Koren Y. The Global Manufacturing Revolution: Product-Process-Business Integration and Reconfigurable Systems

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failures, and delays in transportation. Because delivery times are so critical, geo-

graphic proximity to the supplier’s customer can give a competitive advantage to

nearby supplier. Unanticipated disruptions require buffers; but buffers add no value to

the customer, which contradicts the JIT philosophy. Real factory operations are

different than the ideal world described in textbooks.

Obtaining high-quality parts consistently from suppliers is another challenge for

JIT. There are many historic cases where assembly lines have been shut down because

of part quality issues coming from suppliers. In January 2010 Toyota recalled

2.3 million vehicles for sticking accelerator pedals caused by a p art that was

manufactured by a supplier. This shows the vulnerability of the manufacturer to

quality problems caused by its suppliers. Implementation of JIT is not trivial; it took

20 years to fully implement these principles within the Toyota suppl y chain.

Summary: Advantages of JIT Drawbacks of JIT

Less cost of high inventory of parts

Dependency on suppliers that must

supply parts in a coordinated, timely

manner

Less inventory space

Vulnerability to problems outside the

manufacturer’s system

Less equipment to handle inventories

4.5.1.4 Principle 4: Flexible, Highly Motivated People Who Believe in the Lean

Philosophy Workers that are motivated and empowered by management to perform

above and beyond traditional laborer’s duties are the foundation of lean production.

Teams, to be effective, must take ownership for identifying quality defects and

striving for continuous improvement. With the authority to stop a running production

line (called jidoka in Japanese), workers have responsibility that goes all the way to

the enterprise level of the company. Team members must be ﬂexible and support each

other, since the effort of the whole team is needed to successfully implement the

system, so much so that they are cross-trained in the jobs of other teams. There is no

question that multifunctional workers, who can help exactly where needed, facilitate

the factory workﬂow.

4.5.1.5 Principle 5: A Single Operator to Control Several Operations Assigning

one operator to control multiple operations, as illustrated in Figure 4.8, is another

example of how to improve manpower efﬁciency with lean methods. When a person is in

charge of only loading and unloading one machine, there is a repetiti ve cycle in which the

person does nothing as the machine works on the part. This wasted time is eliminated if

the person is in charge of two adjacent machines and alternates from one to the other.

There are many operations in a factory where a person can take on additional

responsibility and improve the system, but personnel have to be educated in lean

methods and take ownership of their work.

THE PRINCIPLES OF LEAN PRODUCTION 121

Three of our students shared their work experience in implementing lean meth-

odologies with us.

“I have experienced ﬁrst-hand both mass production and lean production.

The cultural methods of mass production discussed in this chapter do not

seem to go away [2006]. I have yet to see the ‘many buffers to ensure smooth

production’ go away and replaced with one-piece ﬂow, as Lean would suggest.”

Greg Wood

“The idea of Just-in-Time may be over-simpliﬁed. For example, at GM Pontiac

Assembly Center, the plant was shut down for 1.5 days [in 2003] due to a union

issue at one of GM suppliers. Even though the issue was resolved quickly,

the limited supply in the pipeline caused the assembly line to shut down.”

Cindie Niemann

“I work in a new facility that uses Lean principles in a mass-production

environment [2006]. Most of the machines at the site are ﬂexible machining

centers. The plant is closely tied with another plant that is an old mass-production

facility, but makes the same produc t. As we work to implement different product

changes in both plants, it is amazing to see how much faster and cheaper that my

site can handle new (or updated) products.” Dan Gulledge

4.5.2 Summary of Lean Production System

Lean production principles are operations management methods that have two

goals: reduce cost and enhance product quality. Both goals are achieved through the

identiﬁcation and elimination of waste. Principles 2 and 3 of lean production

constitute the two pillars of Lean, as depicted in Figure 4.8: built-in product quality,

which is embedded in the manufacturing process (rather than checking quality at the

Figure 4.8 Efﬁcient manpower utilization.

