Abstract number: 003-0207
Title:An evolutionary strategy for implementing a Mass Customization and Personalization (MCP) acquisition Process
Name of the Conference : Sixteenth Annual Conference of POMS, Chicago, IL, April 29 - May 2, 2005.
Shyh-Jian Tang1, Dusan N. Sormaz2, John M. Kay3, Chin-Kang Chen4
1Doctoral researcher in the Department of Manufacturing Systems, CranfieldUniversity.
Building 50, CranfieldUniversity, Bedford, MK43 0AL, UK.
Tel:+44(0)1234 757861, Fax:+44(0)1234 752159, E-mail:
2Associate Professor of Industrial and Manufacturing Systems Engineering(IMSE), OhioUniversity.
277 Stocker Center, Athens, OH45701-2979, USA.
Tel: (740)593-1545, Fax:(740) 593-0778, E-mail :
3Professor and Head of Manufacturing Systems Department, CranfieldUniversity.
Building 50, CranfieldUniversity, Bedford, MK43 0AL, UK.
Tel: +44(0)1234 754768, Fax: +44(0)1234 752159, E-mail:
4Associate engineer of Integrated Logistics Support Center of CSIST, Taiwan, R.O.C.
P.O. BOX NO. 9008-7, Lung-Tang, Taoyuan, Taiwan, R.O.C.
Tel:+886-3-4712201, Fax:+886-3-4711790, E-mail:
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Abstract
Mass Customizationand Personalization (MCP) have been perceived in many articles as a strategy of choice for any companies. In general, MCP implies individually customized goods and services which however, can be acquired by mass production efficiency. Different motivations drive different levels of customization such as the product attributes, customer types, technological capability and the complexity of offering customer choice. In this paper, three levels of MCPare explained: level 1 - Limited options of assembly components, level 2 –Customized functions/specifications, and level 3 – A wider range of un-specified personal needs. A review of the relevant literature shows that several technologies and theories have been explored and have led to new developments for the first and second levels of MCP. The most prominent examples, such as Nike, Dell and Livas, have begun to position their manufacturing strategy in this area. On the contrary, very few publications talk about the critical approaches necessary to enable the level 3 of MCP, especially for the non-standard specification type requirements as found in the service industry. At this level, the customer’s needs are not always precisely described; they could be of a fanciful nature. Success at this level is achieved by a rapid response acquisition system which is flexible enough to integrate the process flow from the concept phase, through the design and manufacturing phase, to the delivery phase. Evolving requirement settings, dynamic reconfiguring operations, agile manufacturing processes, and business relationships in line with customers’ individual preferences, are required. The aim of this paper is to explore an integrative acquisition framework to integrate different levels of MCP based on a product life cycle analytical model and an evolutionary acquisition strategy.
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1Introduction
1.1The rise of MassCustomization and Personalization(MCP)
The strategy of cost leader has been a major catalyst in the move towards Mass Production in the Industrial Age. Instead of strivingtoward operational excellence for reducing unit cost, more and more companies are keen to position their strategy on product differentiationand customer intimacyin order to gain competitive capability(Porter 1980;Fahey & Christensen 1986;Kotha 1995; Hagel III & Singer 1999; Piller & Muller 2004). As the Age of Information and Knowledge progresses,scholars have assertedthat the greater capability of productcustomization could bring more competitive advantages to companies (Toffler 1998;Berger & Piller 2003).However, many arguments also revealed that the product customization will inevitably increase the unit cost,because of the lower economic scale on one hand, and the increasing complexity of operations on the other (Schonfeld 1998;Huffmann & Kahn 1998;Agrawal, et al. 2001;Zipkin 2001;Kakati 2002;Forza & Salvador 2002). Thus, the concept of Mass Customizationwas coined by Davis in 1987 when he made the statement “The more a company can deliver customized goods on a mass basis, relative to their competition, the greater is their competitive advantage”(Davis 1987).Although the Mass Customization based on interactive on-line customization was stimulated by the tremendous improvement in Information and Communication technologies developing, the passive way of customization (rely on the customers’ modification) was inadequate to serve as the catalyst forMC. Therefore, few scholars added the concept of Personalization with Mass customization and put forward the term of Mass customization and Personalization(MCP):
‘While customization relates to changing, assembling or modifying product or service components according to customers' needs and desires, Personalization involves intense communication and interaction between two parties, namely customer and supplier. Personalization in general is about selecting or filtering information objects for an individual by using information about the individual (the customer profile) and then negotiating the selection with the individual. Combining personalization with customization would empower a customer without the knowledge of a tailor to customize a product more easily’. ~ F. Piller(2005).
