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The "Virtual Build to Order" fulfilment modelMass Customization has raised interest in how to engineer the product and process to enable product differentiation to be postponed until after the customer order is received. In the “postponement” order fulfilment model there is a decoupling point at which buffer stocks of components or semi-finished products are held in readiness for customer orders and when an order is received the product is produced and delivered to the requested specification. The characteristics of some products and supply chains hamper the adoption of the postponement model. For products such as passenger cars, some supply chain activities need to be triggered weeks or months before the date of manufacture. High levels of in-process inventories are unattractive in such systems. It is difficult to identify or create a dominant single decoupling point in the production system where a product can go from a ‘generic’ state upstream of the decoupling point to being fully specified downstream. How can the producer respond quickly to specific customer choice in such circumstances? Although a pure Build-to-Order (BTO) strategy can be adopted, it would result in customers having to tolerate long waiting times and it fails to satisfy those customers who may be prepared to accept some compromise from their preferred specification but are strongly averse to waiting Information technology has opened the way to a new strategy termed Virtual-Build-to-Order (VBTO) that has evolved in the automotive sector but has applications more widely. It is described in the automotive context as connecting customers ‘either via the internet or in dealer’s showrooms, to the vast, albeit far-flung, array of vehicles already in existence, including vehicles on dealer’s lots, in transit, on assembly line, and scheduled for production’, with the expectation that ‘customers are likely to find a vehicle with the colour and options they most want’ (Agrawal, M., T. Kumaresh and G. Mercer, 2001, The false promise of mass customization, The McKinsey Quarterly 3, 62-71.). A fundamental capability for a VBTO system is the ability to search the order fulfilment pipeline on behalf of a customer. The pipeline is the full set of unsold finished stock and unallocated production orders, physical and planned (the virtual component). Because product can be allocated to a customer from any point along the pipeline, the VBTO system could be termed a floating decoupling point system. A second capability that is desirable in VBTO is the ability to reconfigure a product in the pipeline – i.e. change its specification to reduce or remove differences between it and the customer’s preferred specification. The abilities to search the pipeline and to reconfigure products offer the opportunity to eliminate or at least reduce the number of specification compromises made by customers than would be the case if they were limited to the choice on offer in a local warehouse, and to deliver in shorter lead times than would be the case in a full-blown BTO system. Essentially VBTO enables the extensive variety that exists in physical and virtual product pipelines to be exploited more effectively by the producer for customer benefit and provides a model for a type of mass Customization.
Characteristics of VBTOResearch has identified the behaviour of VBTO systems (and conventional systems with closed pipelines) is determined principally by the ratio of product variety to pipeline length, referred to here as the v/p ratio. Product variety is the range of products on offer to the customer, and the pipeline length is the capacity of the pipeline, which is the sum of sold and unsold products in the pipeline. Once steady-state conditions are reached, the relative proportions of customers fulfilled from stock, pipeline or BTO are dependent on the v/p ratio. At v/p ratios greater than ~10 the VBTO and conventional systems have near identical performance. At v/p ratios less than ~1 they differ markedly, with fewer customers fulfilled from stock in a VBTO system than in a conventional system. A second insight from research stage was a counterintuitive finding in regard to the proportion of customers fulfilled from stock, the volume of stock and mix of products in stock. At the lower v/p ratios it was anticipated that since a smaller proportion of customers are fulfilled from stock in the VBTO system, they would tend to wait longer than in the conventional system. This is indeed the case at v/p ratios below ~1. It was also anticipated that the VBTO system would hold less stock at ratios below ~1 but the VBTO system has more stock than the conventional system. When the stock mixes of the two systems are compared it is found that the mix in the conventional system is representative of the mix fed into the pipeline, but the stock mix in the VBTO system is no longer representative. The research found the single change of opening the pipeline to create the VBTO system has major implications for the characteristics of stock. The feeds into the conventional and VBTO systems have identical statistical properties, yet the statistical properties of the stocks in each system are different. The important message for a producer switching to a VBTO system is that a subsequent change in stock mix may not be due to forecast error in the feed mix, as might at first be supposed, but is a consequence of the intrinsic behaviour of the VBTO system. Run the simulation applet to see this behaviour.
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