The Build-to-Order Challenge
"Have it your way...special orders don't upset us" was a snappy advertising jingle used many years ago to promote a popular fast-food chain. The company was touting its ability to serve customers build-to-order burgers.
At the time, it was a radical concept that distinguished the restaurant from its competitors. Today, consumers have more choices than ever. And, the numbers and types of personalized products available are expected to skyrocket in the near future, as manufacturers in numerous industries shift from mass production to mass customization.
A wide variety of products are already built to order, ranging from computers to fire trucks to golf clubs to windows. As more and more manufacturers tackle the concept, it will create new challenges and opportunities for engineers.
Recently, Ford Motor Co. (Dearborn, MI) announced a massive revitalization initiative called the "way forward." Bill Ford, the company's CEO, proclaimed: "We're going to sharpen our focus on those who count the most-our customers. They are changing and we're going to change with them. True customer-focus means that our business decisions originate from our knowledge of what the customer wants, both today and tomorrow.
"‘If they will buy it, we will build it' is right. ‘If you build it, they will buy it' is business as usual, and that's wrong. Our product plans for too long have been defined by our capacity. We developed vehicles to fill plants, sometimes at the expense of creativity. From now on, our products will be designed and built to satisfy the customer-not just to fill a factory."
Ironically, those words came from the mouth of the great grandson of the man most people call the father of mass production: Henry Ford. Mass customization is expected to define manufacturing in the 21st century, just like mass production transformed the 20th century.
A Bold New Era
Many observers claim that the era of mass production has ended in the United States. "Most of the manufacturing that has moved offshore involves high-volume consumer goods or other high-volume, low-variety products," notes Quarterman Lee, president of Strategos Inc. (Kansas City, MO). "The biggest competitive advantage of local production in the U.S. involves low-volume, high-variety specialty items that command a high price and require fast delivery."
Indeed, mass customizers have a unique advantage in their local market. As a result, mass customization can be an ideal weapon for American manufacturers to deploy against fierce competition from overseas.
"Mass customization is the antithesis of mass production," says Dave Gardner, principal of Gardner Associates Consulting (Reno, NV). "Mass production is about building large batches of identical products to achieve maximum efficiency and lowest cost. Mass customization is about setting up the company to build a lot size of one with the same efficiency as a mass-produced product.
"Build-to-order is about having pre-engineered modules that can be composed into finished products without requiring any assistance or additional knowledge from engineering," says Gardner. "Most build-to-order products require no involvement from engineering once an order is received. Engineering did its work well in advance of an order's receipt. The exception would be for a nonstandard order configuration or a ‘special.'"
According to Gardner, build-to-order often implies two distinct elements:
- Build-to-forecast-modules are procured or built and maintained in inventory to later facilitate orders.
- Assemble-to-order-a configured product is built from preassembled modules to the customer's requirements.
"Mass customization means that the customer is driving the configured order from a predefined menu, much like what you see in a restaurant, that puts some limits or parameters around what the company is offering to the marketplace," adds Gardner. "A product configurator is usually presented to the customer that specifies what goes with what and what is permissible to be ordered."
Most mass customized products are built to order. "Mass customization uses build-to-order capabilities to build customized products on-demand," adds David Anderson, P.E., president of Build-to-Order Consulting (Cambria, CA). He defines "on-demand" as building or customizing products immediately from standardized parts and materials that are spontaneously resupplied and always available.
Anderson claims that build-to-order production is ideal for manufacturers that are faced with any of the following challenges:
- Product variety. Build-to-forecast producers sell products from inventory. As variety increases, it gets harder to keep enough of every variation in stock to satisfy demand.
- Unreliable forecasts. Forecast accuracy decreases dramatically as variety and market volatility increase.
- Inventory problems. Selling products from inventory creates many problems, such as running out of stock, obsolescence, write-offs, inventory carrying costs, warehousing, extra handling and discounting to sell unpopular inventory.
- Customization. Customizing products by craft production is slow and expensive. Maintaining the quality of the finished product is difficult. Customizing products during mass production is inefficient and compromises high-volume assembly.
- Response time. Manufacturers may try to build products to order, but will not be able to deliver them quickly if they have to wait for parts, setup changes and equipment availability.
"Build-to-order and mass customization represent a business model that offers an unbeatable combination of responsiveness, cost and products that customers want when they want them," says Anderson. Benefits include:
- Immediate delivery and high order fulfillment rates without the inventory dilemma. Too little inventory minimizes inventory carrying cost, but degrades order fulfillment rates; too much inventory is expensive and vulnerable to obsolescence. Build-to-order avoids the costs of carrying inventory.
- On-demand delivery of a wide variety of standard or mass-customized products results in better customer satisfaction, growth and profits.
- Build-to-order companies can grow sales and profits by expanding sales of standard products in addition to customized, derivative and niche market products, while avoiding the commodity trap.
- Build-to-order companies are the first to market with new technologies since part supply and distribution pipelines do not have to be emptied first.
- Through mass customization, manufacturers can quickly and efficiently customize products for niche markets, countries, regions, industries, stores, test markets and individual customers.