122

MASS PRODUCTION AND LEAN MANUFACTURING

end of the production line), and JIT, as described in Principle 3. When implementing

lean production, quality problems are identiﬁed and remedied before they build up

and create waste.

JIT produces only what is needed, when it is needed, in the amo unt neede d,

meeting the exact current demand of the customer. JIT should be synchronized

with the takt time—the time that should be taken to produce a product based on

customer demand (calculated as: total daily operating time/total daily customer

demand). JIT is a pull system, which eliminates overproduction and minimizes

holding cost s.

The three Japanese concepts that are useful when studying lean production are

Kanban (a placard that documents the materials needed to pass from one process to

the next, which is the basis of a pull system)

Kaizen (actively taking responsibility for continuou s improvements in the system)

Jidoka (the authority to stop a production line when a quality problem is detected)

Implementation of lean production principles and methods requires a cultural

change in the company; this is the basis for lean production, as is illustrated in

Figure 4.9. Cultural changes includes managem ent willingness to assign authority to

worker teams on the production line to make decisions (empowerment of the

workforce), where empowerment means that teams take ownership and responsibility

for identifying quality defects and strive for continuous improvement. Ownership

involves team members being ﬂexible in their task assignments and support of

each other.

A culture of empowerment also means suppliers are involved in the ﬂow of process

management and are a constant part of the decision-making process. A successful lean

production system requires serious commitment from top management and workers

as well as from suppliers. An enterprise can only achieve the lean goals of lowering

Figure 4.9 Lean production goals and tools.

THE PRINCIPLES OF LEAN PRODUCTION 123

costs and enhance quality when the two pillars of lean production, JIT and built-in

quality, are ﬁrmly established.

PROBLEMS

4.1 A manufacturer is producing a high-volume product for a mass production

market.

(a) Given, the ﬁxed costs per year C

¼ $3000 M/year, and C

¼ $6000. Plot the

car price y ¼ f(n) using Eq. (4.1): y ¼ C

þ C

/n in the range n

¼ 100,000–1,500,000 cars per year. (Draw price on the vertical axis and

quantity on the horizontal axis to obtain the production curve.) What are

your conclusions?

(b) If the number of customers who purchased a car is m ¼ 500,000, y

¼$16,000, and a ¼ 2, calculate C

from the demand curve expressed by

Eq. (4.2): m ¼ C

. Repeat for a ¼ 3. Plot the demand curves on the same

scale as the production curve in item a.

, and C

(d) Use the values of C

obtained in item b. For a ¼ 3, solve Eq. (4.6) using

numerical methods.

4.2 Assume that a modiﬁed Eq. (4.2) is given by m ¼ C

 ay, where C

denotes

the total market size and a is the price sensitivity of demand. Let C

¼ 3  10

and C

¼ 5000 in Eq. (4.1), and C

¼ 450,000 and a ¼ 10 in the modiﬁed

Eq. (4.2).

(a) For the range of 50,000–350,000 cars produced, plot the number of cars

produced versus (i) selling price per car and (ii) production cost per car. Let

the number of cars produced be on the x-axis and the price/cost per unit

shown on the y-axi s.

(b) How many cars should be produced to maximize the proﬁt per car?

4.3 Compare in a tabular format traditional mass production and lean

production.

Traditional Mass Production Lean Production

Manufacturing cost

Product quality

Product variety

Tool ﬂexibility

Workforce skills

124 MASS PRODUCTION AND LEAN MANUFACTURING

REFERENCES

1. J. PineII. Mass Customization—The New Frontier in Business Competition. Harvard

Business School Press, 1993.

2. J. P. Womack, D. T. Jones, and D. Roos. The Machine That Changed the World. Harper-

Perennials Publishers, New York, 1991.

