SBP 4b: The Custom Manufacturing Oxymoron

This principle occurs because the advantages of manufacturing come from the lack of customer inputs. When customers provide information as an input to the production process, the particular challenges found in managing services begin to emerge.

(An oxymoron is a phrase that appears to contradict itself, such as “jumbo shrimp.”)

A business case about a company¹⁾ that produces reverse vending machines (automatic container recycle machines) asks the question “is [the company] selling machines or solutions?” The question was one of a potential need to either standardize or customize production. Is there a difference between selling machines and selling (custom) solutions? This Service Business Principle acknowledges that there is a very real difference.

Recall from the Weighting the Mixture Service Business Principle that the degree of service intensity in a production process is related to the significance of customer inputs and the value-added which is ascribed to those inputs. If a manufacturing process has customer-information inputs that lead to customization, then that process is to some degree a service process, and service management issues apply. In some cases, the product is highly customized, where the customer provides extensive information towards specifying the product. An example might be custom home building, where the customer may specify minute details. Another example would be custom computer chip manufacturing, where the customer specifies details about chip functions and perhaps even the exact schematics (detailed diagrams) of the product.

Other custom-manufacturing is only custom in a superficial sense, meaning that the customer only provides minor amounts of information about the overall product. One example is when a customer places a special order for an automobile. The special order may indicate the color of the paint and the type of upholstery. However these specifications are generally from a list of very specific options. The special order will say nothing about how to design the automobile nor about how to apply even the specified product features. Thus, the customer-information inputs are so minute and minor, relative to the non-customer information inputs, that the overall production process is hardly affected. As a result, such superficially-custom manufacturing can be managed as practically pure manufacturing without too adverse of consequences.

In fact, most of the actual customization of automobiles takes place at the dealership. Features such as stereo system, exterior trim, and presence of reading lamps are dealer-installed options that the customer selects before taking delivery. Postponing these custom features to the dealership makes good sense, since the dealer is equipped and skilled at dealing with customer-information inputs, whereas the factory is not.

There are a few automobile companies that allow customers to give more detailed product specifications, such as the exact wood to use to make the dashboard. That is a very different situation than the mass-production example described in the past few paragraph. Nevertheless, many so-called “custom-manufacturers” in fact provide dramatically limited options for customization so as to not forfeit the ease and advantages of non-service production.

A topic which has been discussed in management literature recently is mass customization, which attempts to blend the benefits of manufacturing with the challenges and opportunities of managing services. Manufacturers implement mass customization by producing introducing customer inputs (order specifications) just prior to final assembly. Up until that point, the manufacturer obtains or produces a relatively finite number of product components. When they receive the customer order, they quickly assemble the final product from the selected components. (This approach has been called a “T” production process. The letter “T” is narrow at the bottom but wide at the top, which symbolizes a narrow number of component parts throughout much of the process, but a great variety that is possible at final assembly.)

With current manufacturing technologies, mass customization will generally not work if customization permeates the entire production process, due to the loss of efficiencies and economies of scale. The fact is, the per-item cost of an item produced in a custom process is much greater than for the same item produced in a mass-production process. Almost every manufactured good is an example. For example, you can purchase a nice alarm clock for perhaps US$20, but having someone make a completely custom-designed alarm clock would cost thousands of dollars. (Only the government is allowed to pay prices like that-see the NASA example below.)

Manufacturing companies typically have the “mass” portion, but not the “customization” portion. With service companies it is just the opposite. Service companies tend to have a degree of customization based on customer inputs. Service companies implement mass customization by introducing mass-production techniques, which are procedures and technologies that introduce high efficiency and allow many customers to be served as required. An example of a technology approach is World Wide Web-based retail, where customer browse product descriptions and place orders on-line. A characteristic of this example that also assists service mass customization is the greater involvement of customer labor. When each customer provides their own service labor, the service provider is typically able to meet surges in demand without straining employee resources.

One other way to implement service mass customization is to standardize the service offerings and simply let customers choose the combination they want. This is like college education, which offers a standard offering of courses that students can choose from to gain a customized education.

