Today's Build-To-Order Model Is a Far Cry from Henry Ford's Dictum That His Customers Could

Customisation and Supply Chain Cooperation.

Today's build-to-order model is a far cry from Henry Ford's dictum that his customers could have their cars in any colour as long as it was black. The ultimate customisation scenario sees us ordering goods to individual specification - ready-meals tweaked with extra tomato or easy on the chili, perhaps even prescription drugs modified to meet our individual genetic requirements. Great in theory, but somewhere along the line the stocks needed to give an instant response to this myriad of consumer preferences must be stored.

As as Simon Pollard, vice president for European Research at AMR Research puts it: "If I use a tissue does it mean that the build-to-order specialist goes out and plants a tree? Of course not. Somebody in the pipeline has to maintain stocks for the sort of instant response the theorists describe."

In the case of Dell Computer those stocks are dispersed through the pipeline. Dell itself holds around five days, while third-party logistics providers storing supplier-owned products add as much as ten extra days' supplies, with replenishment cycles to both these resources taking anything from 12 hours to two days. "We don't know what will be ordered each day so we have to design a flexible operation that can move production up or down as need be," says Dick Hunter, vice president for Dell's manufacturing operations in the US.

Build-to-order involves balancing what is available with what the customers want and Dell has become expert in gently massaging both these factors. Any shortage in a particular component is immediately countered by offering other available products on promotion.

"We have 10,000 customers in the US every day," says Mr Hunter. "So that gives up 10,000 opportunities each day to balance supply and demand." By monitoring component stock availability in real time, Dell and its suppliers can quickly see problems with any particular part. A first step is to increase lead time, informing new customers that their preferred configuration will take eight to 10 days to deliver rather than the usual five.

If that does not slow up demand then would-be customers are offered a more expensive upgrade for the same price. "Everyone wins," says Mr Hunter. "Our customers get a better deal, the suppliers get business, and we can satisfy demand."

An important aspect of Dell's data sharing with its suppliers is the integrity of the information. Dell uses Agile Anywhere software to integrate the various data feeds from suppliers, and ensure that website, production and warehouses are all speaking the same language and tracking the same components regardless of the hundreds of technical changes that take place in specifications each week. For Mr Hunter the key factors in a build-to-order model are flexible manufacturing, a well integrated supply chain and speed. "Most companies like a backlog of orders," he says, "but we get worried if we have more than one shift's worth of work ahead of us." Gateway, another PC manufacturer, is also in the build-to-order market which Jim O'Dea, European vice president for manufacturing, believes is "the most efficient business model ever seen. It allows you to get close to your customer with instant feedback and the opportunity to pass on new products and falling costs just as soon as they happen as there is no channel inventory to clear first". Gateway's European operation near Dublin currently works on a five to six day delivery cycle. Once payment is approved and the order hits the production line, the PCs take two days to make with the factory capable of churning out up to 2,500 PCs a day when running at full capacity.

Gateway pushes stockholding back along the pipeline and the Dublin plant carries an average of only half a day's stocks. "We have a fully integrated vendor hub to monitor suppliers' inventory and track consignments," says Mr O'Dea. "And we share forecast and production data with all our suppliers so that they can assess likely demand." Flexibility is essential and it is not unusual for Gateway to divert goods, en route from the Far East by sea, to the nearest port and switch to faster transport options if supply and demand appear to be getting out of balance. "The more information we can give our suppliers the better," says Mr O'Dea. "Three years ago we built a warehouse for storing stock but it now houses another production line as we really don't need that much storage space."

For Mr O'Dea there are four key components to a successful build-to-order operation. The first is scalability, so that production can cope with demand as it ramps up; second is simplicity, with both manufacturing processes and order management kept as basic as possible. Third is a flexible management approach to ensure quick decision taking and fourth - and possibly the most important - is technology. "Our operation is totally reliant on technology," he says. "All systems must be fully integrated throughout the supply chain with common part numbers and easy automation of order processing and parts management." Assembling computers or cars is comparatively feasible for the build-to-order model, but other products can be far more complex. "You can't meet consumer demands for increased diversity in dresses, say, by infinitely expanding the product range," says Peter Willmot, principal with Kurt Salmon Associates. "So you need some form of mass customisation to engineer incomplete products that can then be tailored at the last minute to meet specific requirements. "These incomplete products then move through the production line with some form of assembly at the final stage in the warehouse or maybe the store," he says.

Although far removed from the consumer marketplace, IBM has adopted this sort of mass customisation for the microprocessors it supplies to companies such as Nintendo. Around 90 per cent of the chip is a standard design and then the final components are added as required to meet the needs of various customers. "We have effectively cut time to market by 50 per cent with this sort of technique," says Dean Parker, product market manager for IBM's PowerPC processor range. "It also means there are fewer problems with obsolete components and our customers can introduce new products more quickly." While build-to-order may depend largely on supply chain collaboration, mass customisation often requires so-called fourth-party logistics service providers to add the final touch to assembly, as as late as possible in the cycle. Whether that can ever be applied to convenience foods or medication remains to be seen.

Bespoke aims for mass applications: CUSTOMISATION by Penelope Ody: The customisation of orders is seen as the ideal production model with the potential to reduce overheads, maximise profits, and interact directly with consumers, but is it a feasible aspiration?
Financial Times; London; Jun 20, 2001; Ody, Penelope;