All companies wish they could produce exactly what customers want when they want it. The ability to be that precise would not only delight customers but reduce costs. The challenges, however, are formidable, and most companies settle for manufacturing standard products in bulk, guided by long-term forecasts. Unfortunately, demand rarely coincides with forecasts, and results fall short of expectations. Companies miss out on potential sales, or they end up burdened by inventory-holding costs and must entice customers with steep discounts or other incentives. Profits erode, and customers do not get what they really want.
In an attempt to offset their losses, companies end up creating island solutions, such as lean factories, believing that this will improve the entire value chain. The automobile industry, often considered an originator of best-practices models, is well known for such solutions. Auto manufacturers have used lean production to create more-efficient factories and improve productivity, but at the expense of the all-important customer perspective. To compensate for their poor understanding of customer needs, they produce larger volumes and more product variants, relying on their forecasts. Their focus then becomes how to get rid of stock and how to offset the cost to manage it. The more they continue on that path, the harder it is to produce the exact car the customer wants within the time the customer deems acceptable. (See “Why Push Strategies Ultimately Fail.”) Indeed, a survey of prospective car buyers shows that they are willing to wait only two weeks for a custom vehicle, and few volume manufacturers are able to comply.1