3. J. P. Womack and D. T. Jones. Lean Thinking. Simon & Schuster, 1996.

4. J. K. Liker. The Toyota Way. McGraw Hill, 2004.

REFERENCES 125

Chapter 5

Analysis of Mass Customization

The mass customization era, which started with automobiles around 1980, has

blossomed so that today consumer products (e.g., kitchen appliances, computers,

and ofﬁce furniture) are produced by mass customization methods. Compared to mass

production (that peaked in 1955), the variety of each product in mass customization is

large and the volume per product variant is relatively small, as seen in Figure 5.1. Due

to increased customer purchasing power, as it is expected to continue in the

globalization era, the trend toward larger variety will intensify, especially with

the emergence of the personalized production paradigm. In this chapter, we analyze

the relationships between product variety and mass customization business models.

5.1 INTRODUCTION TO MASS CUSTOMIZATION

Global competition has created a market in which supply is much greater than demand

for many consumer goods. These market conditions allow more consum ers to be more

selective in buying products that ﬁt their various needs; at the same time it is forcing

companies to look for new ways to gain a competitive advantage. Finding ways to

offer more cost-effective mass customization is a way to create a competitive

advantage. Even considering recent contractions, all indicators support the overall

trend that global mass customization will continue to expand and ﬂourish. The list of

products that are suitable for mass customization is broad and can include bicycles,

wheelchairs, scooters, watches, backpacks, automobiles, furniture, toys, clothing,

The Global Manufacturing Revolution: Product-Process-Business Integration and Reconﬁgurable Systems

By Yoram Koren

126

refrigerators, computers, keyboards, air-conditioners, golf clubs, shopping carts,

cosmetics, shoes, and blue jeans to name but a few.

Table 5.1 (composed by Dr. Z. Pasek) clearly demonstrates that between the early

1970s and the end of the twentieth century our society witnessed a revolutionary

increase in the variety of products that we use on a daily basis. With this increased

variety, consumers have been better able to select products that ﬁt their needs and

wants (be it running shoes or TV screens) or their tastes (e.g., 340 breakfast cereals).

Ever more selective consumers are purchasing products because they believe that

they are getting a better value for their money, which is the mass customization goal.

Figure 5.1 Mass customizations is characterized by large product variety and small

volume per product variant (model).

TABLE 5.1 An Increase in Product Variety

Item Early 70s Late 90s

Vehicle models 140 260

SUV models 8 38

TV screen sizes 5 15

McDonald’s menu items 13 43

Breakfast cereals 160 340

Milk varieties 4 19

Running shoe styles 5 285

Bicycle styles 8 31

Pain relievers 17 141

INTRODUCTION TO MASS CUSTOMIZATION 127

The goal of mass customization is to increase customer’s value of a product by

adding a range of product variations that ﬁt speciﬁc customer’s taste and needs

while maintaining low prices.

Mass-customized products with similar function belong to a product family, and

mass-customized parts of a similar form and function belong to a part family (see

examples in Figure 5.2).

In mass customization, manufacturers continue to produce large quantities, but

now of a variety of products from the same family, at close to mass-production

competitive cost. We have previously described a product family as including a set of

products that possess core functions that are common to all products within that

family. In addition to the core functions, each product model (i.e., variant) within the

family possesses augmenting features that differentiate it from the other members of

its family.

The concept of a product family is essential for mass customization to be

economically viable. One can achieve at least partial economies of scale by producing

many or most members of the part family on a single manufacturing system.

Manufacturing systems that are reconﬁgurable can be designed to produce up to

every feature encountered in a part/product family using a system that adjusts to

accommodate all features of all members.

Our deﬁnition of the mass customization methodology is as follows:

Mass Customization

Production of a wide product variety of customized products at mass production

efﬁciencies as a strategy that generates competitive advantage. A wider product

variety increases demand and sales.

Figure 5.2 Three part families.

128

ANALYSIS OF MASS CUSTOMIZATION

The basic challenge that mass customization manufacturers face is:

How much variety to offer, and how much customization to put forward?

Too much customization is not only expensive; but also complicates service and

confuses buyers. To illustrate this point we go to example from the book Guts by

Robert Lutz

“Lincoln-Mercury [was] bringing out an all-new Continental sedan in 1996.