1.2 The current approaches for MCP
MCP can be easily discussed at strategic level but it is rather more complicated to undertake it organizationally and operationally. According to Hart (1995), MCP can be interpreted at two levels of definitions:
- The visionary definition: MCP isthe ability to provide customers with anything they want profitably, any time they want it, anywhere they want it, any way they want it.
- The practical definition: MCP is the use of flexible processes and organizational structures to produce at high variety and often individually customized products and services at the low cost of a standardized, mass production system.
The goal in the first definition will rarely be achieved by a transitional manufacturing organization(Mok et al. 2000). Therefore, many scholars strongly recommend that an effective MCP must be based on the range within limited options such as standard assemble components which can facilitate the customer's choice of options to achieve some extent of customization.
In essence, MCP is a hybrid technique by which a company churns out products in typical assembly-line fashion, yet it can add unique features to individual orders(Martin1997; Falkenberg 1998). This requires a flexible manufacturing system that anticipates a wide range of options. However, due to the vast differences in customer preferences, MCP can also produce unnecessary cost and complexity. Therefore, before managers adopt this new strategy, it is crucial forthemto examine thoroughly what kind of customization their customers would value (Piller & Muller 2004).
As the study of Piller(2005)shows, the MCP in the literature has already been discussed for more than a decade butit is only in the last few years that increased implementation of this strategy can be found in practice. The main reason used to explain the time lag is the development of information technologies for MCP. Nowadays, availableinformationtechnologies and flexible manufacturing processes enable companies to customize goods or services for individual customers in high volumes and at a relatively low cost. Many approaches, such as Build To Order, Make To Order, Assemble To Order, Configure To Order(Feng et al. 2002),Design To Order (Richard 2001), and Engineering ToOrder(Development ToOrder)(Piller, et al. 2004)have been put forward to achieve a different degree of MCP. In contract to these manufacturing-dominated approaches, few scholars have proposed more customer-centric customization approaches. The prominent instance of these is the‘Four faces of customization’termed as Collaborative customization, Adaptive customization, Cosmetic customization, and Transparent customizationrespectively,which was proposed by Pine et al.(1997).While a great deal ofMCP literature has asserted that the main enabler of MCP is flexible manufacturing technologies,based on a manufacturing capability point of view(Anderson 1997;Victor & Boynton 1998;Agrawal, et al.2001;Qiang et al. 2004), the Piller and other scholars have argued that modern information technologies also play an equal role(Piller, et al. 2004). However, the key to MCP is engaging the customization throughout the entire product acquisition life cycle, to ensure that they get what they want, when they want it, where they want it and for the price that the customers expect to pay. This process is not driven by the manufacturing abilityalone; instead, it will entail many capability dimensions, such as information technology processing, customer relationship handling, and the interoperability of demand/supply chain. All these points have been emphasizedby many scholars. However, there are two capabilities which are rarelymentioned in the literature but can fulfill the same functionality. They are thenew business modeland the integrative acquisition management process.
