The Customization-Responsiveness Squeeze

The machine tool business is an exemplar of beleaguered U.S. high-technology industries. In the early 1980s, most machine tool companies responded to the recession by slashing output. This left the door open for foreign machine tool builders to establish a strong presence in the U.S. market by bringing in cheaper, standardized products, most of which were built to stock offshore.

As the recession abated, most domestic firms had difficulty regaining significant market share in standard machine segments and concentrated on selling high-end and customized models. Customers had become used to the quick delivery available with the industry’s basic machines and, responding to their own need for faster deliveries, pressured machine tool builders for more rapid response. Most machine tool builders found themselves forced to produce a wide variety of machines in relatively small volumes, offer some degree of customization, and deliver with unprecedented rapidity.

Typically, build times are ten to fifteen weeks longer than desired delivery lead times. Therefore, a firm must have a machine well into the production process before it can be offered to customers with a competitive lead time. Because many of the expensive components cannot be used in other machines or even for alternative models of the same machine type, a firm is heavily committed to its forecast. Inevitably, the forecast is not completely accurate, and firms have had to develop tactics for coping with the consequences.

This problem is not limited to the machine tool industry; it is becoming common in many manufacturing and service firms. Developing the right software configuration for a system or delivering an automated assembly line are typical of the industrial activities that are being affected. In the past, customers were willing to wait for their specialized needs, but now customers are seeking out vendors that can develop, produce, and deliver near-customized products in record time. This trend has placed unique demands on organizations, and they must respond to the challenge or risk losing their market share in the important custom-product market.

We refer to this new trend as the “customization-responsiveness squeeze,” characterized by the need to deliver differentiated products in considerably less time than it takes to make them. Few companies can deal with this squeeze without modifying some key aspects of their marketing and production methods.

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References

1. M. Jelinek and J.D. Goldhar, “Strategic Implications of the Factory of the Future,” Sloan Management Review, Summer 1984, pp. 29–37.

2. On delivery lead times, see:

J.L. Bower and T.M. Hout, “Fast-Cycle Capability for Competitive Power,” Harvard Business Review, November-December 1988, pp. 110–118;

R.W. Schmenner, “The Merit of Making Things Fast,” Sloan Management Review, Fall 1988, pp. 11–17;

G. Stalk, Jr., “Time — The Next Source of Competitive Advantage,” Harvard Business Review, July-August 1988, pp. 41–51.

On just-in-time manufacturing systems, see:

R.W. Hall, Zero Inventories (Homewood, Illinois: Dow-Jones Irwin, 1983);

R.J. Schonberger, Japanese Manufacturing Techniques: Nine Hidden Lessons in Simplicity (New York: Free Press, 1982);

J.P. Womack, D.T. Jones, and D. Roos, The Machine That Changed the World (New York: Rawson Associates, 1990).

3. A. De Meyer, J. Nakane, J.G. Miller, and K. Ferdows, “Flexibility: The Next Competitive Battle,” Strategic Management Journal 10 (1989): 135–144.

4. Castings later impose technological constraints on what product is finally produced. Further, reducing procurement time is infeasible since a large majority of these castings are imported. It is estimated that 8,000 foundries have closed in the United States since 1980.

5. A.S. Raturi, J.R. Meredith, D. McCutcheon, J.D. Camm, “Coping with the Build-to-Forecast Environment,” Journal of Operations Management 9 (1990): 230–249.

Acknowledgments

This research was completed as part of the Cincinnati Machine Tool Studies Project conducted by the Operations Management Group at the University of Cincinnati. Amitabh Raturi would like to acknowledge research funding provided by the Summer Research Program at the College of Business Administration.