Dell Inc. (Round Rock, TX) is often cited as the leading build-to-order manufacturer. The company never assembles a computer or television until it has a customer order in hand. That translates into ultra-low inventory levels-approximately one-tenth that of its traditional competitors.
Dell uses a streamlined production process that transfers a customer's order to the factory floor in less than 24 hours. The assembly line receives a new set of build orders every few hours. Customers typically receive their order in just a few days, and they're assured of getting a product that meets their specific needs.
In addition to Dell, many other manufacturers have successfully applied the build-to-order concept, including Cirrus Design Corp. (Duluth, MN), a manufacturer of single-engine aircraft; England Inc. (New Tazewell, TN), a furniture maker; Great Lakes Window Inc. (Walbridge, OH), which makes vinyl replacement doors and windows; Husqvarna (Lachute, Quebec), a manufacturer of grounds care equipment; Karsten Manufacturing Corp. (Phoenix), which makes golf clubs; Pierce Manufacturing Inc. (Appleton, WI), a leading supplier of fire and rescue vehicles; and Sunset Models Inc. (Campbell, CA), a manufacturer of scale model trains.
"Many industrial products that are currently engineered-to-order can be pre-engineered and modularized to accommodate a build-to-order strategy," says Gardner. "For instance, pumps, industrial fans, motors and valves can be built to order."
However, some products simply aren't good candidates. "Our distribution system largely governs what can be built to order," explains Gardner. "Any time that a manufacturer is selling through a multitier distribution process, the products are almost assuredly mass-produced." Department stores, drug stores and mega-retailers, such as Wal-Mart Stores Inc. (Bentonville, AR), only sell mass-produced products.
Kenworth Truck Co. (Kirkland, WA) prides itself on providing vehicles that meet each customer's unique requirements. Each truck is built any way customers want it, with multiple configurations to choose from. In fact, that's one reason the company's Renton, WA, facility was selected as the 2004 Assembly Plant of the Year by ASSEMBLY magazine.
"We use a production process that enables any model to be produced at any time, as opposed to a batch process," says Joe Zitzelberger, director of manufacturing development. "Every truck coming down the assembly line is different. Customers specify many different options to meet their application. This means that the assembly teams need to be well trained and adapt to the changing assembly requirements."
Zitzelberger claims that Kenworth offers more job-specific, factory-installed options than any other truck manufacturer. Customers can also select add-on features, such as pusher axles and hydraulic tanks. Sleepers range from 38-inches to 86-inches wide, each equipped with numerous interior appointments and features. In addition, there is a wide variety of chrome and polish options, such as polished battery boxes, tool boxes, fuel tanks and exhaust stacks.
The assembly process begins when a buyer selects features at one of 281 Kenworth dealerships in the United States. Specifications, such as the size and brand of diesel engine, are transmitted electronically to the company's assembly plants in Chillicothe, OH, and Renton, WA, where engineers review the order. Kenworth engineers often suggest a different component, such as a specific transmission, to better suit the customer's intended use.
Build-to-order production may force some manufacturers to change their assembly processes. "The biggest challenge is creating flow after the scheduling point, with the outcome being a predictable lead-time that delivers what the customer wants when they want it," says Jamie Flinchbaugh, partner in the Lean Learning Center (Novi, MI).
Error-proofing is critical in a build-to-order environment. "The more choices, the more chance for error," Flinchbaugh points out. "Depending on the environment, there are various solutions ranging from good old experience and training to kitting and pick-to-light systems."
According to Flinchbaugh, assembly line layout usually isn't affected by a switch to build-to-order production. "However, engineers must focus more on how materials get presented to the line in a manner that is easy for operators," he explains. "Before, you might have focused on line changeover from one product to the next. Now, every cycle, the operator is essentially changing over and must be able to do so without delay or error."
A common assembly process is also very important. "You want to have variety in terms of features and options, but not in terms of what it takes to build the product," notes Gardner.
Standardization of parts and components is another critical prerequisite of build-to-order production. "Most engineering departments allow their engineers the freedom to do what they want and don't ask them to limit their creativity," says Gardner. "The proliferation of parts complicates supply chain issues, increases the possibility that parts needed to support production won't be available, and adds unnecessary cost.
"There is a real benefit in simplifying and using standardized components," adds Gardner. "Just because you can doesn't mean you should. The more parts you have, the more difficult it is to find an existing part."
Benefits of Build-to-Order Production
- Reduces manufacturing costs-particularly in engineering.
- Frees up engineering resources to focus on new products and enhancements to existing products, rather than burdening them to only support order demand.
- Differentiates a company from competition, because customers can choose what they want (within limits).
- Reduces cycle times, resulting in more capacity through the same plant.
- Sales personnel don't get bogged down driving orders through the factory or spending all their time "figuring out if we can build it."
- Makes it easier to plan and forecast material requirements.
- Eliminates finished goods inventory. Finished orders ship directly to the customer usually upon completion.
- Increases operating margins.
- Boosts on-time delivery.
Source: Gardner Associates Consulting