Adopting mass customization (MC) at your company can slash costs dramatically. For example, MC reduces inventory by producing standard, made-to-order products. That eliminates the need to store stock in a warehouse or make production forecasts. Once orders are confirmed, manufacturers build the products.
The operations costs saved with MC are often mind-blowing. For example, a rule of thumb for inventory carrying cost is 25% of the average investment on hand. Others put this number at 40%. That’s a significant saving—no matter how you slice it.
Reducing carrying inventory, however, isn’t the only way mass customization cuts operations costs. It’s also not the only way MC can help your company thrive. Put simply, mass customization boosts both profitability and profit margins and it also boosts sales conversions.
According to McKinsey, research shows that sales conversions increase by 22% to 30% when companies offer product customization. It also shows that consumers are willing to pay nearly 20% more for personalized goods.
Slashing Costs with Mass Customization
Mass customization is ideal for a wide variety of industries. It’s found most often in the retail industry. Nike, for example, used it to solve its inventory management problem, which cost the company $100 million in sales. But MC also applies to other industries like financial services, electronic systems, software, pumps, valves, and other industrial products.
Below are several ways mass customization can help manufacturers dramatically cut costs while also boosting competitiveness and profitability:
Eliminates production set up costs
Many companies rely on flow manufacturing to produce made-to-order products quickly and efficiently. Flow manufacturing combines just-in-time and Kanban production principles in a single approach. Ultimately, it requires the integration of all elements of a production system.
Customers trigger production using a “pull signal” which tells a manufacturer what to produce and when. Several elements of flow manufacturing contribute to the cutting of production costs for manufacturers.
Eliminating setup, for example, is one flow manufacturing element that lowers production costs. Setup elimination is, in fact, critical to successful mass customization, since every product produced could be different.
With mass customization, manufacturers won’t need to order parts, change dies and fixtures, download programs, find instructions, or do manual measurement, adjustment, or positioning of parts or fixtures. That saves time and money, and it also spreads set up costs among as many products as possible.
Promotes spontaneous supply chain
Mass customization requires a spontaneous supply chain that can provide parts on-demand from always available materials. Creating a spontaneous supply chain cuts manufacturing costs in several ways, including supply chain simplification, adopting automatic resupply techniques, and rationalizing product lines.
1. Simplifying supply chain management
Supply chain simplification is a critical step in creating a spontaneous supply chain. Simplification reduces part variety and raw materials to a point where you can obtain these parts spontaneously using a wide variety of pull-based resupply techniques. That also saves time and money. Supply chain simplification also shrinks your vendor base dramatically, further simplifying the supply chain and cutting costs.
2. Adopting automatic spontaneous resupply
A critical part of building a spontaneous supply chain is using techniques like Kanban and min-max. These techniques cut production costs (and time) significantly. Kanban, for example, uses two bins for each product. After depleting parts from the first bin, you return them to their source for a refill.
This approach could be made in batch mode, but only if the total setup time, run time, and delivery time is brief enough to return the new bin of parts before the other one runs out. Min-max usually applies to stacks of raw material, such as sheet metal. When you reach the “min” level, the action triggers the resupply of enough material to reach the “max” level.
3.Rationalizing product line
Research on product lines suggests that more than 60% of a product line contributes less than 10% of a company’s total margin. Rationalizing your product line entails reviewing products or services and then retiring, consolidating, maintaining, or improving the product. Rationalizing is a critical part of a mass customization strategy.
In addition to cutting costs, rationalization frees up valuable resources, simplifies production processes, and boosts profitability. When combined with standardization, which reduces part and material variety, product line rationalization is a robust cost-cutting measure.
These examples are just a few of the many ways mass customization slashes operations costs. It can also help increase sales conversions. Together, these activities can dramatically boost an organization’s profitability.
Mass Customization Provides Competitive Advantage
Mass customization provides companies with a competitive advantage by offering unique value to buyers at costs associated with mass production. In addition, mass customization can boost customer satisfaction and retention, provide added convenience to customers, and offer products more suited to customer preferences, among other things.
Mass customization is an effective strategy whether you’re looking for incremental company improvements or to take your business to the next level. But mass customization isn’t without its challenges. It requires manufacturers to pivot to a new strategy, which can cause disruptions at least initially. These disruptions can increase adoption time and costs.
But working with an experienced implementation partner, one that’s worked extensively with mass customization, can help manufacturers streamline and simplify a mass customization adoption. You’ll need to do your due diligence, however, to find an implementation partner that’s a good fit for your company.