John P. Collins, CFPIM, CSCP, and Eric P. Jack, PhD, CFPIM, CSCP | July/August 2011 | 21 | 4
Build-to-order from an operations strategy perspective
The recent strategic decision by Dell to streamline and segment itssupply chain gives us reason to pause and reflect on whether or not masscustomization is operationally doable. Certainly, over the past severalyears, proponents of mass customization have pointed to Dell, with itsbuild-to-order (BTO) model, as a prime example of success. Now, things seem to be changing.
Dell may be demonstrating that its once-vaunted BTO model is unscalable in the declining North American and European personal computer (PC) markets. Furthermore, the model may not work in a growing, commoditized PC market, such as that in Asia, where customers must first have a PC and a credit card in order to buy a Dell.
Do customers want customized products? More importantly, are people willing to pay competitive prices for customization? Dell took a serious look at its own data and discovered only a small percentage of the possible PC configurations actually were demanded by customers. Consequently, company leaders elected to streamline product offerings as a first step toward reducing supply chain complexity. Interestingly, other manufacturers in this industry have limited front-end choices and options in order to ensure that the back end of the supply chain can efficiently deliver products via contract manufacturing arrangements.
The second major operational decision Dell made was to aggressively sell more of its products through normal distribution channels, such as Best Buy and Walmart.
Understandably, this choice was influenced by the commoditization of PCs. But history demonstrates that there are consequences and tradeoffs to competing successfully in a commodity market. So Dell began to focus intensely on cost leadership through global sourcing and logistics strategies driven by the desire for cost efficiency. It will be interesting to see what happens to inventories and cashto-cash cycle time metrics.
The third major operational decision Dell made was to shift its focus to delivering end-to-end customer solutions in the services arena. Research shows many in this industry long ago figured out that it is difficult to compete on cost leadership in a commodity market. For example, IBM chose to sell its PC business to Lenovo and then focus on delivering service solutions to customers who are willing to pay premium prices.
This is not to suggest that Dell sell its PC business; but it is worthwhile to observe and consider lessons from history along with Dell’s own recent decisions to acquire more cloud computing and software service capabilities. It’s also interesting to think about the costly trade-offs Dell will have to make to compete in this new space. For example, what do you think will happen to labor costs?
There is a debate between the viability of push versus pull production systems. In an ideal world—where demand for your products is increasing—a pull production system may be a practical operational strategy. However, in a commodity market that is driven by the cost efficiencies of an extended supply chain, pull production systems become strained by the inherent challenges involved with the timing and forecasting of demand. Even if one chooses to rely on lean manufacturing principles with emphasis on Just-in-Time and continuous improvement, these strategies may not be enough to overcome the realities of operating in what essentially is a push production environment.
So, given these lessons gleaned from Dell’s operational decision to shift away from BTO, what does this say about mass customization from an operations strategy perspective?
Considering the price sensitivity of PCs, and many products in other industries, can postponement help? Perhaps. The jury—the customer—is deliberating, and we are awaiting the verdict.
John P. Collins, CFPIM, CSCP, is chief executive officer for Nichols Brothers Boat Builders. He may be contacted at email@example.com.
Eric P. Jack, Ph.D., CFPIM, CSCP, is associate dean at the University of Alabama–Birmingham. He may be contacted at firstname.lastname@example.org.
To comment on this article, send a message to email@example.com. By Bradley McCollum Sales and Operations Planning.