It featured a high-tech, high-performance V-8. But, Lincoln decided to make steering

programmable: customers could select any feel they liked, from pinky-ﬁnger-blue-

haired-little-old-lady effortlessness to NASCAR-tattooed-ham-ﬁsted bubba. And pro-

grammable suspension! Everything from ﬂoating-on-clouds to a ride guaranteed to

loosen ﬁllings. Most other features of the car were programmable as well.

Yet buyers failed to ﬂock to the Continental.

Its fatal ﬂaw, I think, was best summed up in Lincoln’s own brochure: ‘If you experience

difﬁculty in selecting the modes that best suit you, your local Lincoln-Mercury dealer

will be happy to tailor your Continental to the characteristics of your choice.’

Lincoln was saying: ‘We don’t know what you want you decide!’ it’s the manufacturer

who’s supposed to decide, and don’t leave the creative work to the consumer!”

Is Mr. Lutz right?

5.2 BUSINESS STRATEGIES OF MASS CUSTOMIZATION

Any business model for mass customization must offer solutions to two basic issues:

Variety Management: How does a manufacturer cope with product variety,

and what is the economic upper boundary of product variety.

Rapid Response Time: How does a manufacturer supply the buyer’s custom-

ized orders quickly, accurately, and in a cost-effective way.

We will discuss four business strategies for mass customization. They yield

different levels of the upper boundary of product variety. We will see, however, that

at higher levels of variety, delivery time and cost may increase, reducing their

attractiveness to custom ers.

5.2.1 Strategy 1: Off-The-Shelf Product Variety

Offering off-the-shelf variety is the simplest approach to mass customization—a

standardized range of products is manufactured with economically calculated varia-

tions (see example in Section 5.4). The whole range is distributed to stores and sold

directly to consumers. Customers choose whatever best ﬁts their needs, “off-the-shelf”

BUSINESS STRATEGIES OF MASS CUSTOMIZATION 129

(see Figure 5.3). Some common examples of this product strategy include breakfast

cereals, running shoes, blue jeans, etc. Variety is limited primarily by display space and

manufacturing costs. Because of the limited variety, consumers frequently have to

compromise their exact preference in favor of cost and availability. Any particular size

or brand that does not sell as expected amounts to a loss for the manufacturer, since the

merchandise is returned to the manufacturer. So, although this strategy may seem to be

the least expensive, it has drawbacks for both the customer and the manufacturer.

The mass customization of Strategy 1 is a transition phase from mass production

and also represents a Push Business Model—products are pushed to customers; they

are manufactured, put on shelves at department stores or parked in dealership lots, and

offered directly to customers. The customer’s only role is to pick out their selection.

However, there is a difference between this model and the mass production push

model—in the latter there is no quick feedback to the manufacturer. Ideally, in mass

customization once a product is bought, the store immediately orders a new product,

so its stock is always adequate for customers’ needs, and the manufacturer has a quick

feedback about the sales. Although Strategy 1 represents the lowest level of mass

customization, it has two advantages:

The product price is cheaper than more highly customized products.

The delivery lag time is zero, since the whole range is offered at the same time

and place.

5.2.2 Strategy 2: Intense Opti ons of Products

Strategy 2 represents true mass customization. In this strategy, customers order

products with the options that ﬁt their needs and preferences, and only then the product

is made. Examples include ordering a pizza, or a computer (at least from Dell

Computers), or cars (see Figure 5.4). The manufacturers make decisions regarding the

type and number of option packages they offer; from this viewpoint it is a push model.

From the product-manufacturing (or assembly) viewpoint, however, thi s strategy

represents a pull model, because each product is made only in response to a conﬁrmed

customer’s order. This is a combination of push (design phase) and pull (assembly to

produce the selected option). Therefore, Strategy 2 represents as a Push–Pull

Business Model , with a business sequence of

Design  Sell  Make . Note that

the ﬁnancial transaction (Sell) is executed before the product is made. Products of

Strategy 2 are more expensive than those of Strategy 1.

Figure 5.3 Strategy 1—Off-the-shelf product variety.

130

ANALYSIS OF MASS CUSTOMIZATION