APICS is the premier professional association for supply chain management.

Flawed Expectations

By John P. Collins, CFPIM, CSCP, and Eric P. Jack, PhD, CFPIM, CSCP | January/February 2011 | 21 | 1

If you’re thinking of ways to change your customers, think again

This department often tackles the challenges manufacturers face when trying to deliver customer value using a build-to-order business model compared to those who choose to postpone product differentiation until the last possible moment. The heart of the issue is of course how to be faster with more options at less cost.

Business models are only as good as customers think they are. Too often, models are slow to change, and too much time is spent convincing consumers that what they really want isn’t what they think they want.

Many businesses are experimenting with the issue of postponement to delay differentiation to the last possible moment and allow for economies of scale wherever possible. Certainly the old approaches, such as Henry Ford’s “any color they want as long as it’s black,” are long gone and the challenges have increased. How can companies give customers what they want while still making a profit?

Let’s consider an example where the manufacturer has no choice. In commercial boat building, businesses must produce a highly engineered, custom product in a highly competitive market. Commercial boats come in all sizes and do all kinds of things. Some are working boats, such as tug boats that pull or push other boats. There are ferries that haul people, cars, or both. There are boats that skim oil from oil spills and barges that carry the skimmed oil elsewhere. There are boat builders in the United States, Korea, China, Peru, Brazil, the Far East, Europe, and almost all points in between. Their customers all share two things in common: highly individualized needs and desire for top value at the lowest cost.

Using this competitive landscape, how does a boat builder compete? It would be nice to differentiate one’s product with features, but that’s difficult to do when all competitors must meet the same design requirements from the customer. The only real differentiation a boat builder has emanates from how well it can build the custom design at the lowest total cost. This approach represents a classic build-to-order business model with a serious need for postponement cost savings. The real challenge is achieving business objectives when the product is so highly customized.

One boat builder is taking a novel approach. Because it can’t standardize the product, it standardizes the processes. Members of its experienced workforce looked at the processes used and realized that they essentially built boats the same way, regardless of the type. While the features differed, the processes to fabricate and install those features were remarkably similar. By relying on standard processes, these professionals now have the opportunity to focus on cost improvements. This approach also means that the boat builder is not trying to force customers to compromise on their value proposition.

Finding a way to be responsive may make the difference between survival and failure. If a custom boat builder with highly complex processes can be successful by focusing its business model on what the customer wants, so can companies in other industries. The challenges are essentially the same: Give consumers what they want at a price they are willing to pay.

Does your business model do that? Or are you trying to change your customers rather than change yourself?

John P. Collins, CFPIM, CSCP, is chief executive officer for Nichols Brothers Boat Builders. He may be contacted at johnc@nicholsboats.com.

Eric P. Jack, Ph.D., CFPIM, CSCP, is associate dean at the University of Alabama–Birmingham. He may be contacted at ejack@uab.edu.

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