems more or less seamlessly, thereby minimizing costs and speeding the entire process. Manufacturers and managers can respond quickly to shifting order needs through the use of computerized systems, and customer-relationship agents can rapidly receive orders and attend to customer concerns while feeding the information along to other parts of the organization.

Enthusiasts of mass customization point out that it gives special advantages to smaller customers and helps level the playing field. Where once customization was confined more or less to high-value customers, it is now available to a much wider audience. And mass customization isn't simply a business-to-consumer phenomenon; it is also increasingly popular in business-to-business transactions.

THE PRODUCTION PROCESS

Above all, mass customization demands that the individual parts of a given good be produced separately and then assembled together at the end of the process, rather than continuously building and adding to the original skeleton from the ground up. Whether it's automobiles or clothing, firms are fragmenting their production processes so that, when customers communicate their orders via the Internet or other means to the manufacturer, a minimum amount of production slowdown and reordering is required to fulfill the order's specifications. In more production-intensive industries, breaking up production is the key to keeping a steady stream of products coming while also allowing for mass customization, all at a relatively low cost to the firm. Postponing the finished product is another key to reaping all the potential value from mass customization. This pushes the final stages of production as late as possible in the chain of production and delivery. Third-party logistics services increasingly offer late-stage assembly as part of their services, moving some production into the distribution channel and allowing greater flexibility to customize products.

Particularly when many stages of the production process are outsourced to other firms, an increasingly common configuration by the 21st century, the need for all levels of the production and distribution chain to be adequately wired together in a seamless fashion is paramount. But because manufacturing operations require a high degree of capital investment and back-end overhaul, relatively few had yet integrated mass customization architecture by the early 2000s.

Although in the ideal mass-customization environment production wouldn't even begin until the customer's order was submitted, for most industries that's simply not practical. They need to have the supplies handy and some level of production underway in order to keep their facilities moving and in order to get their entire range of products to their point of delivery in a timely fashion. Thus fracturing the assembly process proved the best compromise, allowing firms the flexibility of producing standard, mass-production models while also remaining capable of fulfilling custom orders as they arise.

Clothing and apparel manufacturers from Nike to Levi Strauss implemented mass customization technology to take body measurements, color preferences, and design specifications directly from customers over the Internet and feed them to the assembly line, while Mattel, according to Business Week, introduced mass customization to allow consumers to purchase its Barbie-theme dolls with their own unique hair style, skin color, and accessories.

THE CUSTOMER

The Internet is driving the mass customization trend in another way as well. As shoppers grow accustomed to making purchases on the Web, they come to expect getting exactly what they want, thereby opening a new field of competition for companies.

But in order to make mass customization technologies pay off, firms must get their customers excited about personalizing their purchases. Customizing, for all its benefits, does entail extra work for the buyer at the beginning of the shopping experience, and shoppers taking advantage of the Internet specifically for speed and convenience may stop short if their shopping entails lengthy forms or questionnaires. If customers are simply used to and comfortable with buying mass-produced products off the rack, then companies may need to put forth extra effort to prod customers into taking advantage of customization. This could include anything from marketing campaigns to concerted efforts to make the experience of customizing itself more attractive; in other words, firms may need to create an atmosphere around the customization process that in itself adds value for the customer.

THE COMPANY

Offering custom products has clear advantages for businesses. Since acquiring new customers is more expensive than retaining existing ones, firms would prefer to go on building customer relationships over time rather than continuously marketing to an indistinguishable mass. Mass customization is tailor-made for this kind of retention. Even where customized products are marginally more expensive to produce, the savings generated, in terms of marketing and outreach, by boosting customer satisfaction and developing long-term loyalty, can more than make up the difference.

Mass customization also tends to foster an alternate method of measuring a firm's success. Rather than looking at market share, which measures the percentage of the total market that is captured by one firm without distinguishing individual customers from each other, under mass customization, according to Ward Hanson of Stanford Business School, firms place greater weight on the lifetime value of individual customers. In other words, the company with the greatest number of customers may have a higher cost structure than a competitor which has the greatest customer loyalty, placing the share leader at a long-term disadvantage. Since customization places greater emphasis on customer profiles and outreach, the cost of acquiring and retaining a customer becomes paramount.