Custom manufacturing should not be managed the same as standardized manufacturing. Custom manufacturing requires managers that have service skills commensurate with the extent of customization.

If a manufacturing process involves some degree of customization, by postponing customization some advantages of mass production can be recaptured.

There has been a recent and highly successful trend on the part of computer manufacturers to not assemble the customer's computer system until after they have ordered it and indicated the desired options. Thus, they allow some degree of customization. Yet, these companies are still able to maintain many of the advantages of mass-production manufacturing. How do they do it? In fact, the customization only takes place at final assembly. All of the assembled components such as disk drives, memory chips, video cards, etc. are kept in inventory waiting for a customer order (or manufactured by suppliers just in time for use). Thus, perhaps 99 percent of the process to make a computer has been completed, and all that is left is final assembly and final testing. When the customer indicates her selections (provides her information input), the company simply assembles the final product from the various components, and ships it. That final assembly is one of the most difficult to manage of the entire production process. Why? Because it behaves more like a service than other process segments (due to the customer-information inputs). For example, if there is an October lull in demand for disk drives with an expected large increase in demand in November, the disk drive facility can simply inventory the drives produced in October. However, if there is an October lull in demand for custom-assembled computer systems before the anticipated Christmas rush, it is not possible or practical to custom-assemble systems to inventory–the customers' wants could differ from the inventory configurations. (The company may produce some standard-configuration models for inventory to help with that problem.)

Why do people place special orders at fast food restaurants like McDonald's? It is often because they want to undermine the mass-production food manufacturing process (cooking food in anticipation of demand and inventorying it under heat lamps) and forcing the restaurant to make a product based on customer inputs. In fact, some people make a special request they don't even care about–such as to hold the catchup even though they like catchup–so that the cook will have to use that customer-input in the process. (Then the customer might put catchup on the food anyway.) You can be assured that if every lunch-time customer at a busy restaurant demanded customized production, the ability to process customers in a timely manner would be seriously hindered. So, companies who proclaim “Have it your way” have to rely on relatively few customers actually making dramatic customization requests.

To illustrate how much less-efficient custom manufacturing is from mass-production manufacturing, consider the efforts of NASA (the National Aeronautical and Space Administration) to procure tools like screwdrivers and hammers. A good hammer costs US$20 or US$30 at a hardware store, and costs much less than that to manufacture. However, when NASA has engineers design a hammer to meet certain specifications, then creates custom dies and molds to create the hammer, it is no surprise that the resulting hammer costs US$1000 or more. It may or may not be practical to just use a hardware store hammer instead. If it must be a custom hammer, then the high price is not as unreasonable as the media makes it out to be.

Boeing has been called a manufacturer of jet airplanes. However, anyone who has studied their manufacturing process will see that it is replete with service elements and issues. Why is this the case? It is because of the extensive amount of customization (customer-information input) involved in making an airplane. By and large, every jumbo jet off of the assembly line is potentially unique. It would be a dramatic exaggeration to say that these commercial jumbo jets are mass produced. However, during times of war, we would imagine that productivity would need to be much greater in making military jets. The way to free the process from the management challenges of services management is to eliminate the individual customer-information inputs. In other words, during such times the military would request numerous jets with exactly the same configuration, regardless of the division or branch of the military they would ultimately be used by.

With manufacturing, that is with non-custom manufacturing, there are no direct customer inputs into the production process, decreasing the likelihood that the challenges of services management will occur.

1. (These questions should be asked about a manufacturing process, perhaps one that provides facilitating goods or supporting facilities for your service process.)
2. In what ways are the manufactured products customized?
3. In the manufacturing process, how much of production takes place before customizing stages?
4. Can the point of customization be shifted to later in the process? What would be the effects?

Identify a manufactured input to your service process that is mass produced. Your example might be anything from a pencil to a copy machine. List the item and how much you typically would pay for one. Next, create a list of half-a-dozen specifications for a version of the item which would be custom manufactured. Your specifications should describe the item as unique, different from anything currently available on the market (such as a pencil with two leads). List the extra steps a manufacturer would have to go through to make one of the items to meet your custom specifications. How much do you think the custom-manufactured item would cost?