1.3The scope of this paper
According to scholar assertions and various case studies of practical ongoing MCP business, there are three levels of MCP from level 1 –Limited options of assembly components, level 2 –Customized functions/specifications, to level 3 – A wider range of un-specified personal needs(Guixiu Qiao & Lu 2004). Following a literature study, it has been found that the core success factor for MCP provider is achieved by a rapid response system which is flexible enough to integrate the process flow from the concept phase, through the design and manufacturing phase, to the delivery phase. Evolving requirement settings, integrative information flow, dynamic reconfiguring operations, agile/lean manufacturing processes, and business relationships with respect to customers’ personal preferences are required. Based on these findings, the aim of this paper is to explore and propose an integrative acquisition processto integrate different levels of MCP based on a product life cycle analytical model and an evolutionary acquisition strategy.A prototype framework is described to demonstrate the merits of the process.
2The development of an integrative acquisition framework for different levels of MCP
2.1Three levels of MCP
Level 1 of MCP is limited options of assembly components. At this level, the extent of MCP is building on the pre-designed, standard components or products. Customers use the software-oriented human interface to select and assemble their final products or systems. It is the most commonway of MCP implementationand is used by many companies, such as Nike andLivas. A study of the literature has shown that it is very similar to the match-to-order, locate-to-order, bundle-to-order, assemble-to-order or a certain extent to virtual build-to-order(Piller & Stotko 2002;MacCarthy 2003).
Level 2 of MCP isCustomized functions/specifications. At this level, customers fully understand what they want, and have the capability to transfertheir needs toconfigurable specifications. Nevertheless, they cannot identify the standard products or substitutive standard products to achieve their demands. This group of customers is called as‘smart buyers’because they have product knowledge and design capability, but lack manufacturing capability. They need information of where, when, how, and at what cost to assess their wants. Study of relevant literature has shown that it is very similar to the high variety of assemble-to-order, made-to-order, and to a lesser degree design-to-order(Piller & Stotko 2002;MacCarthy 2003).
Level 3 of MCP isa wider range of un-specified personal needs. At this level, the customer’s needs are not always precisely described; they could be of a fanciful nature, and as a result, they are unable to transfer their desires into configurable specifications that allow the suppliers to produce a customized product or deliver a customized service in a short interval of time. For example;a customer comes to a companyto request a service that hewould like to have a luxury birthday party. However, he can not precisely predict how many people will attend, how extravagant the partyshould be,or where he can hold the party, etc.He needsto be able to consult field expertise or service experts canput forwardrecommendations from time to time in order to evolve customers’ original wishes into configurable requirements or specifications. Some expertshave asserted this level is achieved by developing-to-order or engineer-to-order(Piller & Stotko 2002;MacCarthy 2003). Although a number of publicationshave shown that the one-to-one marketing and intensive service will increase the possibility of transactions at this level,very few publications mention the critical approaches which are necessary to enable this level of MCP, especially for non-standard specification type requirements as found in the service industry.
2.2Product life cyclebased model for MCPlevel analysis
Many scholars have adopted the “degree of customer integration” to analyze the level of MCP(Piller 2002;Piller et, al. 2004). It is very useful for the understanding of MCP concept, but does not include the need for work flowanalysis in order to develop the pragmatic acquisition processfor achieving the customerdemands. Therefore, we are using the Product life cyclemodel to analyze the levels of MCP. The Product life cyclethat we use is a modificationof several government and private standards such as IEEE[1], ISO[2] and USA/UK Military Standard. Basically, it entails six key stages: Concept Exploration, Design, Engineering development/validation, Manufacturing, Logistic, and Recycling phases. From the concept exploration, product manufacturing, delivery, operation, to recycling, it may take a couple of months or tens of yearsdepending on the product contents. Customers might start on any period of these phases. For example, a number of customers may request the special delivery service, which could be classified into logistic work; and nowadays more and more customers come back to the companies just for their recycling services. Since the improvement of information and communication technologies, all these customers can be managed by an integrative acquisition management process, in that they can be served by aProduct life cyclebase. Apparently, it is an alternative way to increase the economic scale for MCP business. Based on this discussion, we propose the Product life cycle based model to analyze the MCP levels (see figure 1).
