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Successful Build-to-Order Strategies Start With the Customer

October 15, 2001 | Matthias Holweg , Frits K. Pil | Operations

All companies would like to offer custom products that delight their customers. For many, the challenges seem overwhelming, and they settle for manufacturing standard products in bulk, guided by long-term forecasts. Because demand is rarely forecast correctly, companies miss potential sales and must pay to store and manage excess product. In an effort to purge inventory, they offer discounts and other incentives. Profits erode, and the companies lose sight of what customers really want.

Some companies attempt to offset those effects by optimizing pieces of the value chain. They create island solutions, such as lean factories, believing that such initiatives will make them more responsive. The authors argue that those efforts ultimately fail because they are not customer- centered. Citing results from their research, sponsored by the 3DayCar Programme at Cardiff Business School in Wales and the International Motor Vehicle Program at MIT, they show that island solutions sometimes backfire because they degrade other parts of the value chain.

Instead, they urge companies to aim for a true build-to-order strategy, in which managers systematically improve the value chain’s flexibility in three areas: process, product and volume. Because the emphasis at each stage is on how to meet customer demands efficiently, optimization becomes more holistic and ultimately more profitable.

To improve process flexibility, companies can link customer requirements directly to production, synchronizing customer-oriented production schedules in real time with suppliers. To improve product flexibility, they can push customization closer to the customer and can use common support structures to reduce the impact of product variety. To improve volume flexibility, the authors suggest ways companies can reduce reliance on full capacity or use differentiated pricing to reward customers for ordering products well in advance.

The authors urge managers not to settle for halfhearted transitions to build to order. They recommend two critical first steps: First, understand key aspects of customer demand; second, adjust all processes accordingly. Only then can companies truly implement responsiveness across the value chain.

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