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MCP Level / Product life Cycle Activities / Degree of Customerintegration
Level 1 / C / D / E / M / L / R /
Level 2 / C / D / E / M / L / R
Level 3 / C / D / E / M / L / R
Core business; Residual business
C: Concept Exploration, D: Design, E: Engineering development/validation,
M: Manufacturing, L: Logistic, R: Recycling phase
Figure 1Product life cyclebased model for MCP level analysis
It can be seen in Figure 1 that at the MCP level 1, that the Product life cycle activities involved byMCP provider are mainly related to the delivery actions and the manufacturing capability which depends on the manufacturers’ production control system (push system (stock) or pull system (made to order) type). The relevant activities in Concept Exploration, Design and Engineering development/validation phases are completed by the customer through internet technology. The Logistic support will be a continuous business because of the standardizedcomponents and products base. In the long run, the Logistic support could be developed into a profitable business, through the efficiency of an integrative Product life cycle information system. By the same token, the succeedingrecyclingactions could be an extra opportunity for business, if the relevant regulations make it compulsory.
The Product life cycle activities involved at level 2 are mainly coupled with Manufacturing and to a certain extent with the Engineering Development phase. Unlike the standardized products at level 1, the logistic support at level 2 only involves the delivery service. The rest of the services could be a residual business because the variety of customized functions and specifications are designed by the non-standard product base. The low economic scale of customized products will not bring enough interest to the supply side. However, in the new business model focused the service industry such as in Health, Hospitality and Knowledge-Sale industries, are expanding their profit margin in these phases because the degree of ‘soft’ or ‘digital’ products makes it easy for them to provide the after-sale services.
The Product life cycle activities involved at level 3 are covered by all phases. The Logistic support depends on the customer needs and the economic scale. For example, in the defense industry, most of the military weapon systems demand a lengthy period of operational logistic support. The economic scale will be demand-driven and run by the contract base. Nevertheless, for the ‘soft’ or ‘digital’ product or service industry, instead of waiting for demands, more and more strategies are emphasizing the significance of building the active marketing capability in such a way as to provide the after-sale information or free updating services through the IT technology.
2.3The web-based of MCPtransaction phases
As a result of an online customization businesses survey,based on numbers of web-based scenarios, 4basic transactionalphases are required in order to complete a commitment and make contract. They are Pre-Acquisition (PA), Negotiation (N), Contract(C) and Execution (E) Phasesrespectively.
Pre-Acquisition(PA) Phase
The purpose of this phase is to translate the customers’ needs into understandable requirements or configurable specifications. The understandable requirements/specifications in the sense of usability and clarity are the motivation for MCP providers to develop configuration tools termed configurator(Zipkin 2001;Piller, et al.2004). Based on a survey of online customization business, we surmised the most wanted type ofconfigurator which is coupled with the visual approach consisting of the graphical notion or 3-D product mock-up. At level 1, it will be one way display predefined by MCP providers. At level 2, it could allowcustomers to operate the software to configure their mockup. At the level 3, it will be an interactive manipulation for both customers and MCP providers to cooperate together to develop the final product configurations.
Current literature survey has shown that the configurators for level 1 MCP products are well developed. The configurators for levels 2, 3 MCPare less frequently mentioned and developed. Traditionally, creatinga customizedproduct to meet specific customer needs has resided in the ‘engineering development',which demands a continuing need and value in an environment coupled with the assistances of expertise, especially for the MCPlevel 3. How can we use this expertise effectively to provide rapid, effective solutions and relevant quotations? The question is about the optimal ways of interacting with the customer, which is not just the need for punctuality in responding to customer needs but convincingness and effectiveness in meeting the customers’ time and finance limits.
Negotiation phase
Number of surveys suggest that many buyers prefer to take what they can get rather than wait for their specific demands to be met(Agrawal, et al. 2001). However, a study has also shown that a portion of customers would like to keep their preferences even if it meansto compromise on time or price (Jiang 2002;Piller, et al. 2004). Therefore, we need to set up a negotiation phase in which customers can review from time to time the product variety, delivery time and price. It could prompt the customer to make their decision based on the trade-off between these factors.